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Procurement of C-17 airlift aircraft began in FY1988, and a total of 223 have been procured through FY2010. The Administration's proposed FY2011 defense budget proposed to end C-17 procurement and did not request any funding for the procurement of additional C-17s. Further, Secretary of Defense Robert Gates, in testimony to the Defense Subcommittee of the House Appropriations Committee, stated, "Should Congress add funds to continue this program, I will strongly recommend a presidential veto." The Administration argues that enough C-17s have now been procured to meet future operational needs. Supporters of procuring additional C-17s in FY2011 believe additional C-17s will be needed to meet future operational needs. The issue of how much airlift capability will be needed in the future is currently being examined in a congressionally mandated study being done by the Institute for Defense Analyses (IDA) and in a separate Department of Defense (DOD) study called the Mobility Capabilities and Requirements Study 2016 (MCRS-16), which was due to be completed by the end of 2009. The primary issue for Congress in FY2011 is whether to procure additional C-17s. An additional issue is whether to pass legislation relating to the airlift aircraft force structure. Congress's decisions on these issues could affect DOD capabilities and funding requirements and the U.S. military aircraft industrial base. The Air Force C-17, also known as the Globemaster III or simply the Globemaster, can transport equipment, supplies, and personnel over long distances, from one theater of operations to another, and can also land on more austere airfields with shorter runways. The C-17 complements the Air Force's larger and older C-5 Galaxy airlift aircraft in the strategic (i.e., inter-theater) airlift role, and smaller C-130 Hercules airlift aircraft in the tactical (i.e., intra-theater) airlift role. The C-5 and the C-17 can carry outsized (i.e., large-dimension) cargo items, such as M-1 tanks. The C-5 can carry more cargo than the C-17 and has a longer unrefueled range than the C-17. Certain DOD cargo items, such as the Army's 74-ton mobile scissors bridge, are so large that they can be carried only by a C-5. The C-17, however, can deploy cargo and personnel directly into more austere airfields with shorter runways. The C-17 also costs less to operate per flight hour than the C-5 and has a higher mission capable rate (MCR), which is a measure of aircraft reliability. Table 1 , adapted from a November 2009 GAO report, compares some characteristics of the C-17 and C-5. The C-17 program began in the early 1980s. Procurement of C-17s began in FY1988. The first C-17 was delivered to the Air Force in June 1993. The C-17 achieved Initial Operational Capability (IOC), with the delivery of 12 aircraft to a C-17 squadron, in January 1995. A full-rate production contract was awarded in February 1996. The C-17 program experienced development challenges and cost growth in its earlier years that were the subject of congressional oversight at the time. Table 2 shows annual C-17 procurement quantities, along with changes over time in the planned total number of C-17s to be procured. C-17s were procured under overlapping multiyear procurement (MYP) arrangements in FY1997-FY2003 and FY2003-FY2007. The prime contractor for the C-17 is Boeing Airlift and Tankers of Long Beach, CA. C-17s are the only aircraft made at Boeing's Long Beach production plant. A May 2009 press report states that the C-17 program, including supplier firms, employs a total of about 30,000 people in 43 states. As of July 2009, 190 C-17s had been delivered to the Air Force. The 213 th C-17 is scheduled to be delivered to the Air Force in March 2011. As the final C-17 moves down the production line, the parts of the production line behind that aircraft will begin to shut down. Thus, if C-17 procurement ends at 213 aircraft, parts of the C-17 production line will begin to shut down prior to March 2011. Suppliers who provide materials or make long leadtime items for the C-17 would be among the first parts of the line to shut down. The C-17 is available to countries other than the United States. The United Kingdom (6 aircraft), Canada (4), Australia (6), Qatar (2), and a 10-nation NATO consortium (3 aircraft) have acquired C-17s to date, and the UK is reportedly interested in a seventh. As of November 17, 2009, India was reportedly in negotiations to buy 10 C-17s. Consistent with the Administration's proposal to end C-17 procurement, the proposed FY2011 defense budget did not request funding for the procurement of additional C-17s, and instead requested $153.3 million to shut down the C-17 production line. The budget also requested $14.3 million in procurement funding for the C-17 program, but the requested funding is for C-17 funds the acquisition of required C-17 support equipment, spares, data, material improvement projects, training equipment, obsolescence, and mission support. The Air Force currently operates 111 C-5s, including C-5As procured between 1969 and 1974, and C-5Bs and Cs procured in the 1980s. Decisions on how many C-17s to procure can be affected by decisions on how many C-5s are retained in the strategic airlift fleet, and by decisions on efforts to modernize C-5s. The Air Force is implementing a two-phase program for modernizing its fleet of 111 C-5s. The modernization effort is intended to improve C-5 operational capability, flight safety, reliability, and maintainability. The prime contractor for both phases of the modernization effort is Lockheed Martin of Marietta, GA. The first phase of the modernization effort, the C-5 Avionics Modernization Program (AMP), began in 1999. The first flight of an AMP-modified C-5 occurred in December 2002. Operational test and evaluation of AMP began in September 2005 and was completed in July 2006. AMP-modified C-5s achieved initial operational capability (IOC) in February 2007. As of July 2009, 55 C-5s had received the AMP modifications. The Administration's FY2011 budget submission changed the quantity of C-5s to receive the AMP modifications from 110 to 88. Modernization of the 88 is scheduled for completion in 2012. The second phase of the C-5 modernization effort, the C-5 Reliability Enhancement and Re-engining Program (RERP), began in 2000. The RERP phase includes the installation of new engines and the modification of more than 70 electrical, fuel, and other subsystems. C-5s that receive RERP modification do so after receiving AMP modification, and are redesignated C-5Ms. Three C-5s received RERP during the RERP program's system development and demonstration (SDD) phase; the first production aircraft to receive RERP was scheduled to enter modification in August 2009. The RERP phase was originally intended for all 111 C-5s, like the AMP phase, but cost growth in 2007 that was sufficient to trigger a Nunn-McCurdy breach led to a DOD restructuring of the RERP phase in 2008 that limited RERP modifications to 52 C-5s. The first flight of a RERP-modified C-5 occurred in June 2006. Test and evaluation of RERP-modified C-5s began in June 2006 and, as of June 2008, was scheduled to be completed in April 2010. Initial operational capability of RERP-modified C-5s is scheduled for June 2013. The Air Force testified in May 2009 that: All C-5B/Cs have entered or completed AMP modification and the first C-5A completed modification on 16 Feb 2009…. Currently, the C-5 AMP effort continues at two modification centers at Dover AFB, Delaware and Travis AFB, California and will modify all 111 C-5 aircraft by 2015. The Reliability Enhancement and Re-engining Program (RERP) builds upon the C-5 AMP modification. C-5 RERP replaces the propulsion system and improves the reliability of over 70 systems and components…. The production program is delivering on cost and on schedule. These efforts will fully modernize 52 C-5s that meet the warfighters' requirements. The Government Accountability Office (GAO) reported in November 2008 that: The Air Force has cut the number of C-5s it plans to fully modernize by more than half because of substantial cost increases in the modernization effort.... All 111 C-5s will receive the avionics upgrade, while only 52 will receive the reliability enhancement and reengining upgrade. This mix may change again, based on the results of DOD's new mobility capabilities studies, possible C-5 retirements, and a revised cost estimate for C-5 modernization.... The costs to modernize C-5 aircraft have not been fully identified and are likely to increase. While the Air Force now estimates it will spend $9.1 billion to modernize C-5s, the costs may be underestimated because DOD did not apply risk or uncertainty analysis to its reliability enhancement and reengining program major cost drivers. Moreover, that particular effort is underfunded by almost $300 million and costs may escalate if the Air Force has to stretch the program schedule to stay within funding targets. At the same time, the Air Force has not fully priced or budgeted for a new C-5 upgrade program it plans to begin in fiscal year 2010 to address current avionics deficiencies and to add new capabilities. Some future costs, however, may be avoided should the Air Force justify retirement of some older C-5s and forego planned modifications. DOD's requirements for airlift capability have evolved over the years. The discussion below summarizes developments in the situation since 2005. DOD's Mobility Requirements Study of 2005 (MCS-05) identified a requirement for between 292 and 383 strategic airlift aircraft. The bottom end of this range coincided with the Air Force's program of record at the time, which included a force of 292 aircraft—180 C-17s and 112 fully modernized C-5s. MCS-05 recommended a strategic airlift force structure of 292 aircraft, which the study said would meet national military strategy requirements with "acceptable risk." The 2006 Quadrennial Defense Review (QDR) subsequently stated a DOD goal of maintaining 292 strategic airlifters, including 180 C-17s and 112 fully modernized C-5s. The unclassified executive summary of MCS-05 noted that unlike past mobility studies, MCS-05 did not recommend an airlift requirement expressed in millions of ton-miles per day (MTM/D) of airlift capacity. A previous DOD study of strategic airlift requirements, called the Mobility Requirements Study 2005 (MRS-05), was completed in 2000. The study established a requirement of 54.5 MTM/D. Some observers expected that MCS-05 would identify a new requirement closer to 60 MTM/D, while others speculated that MCS-05 would not increase the 54.5 MTM/D requirement because of DOD concerns about being able to afford a larger airlift fleet. In September 2005, the Government Accountability Office (GAO) criticized the methodology that was being used for MCS-05. A more detailed GAO criticism followed in September 2006, as MCS-05 was nearing completion. Other observers criticized MCS-05 for not adequately addressing DOD intra-theater airlift needs, and for focusing on near-term capabilities rather than taking a longer view. The criticism regarding intra-theater airlift needs was particularly germane because the C-17 can be used in for intra-theater airlift operations. In September 2006, it was reported that the Air Force's Air Mobility Command was again studying DOD airlift needs. Some observers might have interpreted the Air Force's initiation of another airlift study so soon after the completion of MCS-05 as tacit acknowledgment of flaws in the MCS and an attempt to ameliorate them. To provide Congress with greater clarity into airlift requirements, Section 1034 of the FY2007 Defense Authorization Act ( H.R. 5122 / P.L. 109-364 October 17, 2006) required DOD to submit a report to Congress defining airlift requirements in terms of million-ton-miles per day. DOD delivered the report in classified form to the congressional defense committees on February 27, 2007. As shown in Table 3 , which is taken from a November 2009 GAO report, the planned mix of C-17s and C-5s evolved between December 2005 and June 2009 due to various events, including continued procurement of C-17s, the restructuring of the C-5 modernization program to limit the RERP phase to 52 aircraft, and the crash in 2006 of one C-5 (which reduced the C-5 inventory from 112 to 111). Section 1046 of the FY2008 defense authorization act ( H.R. 4986 / P.L. 110-181 of January 28, 2008) required the Secretary of Defense "to conduct a requirements-based study on alternatives for the proper size and mix of fixed-wing intratheater and intertheater airlift assets to meet the National Military Strategy for each of the following timeframes: fiscal year 2012, 2018, and 2024." The study was conducted by the Institute for Defense Analyses (IDA) and completed in February 2009. The study summarized its findings as follows: What are the airlift requirements? The requirements for single or two concurrent MCO demands were based on those used in the Mobility Capabilities Study (MCS) from 2005. For the non-MCO demands, however, this study was able to take advantage of early versions of the more current Steady State Security Posture scenarios in order to derive demands outside the major theaters of war. Together, these constituted the requirements assumed for airlift. Does the currently programmed fleet meet the requirements? We found that the POR fleet is adequate in meeting the benchmark requirements identified in the MCS for moderate acceptable risk. Three different computer models used in this study produced somewhat different results for deliveries. The most pessimistic results matched MCS benchmark results, and with the other models, lower force levels than programmed also met the MCS benchmark level. What programmatic alternatives might also be considered and how well do they meet these requirements? What are the life-cycle costs of these alternatives? The study considered 36 alternative mixes and sizes and compared them both in cost and effectiveness with the POR. Figure ES-1 illustrates the relative capabilities of several alternative fleets that differ only in numbers or types of strategic lift aircraft (i.e., numbers and types of C-5s and C-17s). Results are shown relative to the capabilities that met the MCS moderate risk delivery demands for cargo. Similar analyses were performed for alternative fleets that differ in the numbers and types of intratheater airlift aircraft. The study identified several relatively inexpensive ways of generating higher capability from existing forces, without procuring additional strategic airlifters beyond those already programmed. These include the following: use C-5s at Emergency Wartime Planning levels (adds 2-4 percent, depending on whether the extra weight carried is fuel or cargo); transport with CRAF whatever oversize cargo that CRAF can carry, in addition to bulk cargo on pallets, in order to free up organic airlifters for the larger and heavier cargo (adds 10 percent); use host nation airlifters to the maximum extent possible (4 or 5 percent); and make use of tankers not involved in tanking missions to carry cargo in theater (adds about 4 percent). Use of these capabilities could also allow for a smaller strategic fleet that still meets MCS benchmark delivery requirements. Thus, our analyses using the MCR moderate risk benchmark suggest that an upper bound on the number of required strategic airlifters is 316, indicated by the two yellow boxes in Figure ES-1. A small amount of additional capability could be achieved if all C-5s are converted through Reliability Enhancement and Re-engining Program (RERP) to C-5Ms. This alternative is at comparable life-cycle cost to that of the POR; near-term acquisition costs are almost repaid over time in later years by reduced operating and support (O&S) costs. Traditionally, airlift and other force requirements are set by wartime demands (i.e., MCOs), not steady-state peacetime demands. Airlift is heavily used in both. If the appropriate acquisition planning scenarios are not MCOs but are high tempo non-MCO operations such as in Iraq and Afghanistan today, we find that some C-5As could be retired to save O&S costs with no loss in capability for those missions. This is illustrated in Figure ES-2. Moreover, a more cost-effective fleet than the POR is one that, in addition to having fewer C-5As, uses the smaller C-27Js instead of the larger C-130Js. These observations are driven by the need for numerous, geographically separated, but small loads during non-MCO operations, as currently anticipated in DoD planning scenarios. Our assessment of the C-17 line shutdown and restart is that continued production, even at low rates, is expensive relative to restart costs. Moreover, under the scenarios and other assumptions considered in this study, additional C-17s were not needed to meet the MCS moderate-acceptable-risk delivery rates used as a benchmark by the analyses conducted here. We also found that retiring C-5As to release funds to buy and operate more C-17s is not cost-effective. How do the alternatives differ in service life? We projected aircraft service lifetimes based on planned flying hour and flying severity conditions. Excursions to the planned operating conditions were also examined. Our findings are that all airlifters except the C-130E have structural lifetimes that are beyond 2030. Virtually all the C-5s and C-17s have lifetimes beyond 2040. The C-130E is near its structural life limit and extensions to that life are not cost-effective by our analyses. How well do CRAF aircraft contribute to wartime deliveries? At what specific organic fleet inventory would it impede the ability of CRAF participants to remain a viable augmentation option? We included CRAF in the simulated airlift deliveries and find them to be useful for passenger and cargo delivery, especially in MCOs if CRAF aircraft are allowed to carry some oversize cargo. Nonetheless, fewer than half of the CRAF aircraft available for Stage III (during two MCOs) are actually used, so current incentives provide more than enough CRAF for wartime demands. We also note that restructuring airline fleets should not significantly influence CRAF availability but may reduce numbers of charter passenger aircraft. A larger organic military fleet of airlift aircraft does not challenge passenger CRAF viability but could influence cargo CRAF because the organic fleet would be expected to shoulder a larger amount of the cargo movement required in peacetime. However, the cargo CRAF participates in a strong economic sector, does not strongly depend on CRAF in contrast to other commercial revenues, and is not likely to be significantly hurt by likely changes in DoD force levels. The Office of the Secretary of Defense (OSD) and the U.S. Transportation Command are currently examining future requirements for airlift capability in a study called Mobility Capability and Requirements Study 2016 (MCRS-16), which is expected to be completed by the end of 2009. The U.S. Transportation Command testified in February 2009 that MCRS-16 and the congressionally mandated IDA study discussed in the previous paragraph "will aid decision makers in determining the mobility requirements necessary to defend the homeland, prevail in the war on terror, conduct irregular warfare and win conventional campaigns in the 2016 timeframe." GAO reported in November 2008 that According to Air Force officials, [MCRS-16] will take into account a variety of changes that have occurred since the last mobility study was completed in 2005, including the following: • Addition of over 92,000 Marines and Army soldiers and their equipment that will need to be transported to locations across the United States and around the world. • Establishment of a new African Command that will require the movement of troops and equipment to a variety of locations around the second largest continent in the world. • Introduction of Mine Resistant Ambush Protected vehicles, which are being used in Iraq to provide enhanced protection for U.S. troops. • Increase in weight of the Army's Future Combat System vehicles, which makes it no longer possible to transport some vehicles with C-130 aircraft (DOD's primary tactical airlifter). The GAO report also stated: Some expect the [congressionally mandated IDA study and MCRS-16] will identify increased demands on airlift, particularly for the C-17 since it can perform both a strategic and tactical role. As Army equipment becomes heavier and/or bulkier, the C-17 may be the only aircraft capable of delivering major weapon systems to the front lines and to more austere bases in the theater of combat. The results of both studies, if done accurately and comprehensively, should provide the analytical foundation for the future airlift force structure. A May 2009 press report stated: Early indications from the Pentagon's Mobility Capabilities Requirements Study suggest no need for additional strategic airlift beyond the funded procurements of re-engined C-5s and 205 C-17s already planned, says U.S. Air Force Chief of Staff Gen. Norton Schwartz. The 2005 Mobility Capabilities Study had suggested a requirement of roughly 300 strategic airlifters, and Schwartz says he sees "no major shift in the demand signal." The 2005 study, however, was discredited in much of Washington as a budget-driven formality under former Defense Secretary Donald Rumsfeld, and a new study has been eagerly awaited…. Even if more strategic airlift is ultimately needed, Air Force Secretary Michael Donley says an independent study presents several options before considering a buy of additional C-17s, the only aircraft made at Boeing's Long Beach, Calif., plant. These include leasing additional Civil Reserve Air Fleet capacity, as well as re-engining all 111 C-5s. Section 132 of the FY2004 defense authorization act ( H.R. 1588 / P.L. 108-136 of November 24, 2003) prohibited the Secretary of the Air Force from proceeding with a decision to retire C-5As from the active inventory of the Air Force in any number that would reduce the total number of C-5As in the active inventory below 112 (effectively now 111, following the crash in 2006 of a C-5 in 2006) until the Air Force modified a C-5A aircraft to RERP configuration and DOD's Director of Operational Test and Evaluation conducted an operational evaluation of that aircraft and provided to the Secretary of Defense and the congressional defense committees an operational assessment. This provision was repealed by Section 311 of the FY2009 supplemental appropriations act (see below). Section 132 of the FY2007 defense authorization act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) amended 10 USC 8062 to create a new subsection (g)(1) stating that, effective October 1, 2008, the Secretary of the Air Force shall maintain a total aircraft inventory of strategic airlift aircraft of not less than 299 aircraft. The provision defines strategic airlift aircraft as those with a cargo capacity of at least 150,000 pounds and a capability to transport outsized cargo over an unrefueled range of at least 2,400 nautical miles. The aircraft types that meet this definition are the C-5 and C-17. Section 311 of the FY2009 supplemental appropriations act ( H.R. 2346 / P.L. 111-32 of June 24, 2009) repealed Section 132 of the FY2004 defense authorization act (see above) and permits the Secretary of the Air Force to retire C-5As 15 days after certifying to the congressional defense committees that retiring the aircraft will not significantly increase operational risk of not meeting the national defense strategy, and provided that such retirements may not reduce total strategic airlift force structure inventory below the 292 strategic airlift aircraft level identified in the Mobility Capability Study 2005 (MCS-05) unless otherwise addressed in the FY2010 defense authorization act. The primary issue for Congress in FY2011 is whether to procure additional C-17s. An additional issue is whether to pass additional legislation relating to the airlift aircraft force structure. The Administration argues that enough C-17s have now been procured to meet future operational needs. Supporters of procuring additional C-17s in FY2011 believe additional will be needed to meet future operational needs. In considering whether to procure additional C-17s in FY2011, Congress may consider a number of factors, including the total requirement for airlift capability and the cost-effectiveness of C-5 modernization compared to procuring additional C-17s. Additional factors to consider are constraints on total defense spending, the potential affect that procuring additional C-17s may have on reducing funding for other defense programs, and the possibility that funding additional C-17s will lead to the veto of the FY2011 defense authorization and/or appropriations bills. Observers are now awaiting the results of the two current studies on the total requirement for airlift capability—the congressionally mandated IDA study and MCRS-16. A September 29, 2009 letter from Secretary of Defense Robert Gates to the chairmen of the House and Senate Armed Services Committee states: I am writing as a follow up to our discussion last week regarding the retirement of strategic airlift aircraft. The Department [of Defense] fully supports the language in Section 311 of the Supplemental Appropriations Act of 2009 ( P.L. 111-32 ) which requires a minimum of 292 strategic airlift aircraft as reflected in the Department's 2005 Mobility Capability Study. Since the release of MCS-05, Congress has funded an additional 33 C-17s the Department did not request. The addition of these C-17 aircraft influenced our decision to upgrade only 52 of 111 C-5s with the Reliability Enhancement and Re-engining Program (RERP). Congress is now considering adding another 10 C-17s in the FY2010 budget. The Department's current fleet of 324 aircraft (213 C-17/111 C-5) is in excess of strategic airlift needs, driving increased operating costs at the expense of other priorities. Each C-5A costs over $13 million in annual operating expenses. Since we are over our current requirement by eight aircraft, as determined by the analysis conducted during the C-5 RERP Nunn-McCurdy recertification, it costs the Department over $100 million a year in excess expenditures. These costs will only grow if we receive additional C-17s and/or delay the ability for the Department to retire excess aircraft. Initial indications from Mobility Capability Requirements Study 2016 show the strategic balance will not fundamentally change. This leads me to believe: 1) the Department does not need additional C-17s to meet strategic needs; 2) the Department needs to begin shedding excess strategic airlift inventory by retiring a portion of the C-5A fleet now. The Department requests your support and authority to allow the proper management of the strategic airlift fleet to meet the Nation's requirements. Thank you for your strong interest and continued support of the Department. GAO reported in November 2009 that: Additional funds provided by Congress for C-17 procurement more than offset the strategic airlift gaps associated with reduced C-5 modernization plans. However, there is a potential future gap in tactical airlift capabilities for transporting medium weight Army equipment that cannot fit on C-130 aircraft. The C-17 fleet, in its dual role of providing both strategic and tactical airlift, currently provides this capability and is anticipated to continue to do so for many years. The JFTL [Joint Future Theater Lift aircraft] is envisioned to eventually replace the C-130H and perform this and other roles, but will not be available for 15 years or more under the current acquisition strategy. While the various mobility studies acknowledge the C-17s' significant dual role, they did not comprehensively evaluate an expanded future use of the C-17 for the transport of medium weight equipment and how this could affect the force structure, the C-17s' service life, and when to shut down the C-17 production line. For example, the studies do not quantify current and anticipated future use of the C-17 for tactical airlift. This is because DOD officials do not consider the C-17 to be a suitable substitute for the JFTL.... A potential future capability gap exists in the deployment and redeployment of Army medium weight weapon systems within a theater of combat. The C-17 is the only aircraft currently capable of transporting heavier equipment, such as combat configured armored Strykers and Mine Resistant Ambush Protected vehicles, within a theater of operations as these are too large and bulky for C-130s to carry. However, the C-17 cannot transport this equipment into austere, short, or unimproved landing areas. DOD's long-term plan is to use the JFTL, the planned C-130H replacement, to transport these vehicles in theater, including to such access-challenged locations. However, it will not be available for at least 15 years as currently planned. While the various mobility studies acknowledge the C-17 can perform both strategic and tactical airlift missions, none of the three recently completed or ongoing studies comprehensively considered the C-17 in the tactical force structure, even though about 20 percent of the tactical sorties flown by the C-17 fleet in fiscal year 2007 were for missions where loads were too large for C-130s. As such, DOD has not evaluated the impact the increasing tactical heavy lift mission will have on future tactical airlift requirements, the C-17's service life, its availability to perform strategic airlift and other tactical airlift missions, and the impact it could have on C-17 production shutdown plans. DOD officials do not believe that the C-17 is a suitable substitute for the JFTL mission. A DOD official stated that preliminary results of the Mobility Capabilities and Requirements Study 2016 show that in the worst case planning scenario there would be enough C-17s to perform its primary role as a strategic airlifter, as well as some tactical missions through 2016. This is because the study analysis shows the peak demand for the C-17 and the C-130 occurs at different times and the C-17 is aging as planned. However, officials indicated that none of the current mobility studies analyzed the need for the C-17 to perform additional tactical heavy lift missions for the 8-year period between 2016 and 2024, when the JFTL is expected to be fielded. Furthermore, because we were not granted access to the preliminary study information, we could not ascertain the extent to which the C-17's heavy lift mission had been considered in DOD's analysis through 2016. C-17 production is scheduled to end in March 2011. As we previously reported a well-reasoned, near-term decision on the final C-17 fleet size could help DOD avoid substantial future costs from ending production prematurely and later restarting production. For example, the Air Force has estimated that restoring the production line could cost $2 billion. Costs and challenges associated with such a course include hiring and training a workforce of nearly 3,100 people, reinstalling and restoring production tooling, and identifying suppliers and qualifying their parts and processes. GAO reported in November 2008 that: We previously reported on shortcomings in the Institute for Defense Analysis' study plan that could make it difficult for decision makers to know how much strategic airlift is needed. For example, the study plan did not provide details on assumptions and the measures of effectiveness, or metrics, the command officials would be using in their evaluation. Measures of effectiveness are considered to be especially important when evaluating alternatives, such as comparing the results of two analyses that measure different airlift force mixes. We recommended in April 2008 that DOD take action to ensure that the final study plan included sufficient details to address all the elements specified in the law and needed to inform decision makers on airlift issues. DOD concurred with our recommendation. We also identified shortcomings in DOD's 2005 mobility capabilities study approach that, if not addressed, could be repeated again in the current study. Unlike prior studies, the 2005 study did not recommend a specific airlift requirement expressed in million ton-miles per day—a common metric integral to prior capability studies that defines and quantifies airlift requirements as a basis for computing the size and optimal mix of airlift forces. Instead, DOD officials stated that it expressed its airlift requirement in terms of specific numbers and types of aircraft needed to meet the national defense strategy to take into account real-world operating parameters that may cause aircraft payloads to vary significantly from standard planning factors. Later, in response to congressional direction, DOD translated the requirements into a million ton-mile requirement. We also found the study did not identify the operational impact of increased or decreased strategic airlift on achieving warfighting objectives that would be associated with different mixes of C-5 and C-17 aircraft. As a result, we could not determine how the study concluded that the mix of C-5s and C-17s at that time was adequate for meeting mobility requirements and for supporting strategic airlift portfolio investment decisions. In 2006, we recommended that DOD include mobility metrics, along with warfighting metrics to determine air superiority, when completing future mobility capabilities studies. DOD concurred with this recommendation. Although DOD concurred with the recommendation, a Transportation Command official stated that a decision has not yet been made on what specific metrics will be used to determine the number and mix of strategic airlifters in the current mobility capabilities study. At the time of this writing, the study plan had not been finalized and it is unclear whether a million ton-miles metric will be used, though it is being considered. DOD often uses the million ton-mile metric as an easy way to compare the capacity of different fleet mixes. For example, according to a DOD official, since C-130s, C-130Js, C-17s, C-5As, C-5Bs, and C-5Ms all have different capabilities when it comes to payload and range, it is difficult to compare different mixes of them without using this metric. The report also stated: The C-5 and C-17 provide complementary capabilities. However, DOD continues to struggle with identifying the specific quantities and determining the optimal mix of aircraft needed. Clarity is needed before committing additional billions of dollars to C-5 modernization programs, establishing C-5 retirement schedules, and/or acquiring additional C-17 aircraft. Careful planning is also important to avoid the costs of shutting down the C-17 line prematurely and later deciding to restart the production. The new mobility studies, if done correctly, could bring clarity to strategic airlift capabilities needed to support the future force and changed threats, as well as inform future tactical airlift requirements because of the C-17's dual role. Important metrics left out of the 2005 capabilities study—such as specific ton-mile mobility requirements and relative reliability rates—are considered critical factors in quantifying and analyzing cost-effective force mixes. DOD concurred with our prior recommendation to use mobility metrics to inform future mobility capabilities studies. However, at this writing, it is unclear whether DOD will use a million ton-mile metric in its current analysis to determine the cost-effective mix of aircraft and guide important investment decisions related to the expenditure of billions of dollars. Until comprehensive requirements—supported by appropriate, quantifiable metrics—and the full costs for alternate courses of action are identified, DOD decision making on the future size and mix of strategic airlift is hampered, thus increasing the risk of incurring unnecessary costs and establishing a less than optimal mix of strategic and tactical airlift forces. GAO reported in November 2008 that: if the cost for C-5 modernization continues to increase, Air Force officials may have to reconsider the mix within its airlift portfolio or request additional funding. Additional investments in C-17 aircraft may become more attractive. Currently, a new C-17 would cost about $276 million compared to $132 million to fully modernize a C-5. Each new C-17 potentially adds 100 percent of its cargo capacity toward meeting the total airlift requirement. Because the C-5s are already part of the operational force, each aircraft's current capacity is already counted toward the total requirement. Consequently, according to DOD data, the C-5 modernization programs only provide a marginal increase of 14 percent in capability over nonmodernized aircraft. Using DOD's million ton-mile per day planning factors, we, working in collaboration with DOD, calculated that DOD would need to fully modernize 7 C-5s to attain the equivalent capability achieved from acquiring 1 additional C-17 and the costs would be over 3 times more (see table 3). The analysis does not include the life-cycle costs of adding more C-17s to DOD's airlift portfolio. However, previous DOD analysis indicated that the life-cycle costs would be approximately the same if DOD replaced 30 C-5s with 30 C-17s. The Air Force has not fully identified the funding needed to modernize the C-5 aircraft, and costs are likely to increase. The current cost estimate is $9.1 billion to AMP the entire fleet of 111 aircraft and RERP 52 aircraft. However, we believe this is understated. The current budget does not fully fund the revised RERP program and the CAIG's [the DOD Cost Analysis Improvement Group's] cost estimate does not adequately address risk and uncertainty. Further, the cost estimate does not include the costs for a new modernization upgrade program slated to begin in fiscal year 2010 that would fix AMP deficiencies and add new capabilities. Alternatively, some future modification costs may be avoided should the Air Force justify retirement of some older C-5s. The current budget does not sufficiently fund the revised RERP program. According to the CAIG's analysis, the C-5 RERP is underfunded by about $294 million across the Future Years Defense Plan for fiscal years 2009- 2013. Approximately $250 million less is needed in fiscal years 2009 through 2011, and $544 million more is needed in fiscal years 2012 and 2013. According to program officials, the Air Force is committed to fully funding the CAIG RERP cost estimate in the fiscal year 2010 President's budget yet to be submitted. However, program officials could not identify sources for the additional funding needed in fiscal years 2012 and 2013.... While our review of the CAIG's cost-estimating methodology found it generally well documented, comprehensive, and accurate, we found some weaknesses that impair the credibility and overall reliability of the C-5 cost estimate. Specifically, the CAIG did not take risk or uncertainty into account for some major cost drivers, in particular the propulsion system and labor. Because cost estimates predict future program costs, uncertainty is always associated with them. For example, there is always a chance that the actual cost will differ from the estimate because of a lack of knowledge about the future as well as errors resulting from historical data inconsistencies, assumptions, cost-estimating equations, and factors that are typically used to develop an estimate. Quantifying that risk and uncertainty is considered to be a cost estimating best practice because it captures the cumulative effect of risks and recognizes the potential for error. In a memo documenting its independent cost estimate, the CAIG stated that the biggest risk to the cost estimate was the purchase agreement between Lockheed Martin and General Electric for the propulsion system that is conditioned on specific annual procurement quantities. The CAIG had estimated that the Air Force could save 18 percent by meeting the quantity and schedule identified in the revised RERP. However, CAIG officials stated that if the budget is not sufficient to meet these agreed-to quantities, then anticipated price breaks would not occur, resulting in increased costs of the C-5 RERP to the government. Despite this significant risk, the CAIG did not perform a risk/uncertainty analysis to determine the extent to which costs would increase should the buy quantity be cut. CAIG officials stated that they believe propulsion system procurement risk has been mitigated because they have identified the quantities necessary to meet the conditions of the purchase agreement and the Air Force plans to fully fund to this estimate. Despite these assurances, however, we have found that DOD often changes procurement quantities and there is a risk that quantities for the C-5 RERP program may change. For example, DOD's Selected Acquisition Report summary shows that of the 56 programs currently in production, 38 (or 68 percent), have experienced a quantity change since their production decisions. In addition, the CAIG did not quantify or address uncertainty with its $2.1 billion labor cost estimate associated with the installation of the RERP on C-5 production aircraft. The RERP program experienced a 29-month break in production between the last system development and demonstration unit and the first production unit. As such, the CAIG had to estimate inefficiencies due to loss of learning and how it would affect the costs of future production. The CAIG's assumptions differed from those used by the Air Force and Lockheed Martin, which caused the CAIG estimate to be about $200 million more than Lockheed Martin's estimate and about $400 million less than the Air Force's labor estimate. As a result of the weaknesses discussed above, the Air Force's basis for making strategic airlift portfolio investment decisions is impaired, and the RERP program is at increased risk of experiencing cost overruns. Additional modernization efforts not yet budgeted will add to future C-5 costs. Air Force officials stated that a new C-5 upgrade program is slated to begin in fiscal year 2010. The initial funding requirement is $65 million—$40 million in research, development, test, and evaluation funds and $25 million in procurement funds—to migrate all C-5s toward a standard software configuration, based on changes made in the AMP and RERP programs. Requirements previous waived on the AMP may also be addressed in the initial block of this program. Additional funding will be requested in 2012 and beyond to provide additional capabilities. According to a program official, the total requirements and funding needs for this modernization program have not been finalized. However, at this time it is not expected to be as costly as the C-5 AMP or RERP. The eventual costs for modernizing C-5 aircraft hinge upon the decisions DOD officials make about the number and mix of strategic airlifters DOD needs in the future. If additional C-5 capability is needed, more C-5 aircraft may need to receive the RERP modification and costs will increase. On the other hand, if decision makers believe additional C-17 capability is needed in lieu of the C-5, the Air Force may be able to reduce the number of aircraft that need the AMP modification and additional modifications slated to begin in fiscal year 2010. Lockheed, the maker of the C-5, found fault with the November 2008 GAO report, stating in a seven-page point paper that: The GAO report adequately addresses some elements surrounding past C-5 modernization debate and C-17 alternatives, yet falls fall short of presenting a balanced discussion that advances a better public understanding of the complex strategic airlift debate. The GAO report selectively applies facts that detract from the merits of C-5 modernization while omitting current and relevant analysis that highlights the value of the program. Lockheed Martin concurs with the DoD's characterization that the GAO report contains misleading information and illustrations.... The GAO report does not represent a balanced discussion, but instead presents a rather one-dimensional perspective which leans toward C-17 advocacy while failing to acknowledge virtually any of the benefits of C-5 modernization. In its 2008 RERP recertification, the DoD reviewed 14 different airlift options and concluded that no other alternative provided greater or equal military capability at less cost than C-5 modernization. RERP delivers significant operational capabilities, meets all requirements, and pays for itself. The conference report ( H.Rept. 111-288 of October 7, 2009) on the FY2010 defense authorization act ( H.R. 2647 / P.L. 111-84 of October 28, 2009) authorizes no funding for the procurement of additional C-17s. (Page 948) Section 137 of the act prohibits the Secretary of the Air Force from proceeding with a decision to retire C-5As in any number that would reduce the active inventory of C-5s below 111 until certain conditions are met, and requires the Secretary of the Air Force to submit a report to the congressional defense committees on the issue of C-5 retirement. Section 138 requires the Secretary of the Air Force, in coordination with the Director of the Air National Guard, to submit to the congressional defense committees, at least 90 days before a C-5 airlift aircraft is retired, a report on the proposed force structure and basing of C-5 and C-17 aircraft. Section 139 amends 10 USC 8062(g)(1) to state that the Secretary of the Air Force shall maintain a total inventory of not less than 316 C-5s and C-17s. If the current force of 111 C-5s were retained, this provision would support a C-17 force of not less than 205 C-7s—the number procured through FY2008. Section 1052 requires 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) stated that this report is to include, among other things, a discussion of description of the factors that informed decisions regarding strategic and tactical airlift force structure. Section 137 states: SEC. 137. LIMITATION ON RETIREMENT OF C–5 AIRCRAFT. (a) LIMITATION.—The Secretary of the Air Force may not proceed with a decision to retire C–5A aircraft from the active inventory of the Air Force in any number that would reduce the total number of such aircraft in the active inventory below 111 until— (1) the Air Force has modified a C–5A aircraft to the configuration referred to as the Reliability Enhancement and Reengining Program (RERP) configuration, as planned under the C–5 System Development and Demonstration program as of May 1, 2003; and (2) the Director of Operational Test and Evaluation of the Department of Defense— (A) conducts an operational evaluation of that aircraft, as so modified; and (B) provides to the Secretary of Defense and the congressional defense committees an operational assessment. (b) OPERATIONAL EVALUATION.—An operational evaluation for purposes of paragraph (2)(A) of subsection (a) is an evaluation, conducted during operational testing and evaluation of the aircraft, as so modified, of the performance of the aircraft with respect to reliability, maintainability, and availability and with respect to critical operational issues. (c) OPERATIONAL ASSESSMENT.—An operational assessment for purposes of paragraph (2)(B) of subsection (a) is an operational assessment of the program to modify C–5A aircraft to the configuration referred to in subsection (a)(1) regarding both overall suitability and deficiencies of the program to improve performance of the C–5A aircraft relative to requirements and specifications for reliability, maintainability, and availability of that aircraft as in effect on May 1, 2003. (d) ADDITIONAL LIMITATIONS ON RETIREMENT OF AIRCRAFT.— The Secretary of the Air Force may not retire C–5 aircraft from the active inventory as of the date of the enactment of this Act until the later of the following: (1) The date that is 90 days after the date on which the Director of Operational Test and Evaluation submits the report referred to in subsection (a)(2)(B). (2) The date that is 90 days after the date on which the Secretary submits the report required under subsection (e). (3) The date that is 30 days after the date on which the Secretary certifies to the congressional defense committees that— (A) the retirement of such aircraft will not increase the operational risk of meeting the National Defense Strategy; and (B) the retirement of such aircraft will not reduce the total strategic airlift force structure below 316 strategic airlift aircraft. (e) REPORT ON RETIREMENT OF AIRCRAFT.—The Secretary of the Air Force shall submit to the congressional defense committees a report setting forth the following: (1) The rationale for the retirement of existing C–5 aircraft and a cost-benefit analysis of alternative strategic airlift force structures, including the force structure that would result from the retirement of such aircraft. (2) An updated assessment to the assessment of the Under Secretary for Acquisition, Technology, and Logistics certified on February 14, 2008, concerning the costs and benefits of applying the Reliability Enhancement and Re-engining Program (RERP) modification to the entire the C–5A aircraft fleet. (3) An assessment of the implications for the Air Force, the Air National Guard, and the Air Force Reserve of operating a mix of C–5A aircraft and C–5M aircraft. (4) An assessment of the costs and benefits of increasing the number of C–5 aircraft in Back-up Aircraft Inventory (BAI) status as a hedge against future requirements of such aircraft. (5) An assessment of the costs, benefits, and implications of transferring C–5 aircraft to United States flag carriers operating in the Civil Reserve Air Fleet (CRAF) program or to coalition partners in lieu of the retirement of such aircraft. (6) Such other matters relating to the retirement of C–5 aircraft as the Secretary considers appropriate. Section 138 states: SEC. 138. REPORTS ON STRATEGIC AIRLIFT AIRCRAFT. At least 90 days before the date on which a C–5 aircraft is retired, the Secretary of the Air Force, in consultation with the Director of the Air National Guard, shall submit to the congressional defense committees a report on the proposed force structure and basing of strategic airlift aircraft (as defined in section 8062(g)(2) of title 10, United States Code). Each report shall include the following: (1) A list of each aircraft in the inventory of strategic airlift aircraft, including for each such aircraft— (A) the type; (B) the variant; and (C) the military installation where such aircraft is based. (2) A list of each strategic airlift aircraft proposed for retirement, including for each such aircraft— (A) the type; (B) the variant; and (C) the military installation where such aircraft is based. (3) A list of each unit affected by a proposed retirement listed under paragraph (2) and how such unit is affected. (4) For each military installation listed under paragraph (2)(C), changes, if any, to the mission of the installation as a result of a proposed retirement. (5) Any anticipated reductions in manpower as a result of a proposed retirement listed under paragraph (2). Section 139 states: SEC. 139. STRATEGIC AIRLIFT FORCE STRUCTURE. Subsection (g)(1) of section 8062 of title 10, United States Code, is amended— (1) by striking ''2008'' and inserting ''2009''; and (2) by striking ''299'' and inserting ''316.'' The House Armed Services Committee, in its report ( H.Rept. 111-166 of June 18, 2009) on H.R. 2647 , recommends no funding for the procurement of additional C-17s in FY2010, and instead recommends approving the Administration's request for $88.5 million in procurement funding for other C-17 program expenses. (Page 93) Section 134 of H.R. 2647 would require the Secretary of the Air Force, in coordination with the Director of the Air National Guard, to submit to the congressional defense committees, at least 120 days before a C-5 is retired, a report on the proposed force structure and basing of C-5 and C-17 aircraft. The text of Section 134 is as follows: SEC. 134. REPORTS ON STRATEGIC AIRLIFT AIRCRAFT. At least 120 days before the date on which a C-5 aircraft is retired, the Secretary of the Air Force, in coordination with the Director of the Air National Guard, shall submit to the congressional defense committees a report on the proposed force structure and basing of strategic airlift aircraft (as defined in section 8062(g)(2) of title 10, United States Code). Each report shall include the following: (1) A list of each aircraft in the inventory of strategic airlift aircraft, including for each such aircraft— (A) the type; (B) the variant; and (C) the military installation where such aircraft is based. (2) A list of each strategic airlift aircraft proposed for retirement, including for each such aircraft— (A) the type; (B) the variant; and (C) the military installation where such aircraft is based. (3) A list of each unit affected by a proposed retirement listed under paragraph (2) and how such unit is affected. (4) For each military installation listed under paragraph (2)(C), any changes to the mission of the installation as a result of a proposed retirement. (5) Any anticipated reductions in manpower as a result of a proposed retirement listed under paragraph (2). (6) Any anticipated increases in manpower or military construction at a military installation as a result of an increase in force structure related to a proposed retirement listed under paragraph (2). Section 135 of H.R. 2647 would amend 10 USC 8062(g)(1)—the subsection of 10 USC 8062 that was created by Section 132 of the FY2007 defense authorization act ( H.R. 5122 / P.L. 109-364 of October 17, 2006)—to state that, effective October 1, 2009 (rather than October 1, 2008), the Secretary of the Air Force shall maintain a total strategic airlift aircraft (i.e., C-5 and C-17) inventory of not less than 316 (rather than 299) aircraft. Assuming the retention of the current force of 111 C-5s, this provision would appear to support a C-17 force of 205 C-7s—the number procured through FY2008. The committee's report states: Strategic airlift force structure The committee notes that the current Mobility Capabilities Study 2005 (MCS–05) identified a range of 292–383 strategic airlift aircraft to meet global mobility requirements with moderate risk. In testimony before the Subcommittee on Air and Land Forces and the Subcommittee on Seapower and Expeditionary Forces on February 25, 2009, the commander of the United States Transportation Command testified that a force structure of 205 C–17s, 52 [fully modernized] C–5Ms, and 59 C–5As modified with the avionics modernization program [AMP], a total of 316 strategic airlift aircraft, meets the requirement to transport 33.95 million ton-miles per day. Additionally, the committee notes that the previous commander of the United States Transportation Command and now current Air Force Chief of Staff, in his letter to the Chairman of the Senate Committee on Armed Services on November 6, 2007, also identified 316 strategic airlift aircraft as the ''sweet spot'' to meet global mobility requirements. The committee further notes that MCS–05 did not consider the combined Army and Marine Corps increase of 92,000 soldiers and Marines, a potential increase in strategic airlift necessary to transport the Army's future combat systems, or the prospect that future strategic mobility aircraft would be utilized to conduct intra-theater airlift missions to move outsized and oversized equipment as they are now being used in Operation Iraqi Freedom, and believes that the results of MCRS–16 should more accurately identify the inventory of strategic airlift aircraft necessary to meet future strategic airlift mobility requirements. Accordingly, the committee believes that the long-term strategic airlift force structure inventory required to meet global mobility requirements may be subject to future adjustment based on the results of the Mobility Capability Requirement Study 2016 (MCRS–16) scheduled for completion in December 2009, and encourages a continued dialogue between the Office of the Secretary of Defense, senior uniformed military officials, and the congressional defense committees. The committee also recommends a provision elsewhere in this title [Section 135] that would amend subsection (g)(1) of section 8062, United States Code, by striking ''299'' and inserting ''316.'' (Pages 101-102) Section 1032 would require a report on the force structure findings of the 2009 Quadrennial Defense Review (QDR). 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:... (2) A description of the factors that informed decisions regarding strategic and tactical airlift force structure, including: the modeling, simulations, and analyses used to determine the number and type of airlift aircraft necessary to meet the national defense strategy; the number and type of airlift aircraft necessary to meet the national defense strategy; the changes made, and supporting rationale for the changes made, to the airlift force structure from that proposed in Mobility Capabilities Study 2005 (MCS–05), including numbers of airlift aircraft necessary to meet additional demands for increased Army and Marine Corps personnel, airlift necessary to transport the Army's future combat systems, and the use of airlift aircraft in intra-theater airlift missions; the force sizing constructs used, including peak demand as measured in millions of ton-miles per day and force structure necessary to meet peak demand including the number of C–17s, C–5s, C–130s, C–27s, and civil reserve air fleet; and the operational risks associated with the planned strategic and tactical airlift aircraft fleet, based on requirements of combatant commanders, and measures planned to address those risks; ... (Pages 387-388) Division D of the FY2010 defense authorization bill ( 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 no funding for the procurement of additional C-17s in FY2010, and instead recommends approving the Administration's request for $88.5 million in procurement funding for other C-17 program expenses. (Page 630 of the printed bill.) Section 121 of S. 1390 would prohibit the Secretary of the Air Force from proceeding with a decision to retire C-5As until certain conditions are met, and require the Secretary of the Air Force to submit a report to the congressional defense committees on the issue of C-5 retirement. The text of Section 121 is as follows: SEC. 121. LIMITATION ON RETIREMENT OF C-5 AIRCRAFT. (a) Limitation- The Secretary of the Air Force may not proceed with a decision to retire C-5A aircraft from the active inventory of the Air Force in any number that would reduce the total number of such aircraft in the active inventory below 111 until— (1) the Air Force has modified a C-5A aircraft to the configuration referred to as the Reliability Enhancement and Reengining Program (RERP) configuration, as planned under the C-5 System Development and Demonstration program as of May 1, 2003; and (2) the Director of Operational Test and Evaluation of the Department of Defense— (A) conducts an operational evaluation of that aircraft, as so modified; and (B) provides to the Secretary of Defense and the congressional defense committees an operational assessment. (b) Operational Evaluation- An operational evaluation for purposes of paragraph (2)(A) of subsection (a) is an evaluation, conducted during operational testing and evaluation of the aircraft, as so modified, of the performance of the aircraft with respect to reliability, maintainability, and availability and with respect to critical operational issues. (c) Operational Assessment- An operational assessment for purposes of paragraph (2)(B) of subsection (a) is an operational assessment of the program to modify C-5A aircraft to the configuration referred to in subsection (a)(1) regarding both overall suitability and deficiencies of the program to improve performance of the C-5A aircraft relative to requirements and specifications for reliability, maintainability, and availability of that aircraft as in effect on May 1, 2003. (d) Additional Limitations on Retirement of Aircraft- The Secretary of the Air Force may not retire C-5 aircraft from the active inventory as of the date of this Act until the later of the following: (1) The date that is 150 days after the date on which the Director of Operational Test and Evaluation submits the report referred to in subsection (a)(2)(B). (2) The date that is 120 days after the date on which the Secretary submits the report required under subsection (e). (3) The date that is 30 days after the date on which the Secretary certifies to the congressional defense committees that— (A) the retirement of such aircraft will not increase the operational risk of meeting the National Defense Strategy; and (B) the retirement of such aircraft will not reduce the total strategic airlift force structure below 324 strategic airlift aircraft. (e) Report on Retirement of Aircraft- The Secretary of the Air Force shall submit to the congressional defense committees a report setting forth the following: (1) The rationale for the retirement of existing C-5 aircraft and a cost/benefit analysis of alternative strategic airlift force structures, including the force structure that would result from the retirement of such aircraft. (2) An assessment of the costs and benefits of applying the Reliability Enhancement and Re-engining Program (RERP) modification to the entire the C-5A aircraft fleet. (3) An assessment of the implications for the Air Force, the Air National Guard, and the Air Force Reserve of operating a mix of C-5A aircraft and C-5M aircraft. (4) An assessment of the costs and benefits of increasing the number of C-5 aircraft in Back-up Aircraft Inventory (BAI) status as a hedge against future requirements of such aircraft. (5) An assessment of the costs, benefits, and implications of transferring C-5 aircraft to United States flag carriers operating in the Civil Reserve Air Fleet (CRAF) program or to coalition partners in lieu of the retirement of such aircraft. (6) Such other matters relating to the retirement of C-5 aircraft as the Secretary considers appropriate. (f) Maintenance of Aircraft Upon Retirement- The Secretary of the Air Force shall maintain any C-5 aircraft retired after the date of the enactment of this Act in Type 1000 storage until opportunities for the transfer of such aircraft as described in subsection (e)(5) have been fully exhausted. 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 on page 1 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 includes $2,588.5 million for procurement of 10 C-17s in FY2010, an increase of $2,500.0 million over the administration request. As Congress decided to continue production, the administration request for $91.4 million in post-production support was not funded. The explanatory statement provides for the rescission of $22.4 million from Air Force research and development funds for the C-17 without further explanation. The budget for modification of in-service C-17s in the explanatory statement is reduced by $17.4 million, from the request of $469.7 million to $352.3 million. This is the sum of a number of specific reductions shown in the following table: The text of H.R. 3326 includes the following provision: Provided , That none of the funds provided in this Act for modification of C-17 aircraft may be obligated until all C-17 contracts funded with prior year `Aircraft Procurement, Air Force' appropriated funds are definitized unless the Secretary of the Air Force certifies in writing to the congressional defense committees that each such obligation is necessary to meet the needs of a warfighting requirement or prevents increased costs to the taxpayer and provides the reasons for failing to definitize the prior year contracts along with the prospective contract definitization schedule. The explanatory statement also includes the following provision: C-17 GLOBEMASTER III The recent actions of the Air Force to address and curtail the wide use of undefinitized contract actions (UCA) are encouraging. To further encourage a sense of urgency to reduce the number of UCAs, bill language has been included that limits obligations for modifications until all C-17 UCAs funded with prior year "Aircraft Procurement, Air Force" funds are definitized or certifications of need are made by the Secretary of the Air Force. The Under Secretary of Defense (Acquisition, Technology and 'Logistics) (USD(AT&L)) is directed to review contracting procedures within the Air Force and provide a report to the congressional defense committees not later than 90 days after enactment of this Act detailing a strategy to reduce current and minimize further undefinitized contracts in the Air Force. Additionally, the USD(AT&L) is directed to provide to the congressional defense committees a consolidated list of undefinitized contracts within the Department of Defense by November 15 and April 15 of each year. The recommendation provides an additional $2,500,000,000 for the procurement of ten C-l 7 aircraft, associated spares, support equipment and training equipment as required. The House Appropriations Committee, in its report ( H.Rept. 111-230 of July 24, 2009) on H.R. 3326 , recommended $762.6 million in procurement funding for the C-17 program, including $674.1 million for the procurement of three C-17s. (Page 187) The report recommends a $152.6 million reduction in the amount of procurement funding requested for the modification of in-service C-17s, mostly for "Excess Install[ation] funding" for certain pieces of equipment, and a $91.4 million reduction (a 100% reduction) in the amount of procurement funding requested for C-17 post-production support for "Program Reduction." (Pages 188 and 189). The paragraph in the bill that makes funding available for the procurement of Air Force aircraft states that the funds are made available, " Provided , That no funds provided in this Act for the procurement or modernization of C-17 aircraft may be obligated until all C-17 contracts funded with prior year `Aircraft Procurement, Air Force' appropriated funds are definitized." The report recommends approving the requests in the Overseas Contingency Operations (OCO) part of the budget for $132.3 million in procurement funding for the modification of in-service C-17s and for $11 million in procurement funding for C-17 post-production support. (Page 358) The committee's report states: C–17 AIRCRAFT The C–17 Globemaster III aircraft has been the supply and logistics workhorse of the ongoing overseas conflicts. This platform has been responsible for the airlift of more cargo and personnel than any other platform. In recognition of the platforms contributions to the Nation's security, the Committee provides an additional $674,100,000 for the procurement of three C–17 aircraft. The Committee recognizes that this is well below the minimum sustaining rate required for the production line. In an effort to avoid the extremely high costs associated with small production lots, the Committee's intent is that these aircraft be absorbed into the fiscal year 2009 production run that was funded from the Supplemental Appropriations Act, 2009, to create a full production run funded over a two year period. The Committee intends that the pricing for these aircraft be consistent with the 2009 aircraft, using methods such as a fixed price option to the fiscal year 2009 production contract. (Page 191) The report also states: UNDEFINITIZED CONTRACT ACTIONS The Committee has become aware of the excessive use of undefinitized contract actions (UCA's) by the Air Force. Based on information obtained by the Committee, it is apparent that the Air Force has not provided the proper oversight of contracting activities within various programs. Specifically, the C–17 aircraft program has billions of dollars in undefinitized contracts. The Defense Federal Acquisition Regulations (DFAR) very clearly stipulate in subpart 217.74 that UCA's are to be used as the exception not as the rule for urgent needs. It is common practice for the C–17 program to place all of its funding on a UCA and then immediately obligate up to 50 percent of the not-to-exceed price at the award which is a disincentive to definitize the contract. Further, the DFAR requires that the contract must be definitized within 180 days after the issuance of initial undefinitized action unless it is extended by another 180 days after the contractor submits a qualifying proposal. The C–17 program has numerous contracts well in excess of these timelines with proposal times for fiscal year 2007 funds ranging from 373 to 975 days and on average 688 days to definitize. This use of UCA's places the taxpayer at a severe disadvantage when negotiating contracts since the contractor has little incentive to control costs while performing work under a UCA. Even more concerning to the Committee, is that this excessive use of UCA's is not just isolated to procurement and modernization programs but has migrated to operation and maintenance programs. Based on information supplied by the Air Force, a Deputy Assistant Secretary of the Air Force for Contracting memorandum dated 28 November 2001 authorized the waiver of the limitations in the DFAR for definitization schedule and obligations for UCAs that support overseas operations. With this memorandum as justification, the Air Force has placed the fiscal year 2009 C–17 depot funding on a UCA which is still not definitized in the fourth quarter of the fiscal year even though the Air Force has obligated 89.7 percent of the $1,118,679,167 not-to-exceed price. This rationale for the use of a undefinitized contracts for routine activities is abusive. The Committee directs the Secretary of the Air Force to address this situation within 30 days of enactment of this Act to include the cancellation of the November 2001 memorandum. The Committee further directs the Air Force to provide a detailed report to the congressional defense committees of all undefinitized UCA's in excess of $50,000,000 within 30 days of enactment of this Act. The report shall include the date the UCA was initiated, the not-to-exceed price, the amount obligated on the UCA, and the planned date for definitization. While the Committee understands the need at times for programs to use this type of contracting mechanism, it appears that the Air Force has grossly abused it with respect to volume, value, and time to definitize. The Committee insists that the Air Force finalize all existing undefinitized contract actions in an expedited manner and to minimize the use of UCA's the future. To encourage a sense of urgency, the Committee has included a new proviso in the Aircraft Procurement, Air Force appropriating paragraph which specifies that for C–17 procurement and modernization efforts funded with Aircraft Procurement, Air Force the obligation of fiscal year 2010 procurement funds is prohibited until the existing UCA's are definitized. The Committee further directs the Undersecretary of Defense, Acquisition, Technology and Logistics (USD(AT&L)) to review contracting procedures within the Air Force and provide a report to the congressional defense committees within 90 days of enactment of this Act detailing a strategy to reduce current and minimize future undefinitized contracts in the Air Force. (Pages 190-191) Section 8041 of the bill as reported would rescind certain FY2009 appropriations for DOD programs. The committee's report states that the funds that would be rescinded include $70 million in FY2009 research and development funding for the C-17 program. (Page 324) A July 28, 2009, statement of administration policy on H.R. 3326 as reported in the House states: C-17 Transport Aircraft . The Administration strongly objects to the addition of $674 million in funding for three unrequested C-17 airlift aircraft. Analyses by DOD have shown that the 205 C-17s in the force and on order, together with the existing fleet of C-5 aircraft, are sufficient to meet the Department's future airlift needs, even under the most stressing situations. The Senate Appropriations Committee, in its report ( S.Rept. 111-74 of September 10, 2009) on H.R. 3326 , recommends $2,588.5 million in procurement funding for the C-17 program, including $2,500.0 million for the procurement of 10 C-17s. (Page 133) The report recommends a $45.3 million reduction in the amount of procurement funding requested for the modification of in-service C-17s for "Funding requested ahead of need," and a $91.4 million reduction (a 100% reduction) in the amount of procurement funding requested for C-17 post-production support for "Funding requested ahead of need." (Page 133) The report recommends approving the requests in the Overseas Contingency Operations (OCO) part of the budget for $120.7 million in procurement funding for the modification of in-service C-17s and for $11 million in procurement funding for C-17 post-production support. (Page 261) Section 8040 of the bill as reported would rescind certain FY2008 and FY2009 appropriations for DOD programs. The committee's report states that the funds that would be rescinded include $22.4 million in FY2009 research and development funding for the C-17 program. (Page 230) The report "directs that the National Guard and Reserve Equipment program shall be executed by the heads of the Guard and Reserve components with priority consideration given to" several items, including Large Aircraft Infrared Countermeasures (LAIRCM) systems for C-17s. (Page 151) A September 25, 2009, statement of administration policy on H.R. 3326 as reported in the Senate states: C-17 Transport Aircraft . The Administration strongly objects to the addition of $2.5 billion in funding for 10 unrequested C-17 airlift aircraft. Analyses by DOD have shown that the 205 C-17s in the force and on order, together with the fleet of C-5 aircraft, are sufficient to meet the Department's future airlift needs, even under the most stressing situations. S.Amdt. 2558 , proposed on September 29, 2009, would strike from H.R. 3326 funding for C-17 procurement in excess of the amount requested by administration (i.e., it would strike the $2.5 billion in the bill for the procurement of 10 C-17s) and make that funding available instead for operation and maintenance in accordance with amounts requested by the administration, and for the Operation and Maintenance, Army account for overseas contingency operations. On September 30, the Senate considered S.Amdt. 2558 . A point of order was raised with respect to the amendment. The Senate, by a vote of 34 to 64 (Record Vote Number 303), rejected a motion to waive the Budget Act with respect to the amendment, and the amendment was ruled out of order. On October 6, a new amendment— S.Amdt. 2580 —was proposed to strike from H.R. 3326 funding for C-17 procurement in excess of the amount requested by the administration. This amendment was structured to avoid the point of order that was raised with respect to S.Amdt. 2558 . On October 6, the Senate rejected S.Amdt. 2580 by a vote of 30 to 68 (Record Vote Number 312). The House Appropriations Committee, in its report ( H.Rept. 111-105 of May 12, 2009) on the FY2009 supplemental appropriations bill ( H.R. 2346 ), recommended $2.2452 billion for the procurement of eight additional C-17s. (Page 21) The report stated: C–17 GLOBEMASTER III The Committee recommendation includes $2,245,200,000 for the procurement of eight C–17 Globemaster III aircraft. The C–17 is the workhorse of the theater, flying fifty percent of all sorties for the United States Transportation Command over the last 24 months. These missions range from airdrops for troops in forward locations to aeromedical evacuation of servicemembers from theater back to the United States. While the aircraft is designed to fly 1,000 hours per year over 30 years, over the last ten years the C–17 fleet has averaged 1,250 hours per aircraft with some aircraft flying in excess of 2,400 hours in a single year. This heavy usage is reducing the expected service life of the aircraft. The aircraft included in the recommendation will alleviate some of these issues by introducing new aircraft into the inventory. Further, the Committee is concerned that a decision on the continuation of the C–17 program was announced prior to the completion of the Mobility Capability and Requirements Study (MCRS), which will address the needs of the Department of Defense in 2016. Since the last MCRS in 2005, several changes have occurred that would change previous requirements to include the growth of ground forces, the increased size and use of Special Operations Forces, additional use of the C–17 in an intra-theater role, and the stand up of a new combatant command—United States Africa Command. It seems more prudent to continue the C–17 program until the results of the study are announced later this year. Additionally, the Air Force is encouraged to work with Congress and the reserve component to replace aging C–5A aircraft with C–17 aircraft. While there are concerns that reserve component aircraft are not utilized at the same rate as aircraft assigned to Air Mobility Command, the Committee believes that the Air Force can develop plans to work with the reserve component to address some of these issues (i.e. active association with Guard units). (Pages 24-25) The Senate Appropriations Committee, in its report ( S.Rept. 111-20 of May 14, 2009) on the FY2009 supplemental appropriations bill ( S. 1054 ), recommended no funding for the procurement of additional C-17s, and instead recommended rejecting a request that the Administration had made for $230.2 million in FY2009 supplemental funding to cover other C-17 program expenses. (Page 43) The conference report ( H.Rept. 111-151 of June 12, 2009) on H.R. 2346 ( P.L. 111-32 of June 24, 2009) provided $2.172 billion for the procurement of eight additional C-17s. (Page 93) Section 311 of the act repealed Section 132 of the FY2004 defense authorization act ( H.R. 1588 / P.L. 108-136 of November 24, 2003) and permits the Secretary of the Air Force to retire C-5As 15 days after certifying to the congressional defense committees that retiring the aircraft will not significantly increase operational risk of not meeting the national defense strategy, and provided that such retirements may not reduce total strategic airlift force structure inventory below the 292 strategic airlift aircraft level identified in the Mobility Capability Study 2005 (MCS-05) unless otherwise addressed in the FY2010 defense authorization act. | A total of 223 C-17s have been procured through FY2010. The Administration's proposed FY2011 defense budget proposed to end C-17 procurement and did not request any funding for the procurement of additional C-17s. The Administration argues that enough C-17s have now been procured to meet future operational needs. Supporters of procuring additional C-17s in FY2011 believe additional C-17s will be needed to meet future operational needs. The issue of how much airlift capability will be needed in the future is currently being examined in a congressionally mandated study being done by the Institute for Defense Analyses (IDA) and in a separate Department of Defense (DOD) study called the Mobility Capabilities and Requirements Study 2016 (MCRS-16), which was due to be completed by the end of 2009. FY2010 defense authorization bill: The conference report (H.Rept. 111-288 of October 7, 2009) on the FY2010 defense authorization act (H.R. 2647/P.L. 111-84 of October 28, 2009) authorizes no funding for the procurement of additional C-17s. Section 137 of the act prohibits the Secretary of the Air Force from proceeding with a decision to retire C-5As in any number that would reduce the active inventory of C-5s below 111 until certain conditions are met, and require the Secretary of the Air Force to submit a report to the congressional defense committees on the issue of C-5 retirement. Section 138 requires the Secretary of the Air Force, in coordination with the Director of the Air National Guard, to submit to the congressional defense committees, at least 90 days before a C-5 airlift aircraft is retired, a report on the proposed force structure and basing of C-5 and C-17 aircraft. Section 139 amends 10 USC 8062(g)(1) to state that the Secretary of the Air Force shall maintain a total inventory of not less than 316 C-5s and C-17s. If the current force of 111 C-5s were retained, this provision would support a C-17 force of not less than 205 C-7s—the number procured through FY2008. FY2010 DOD appropriations bill: 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 includes $2,588.5 million for procurement of 10 C-17s in 2010, an increase of $2,500.0 million over the administration request. The budget for modification of in-service C-17s is reduced in the statement by $17.4 million, from the request of $469.7 million to $352.3 million. As Congress decided to continue production, the Administration request for $91.4 million in post-production support was not funded. The explanatory statement provides for the rescission of $22.4 million from Air Force research and development funds for the C-17 without further explanation. |
T he Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) includes many provisions that apply to health plans offered in the private health insurance market. The private market often is described as having three segments: the non-group, small-group, and large-group markets; and many of the ACA's provisions focus specifically on the non-group and small-group insurance markets. These reforms are intended to address perceived failures in those markets, such as limited access to coverage and higher costs of coverage relative to the large-group market pl ans, and to provide some parity with the large-group market. For example, benefit coverage in non-group and small-group market health plans generally was perceived to be limited in comparison to benefit coverage in large-group market health plans. Thus, to provide some similarity to plans in the large-group market, the ACA requires non-group and small-group health plans to offer the essential health benefits (EHB), which is a core package of health care services. The EHB are one of the three components of the EHB package. The EHB package requires plans to (1) cover certain benefits (i.e., the essential health benefits); (2) comply with specific cost-sharing limitations; and (3) meet a certain generosity level. This report provides an overview of the first component of the EHB package—the essential health benefits. The report examines how the EHB are defined, regulations related to the EHB, state variation in the EHB, applicability of the EHB to health plans, and how the EHB interact with other ACA provisions. Since 2014, all non-grandfathered plans in the non-group and small-group markets are required to offer a core package of health care services, known as the EHB. The ACA does not specifically define this core package. Instead, it lists 10 benefit categories from which benefits and services must be included (see Figure 1 ) and requires the Secretary of the Department of Health and Human Services (HHS) to further define the EHB. The HHS Secretary has the purview to define and periodically update the EHB. However, in defining the EHB, the HHS Secretary must take a number of parameters into account. For example, the scope of the EHB is to be equivalent to the scope of benefits typically provided under an employer-sponsored insurance plan. To accomplish this task, the ACA requires the Secretary of the Department of Labor (DOL) to conduct surveys of employer-sponsored insurance plans to determine typical benefits and provide a summary of the findings to the HHS Secretary. The EHB are to be balanced among the 10 categories, without a weighted preference toward any category. The HHS Secretary cannot make any coverage decisions, determine reimbursement rates, establish incentive programs, or design benefits in ways that discriminate against individuals because of their age, disability, or expected length of life. Furthermore, the HHS Secretary must take into account the diverse health care needs of the population, which includes women, children, persons with disabilities, and other groups. The HHS Secretary is tasked with reviewing the EHB, and part of the EHB review process includes providing a report to Congress and the public. The report is supposed to assess whether enrollees are facing any difficulty accessing services, either due to coverage or cost, and to consider whether the EHB need to be modified or updated due to changes in medical evidence or scientific advancement. If any modifications are to be made, the HHS Secretary is to include in the report how the EHB would be modified. Consequently, the Secretary periodically may update the EHB based on issues identified during the review process. In December 2011, the Centers for Medicare & Medicaid Services (CMS) released a bulletin that outlined a reference plan approach for the EHB. This approach was based on employer-sponsored coverage in the current market. To define the EHB, HHS considered findings from the DOL's report that described the scope of benefits under a typical employer-sponsored plan. HHS also considered a report from the Institute of Medicine that recommended criteria and methods for determining and updating the EHB. The HHS Secretary outlined a process in which each state identified a single plan to serve as a reference plan on which most non-group and small-group market plans must base their benefits packages in terms of the scope of benefits offered (see Figure 2 ). These reference plans are known as EHB-benchmark plan s. The benchmark selection approach identified by the Secretary applied for the 2014, 2015, 2016, and 2017 coverage years. Each state's EHB-benchmark plan applied to non-grandfathered health plans offered in the non-group and small-group markets, both inside and outside the exchanges (also known as marketplaces ). For the 2014-2016 coverage years, the process required each state to select an EHB-benchmark plan based on plans available in the 2012 coverage year. For the 2017 coverage year, the process requires each state to update its EHB-benchmark plan based on plans available in the 2014 coverage year. States select a benchmark plan among the following four options: 1. Small-group market health plan . Any of the three largest small-group market health plans, by enrollment, in that state; 2. State employee health benefit plan . Any of the three largest employee health benefit plan options, by enrollment, available to state employees in that state; 3. Federal Employees Health Benefits (FEHB) plan . Any of the three largest national FEHB plan options, by aggregate enrollment; or 4. Non-Medicaid Health Maintenance Organization (HMO) . The largest insured commercial non-Medicaid HMO, by enrollment, operating in that state. If a state does not make a selection, the default EHB-benchmark plan is the largest health plan, by enrollment, in that state's small-group market. For 2014-2016, each state's benchmark plan was finalized in early 2013. Figure 3 maps the type of benchmark plan selected by each state. The EHB-benchmark plan for 45 states and the District of Columbia (DC) is the small-group market health plan. Three states selected a non-Medicaid HMO, and two states selected a state employee health benefit plan as their EHB-benchmark plans. No state selected an FEHB plan as its benchmark plan. For 2017, each state's benchmark plan was finalized in late 2015. Figure 3 maps the type of benchmark plan selected by each state. The EHB-benchmark plan for 46 states and DC is the small-group market health plan. One state selected a non-Medicaid HMO, and three states selected a state employee health benefit plan as their EHB-benchmark plans. No state selected an FEHB plan as its benchmark plan. According to the regulations, the EHB-benchmark plan had to provide coverage for all 10 EHB categories. However, a number of state benchmark plans did not include all 10 EHB categories. If the selected benchmark plan did not include items or services within a category, the plan had to be supplemented accordingly. Generally, if an EHB-benchmark plan did not cover 1 or more of the 10 EHB categories, the state supplemented the EHB-benchmark plan by adding that particular category in its entirety from another benchmark plan option (i.e., the small-group market health plan, state employee health benefit plan, FEHB plan, or non-Medicaid HMO options described in " State Selection of Benchmark Plans ," above). For states that did not select an EHB-benchmark plan and thus defaulted to an EHB-benchmark plan (the largest health plan, by enrollment, in that state's small-group market), HHS, if necessary, supplemented the state's EHB-benchmark plan. The default benchmark plan was supplemented in the following order: (1) the second-largest plan, by enrollment, in the state's small-group market; (2) the third-largest health plan, by enrollment, in the state's small-group market; and (3) the largest national FEHB plan by enrollment across states. CMS also released additional guidance for certain EHB categories. In a December 2011 bulletin, CMS noted that of the 10 EHB categories, 3 categories were lacking under "typical employer plans." These three categories were pediatric oral and vision services, habilitative services, and mental health and substance use disorder services. To address these issues, CMS outlined a separate supplemental process for pediatric oral and vision services and a separate determination process for habilitative services. Furthermore, CMS released additional guidance in regard to mental health and substance use disorder and prescription drug services. HHS outlined separate guidelines for supplementing pediatric oral and vision services. An EHB-benchmark plan that does not cover the pediatric oral and vision category is to be supplemented by adding the pediatric oral and/or vision services from either (1) the Federal Employees Dental and Vision Insurance Program (FEDVIP) plan with the largest national enrollment or (2) the benefits from a state's separate Children's Health Insurance Program (CHIP) plan with the highest enrollment, if a separate CHIP plan exists. For the 2014-2016 coverage years, 49 states and DC had to supplement their EHB-benchmark plans for pediatric oral services—25 states and DC selected a FEDVIP plan, and 24 states selected a CHIP plan as their supplementary plan type (see Figure 4 ). For pediatric vision services, 45 states and DC had to supplement their EHB-benchmark plans; 38 states and DC selected a FEDVIP plan, and 7 states selected a CHIP plan as their supplementary plan type (see Figure 4 ). For the 2017 coverage year, 32 states have to supplement their EHB-benchmark plans for pediatric oral services. Of these, 19 states selected a FEDVIP plan and 13 states selected a CHIP plan as their supplementary plan type (see Figure 4 ). For pediatric vision services, 23 states had to supplement their EHB-benchmark plans; of these, 20 states selected a FEDVIP plan and 3 states selected a CHIP plan as their supplementary plan type (see Figure 4 ). HHS found that many employer-sponsored plans did not identify habilitative services as a distinct group of services. Thus, in determining habilitative services, HHS proposed policies for coverage of such services. For the 2014 and 2015 coverage years, the HHS policies allowed states to define the benefits if the EHB-benchmark plan did not include coverage for habilitative services. If a state did not define habilitative services, either plans would have to cover habilitative services benefits that were similar in scope, amount, and duration to benefits covered for rehabilitative services or plans could determine their habilitative services benefits and report them to HHS for review. For the 2016 coverage year, HHS modified the habilitative services benefits policy. Rather than allowing plans to cover habilitative services that are offered at parity with rehabilitative services, HHS adopted a uniform definition for habilitative services. Habilitative services are defined as follows: Health care services that help a person keep, learn, or improve skills and functioning for daily living. Examples include therapy for a child who is not walking or talking at the expected age. These services may include physical and occupational therapy, speech-language pathology and other services for people with disabilities in a variety of inpatient and/or outpatient settings. Although HHS adopted a definition, states may continue to define habilitative services so long as the state definition complies with EHB policies, including nondiscrimination. Plans, however, no longer may define habilitative services themselves. For the 2017 coverage year, nine states use the federal definition and two states use the state definition for habilitative services. The remaining 39 states and DC include habilitative services in their EHB-benchmark plans. For the 2017 coverage year, HHS finalized additional guidance for habilitative services. HHS now requires plans to have separate visit limits on habilitative and rehabilitative services. For non-group and small-group plans to be EHB compliant, the plans must provide mental health and substance use disorder services, including behavioral health treatment services. These services must be compliant with the Mental Health Parity and Addiction Equity Act (MHPAEA; P.L. 110-343 , as amended), which generally requires health insurance coverage for mental health services to be offered on par with covered medical and surgical benefits. As part of the EHB, HHS outlined additional requirements regarding prescription drug services. Non-group and small-group market plans must cover at least the greater of (1) one drug in every United States Pharmacopeia (USP) category or class or (2) the same number of prescription drugs in each category and class as the EHB-benchmark plan. For the 2016 coverage year, HHS finalized additional guidance for the drug exceptions process and formulary drug lists. HHS outlined a drug exceptions process for enrollees to request and gain access to clinically appropriate drugs that are not covered by their health plan. The process takes 72 hours for a standard exception and 24 hours for an expedited review request. If the exception is granted, the plan must treat the drug as an EHB, including counting any cost sharing toward the plan's annual cost-sharing limits. For 2016, plans must have an up-to-date, accurate, and complete formulary drug list, which must include price tiers, on their websites. The formulary must be easily accessible to plan enrollees, prospective enrollees, the state, the exchange, HHS, the U.S. Office of Personnel Management (OPM), and the general public. For the 2017 coverage year, HHS requires plans to use a pharmacy and therapeutics (P&T) committee system in addition to the current standard. The P&T committees will develop formulary drug lists that cover prescription drugs across a broad range of therapeutic categories and classes and that do not discourage enrollment by any group of consumers. The P&T committees also will have to review and approve plan policies that affect consumer access to drugs. Prior to the passage of the ACA, many states had laws, known as state benefit mandates , that required health plans to cover certain health care services, health care providers, and/or dependents. Examples of state benefit mandates include coverage for substance abuse treatment, chiropractors, or adopted children. A state may require non-group and small-group plans to cover these state benefit mandates in addition to the EHB. Moreover, any state benefit mandates enacted on or before December 31, 2011, are considered to be part of the EHB. Nonetheless, in addition to covering the EHB, states may choose to impose additional benefit mandates. However, if a state does decide to impose additional benefits, the state itself must defray the cost of those benefits for plans offered in the exchange. The state must make a payment either to the enrollee or directly to the plan on behalf of the enrollee for all plans, regardless of whether an individual is receiving financial assistance. The plan quantifies the cost of the additional benefits. The cost calculation is based on analysis in accordance with generally accepted actuarial principles and methodologies, is conducted by a member of the American Academy of Actuaries, and is reported to the exchange by the plan. Because states select their own EHB-benchmark plan there is considerable variation in EHB coverage from state to state. This variation occurs in terms of specific covered services as well as in terms of amount, duration, and scope. For example, some state EHB-benchmark plans may include bariatric surgery as a covered service whereas other state EHB-benchmark plans may not cover bariatric surgery. In addition, among states that cover bariatric surgery as an EHB, the amount, scope, and duration of the service may vary. For example, the service may be limited to individuals diagnosed as morbidly obese in one state and limited to individuals for whom the service was deemed medically necessary in another state. Additional discussion and illustrative examples of coverage variation from state to state for selected services can be found in Table 1 . State benefit mandates also may be considered to be part of that state's EHB and thus add to state-level coverage differences. In addition to EHB variation by state, benefit coverage among plans within a state may differ. States may allow non-group and small-group market plans that offer the EHB to substitute benefits. A benefit may be substituted if the substitution is actuarially equivalent to the benefit being replaced and is made within the same EHB category. For example, a plan could offer coverage of up to 10 physical therapy visits and up to 20 occupational therapy visits as a substitute for EHB-benchmark plan coverage of up to 20 physical therapy visits and 10 occupational therapy visits, assuming actuarial equivalence and the other criteria are met. Substitutions, however, cannot be made for prescription drug benefits. Generally, non-group and fully insured small-group market health plans are required to offer the EHB. This requirement applies to non-group and small-group plans offered both inside and outside the exchanges. Additional plan types are subject to the EHB (see Figure 5 ). The ACA generally requires that non-group and small-group health insurance plans offered through exchanges are Qualified Health Plans (QHPs). Typically, to be a certified as a QHP a plan has to offer the EHB, comply with cost-sharing limits, and meet certain market reforms. Each exchange is responsible for certifying the plans it offers. However, QHPs can be offered both inside the health insurance exchanges and outside the exchanges on the private health insurance market. The exchanges also offer variants of QHPs such as multistate plans and child-only plans. The ACA directs OPM to contract with private insurers in each state to offer at least two comprehensive health insurance options, known as multistate plans (MSPs). MSPs are designed to offer nationally available QHPs through the exchanges; MSPs are not available outside the exchanges. Some MSP options also offer in-network care for out-of-state services, but not all do. MSPs must offer a package of benefits that includes the EHB (see Figure 1 ). MSPs also must offer a package of benefits that is substantially equal to either the state-selected EHB-benchmark plan for the state in which the plan is offered or an OPM-selected benchmark plan. Moreover, MSPs must comply with any state standards related to benefit mandates, substitution of benefits, and habilitative services. Child-only health insurance plans are a type of QHP available in the exchanges. To offer child-only plans in an exchange, a health insurance plan must also offer a QHP in the exchange. The ACA requires the plan to offer the child-only exchange plan at the same coverage level as the QHP. Only individuals under the age of 21 may enroll in child-only exchange plans. Child-only health plans are treated as a type of QHP and thus are subject to EHB requirements. Catastrophic plans are a type of health plan offered in the individual exchanges. Catastrophic plans offered through exchanges provide the EHB and coverage for at least three primary care visits. The monthly premium for catastrophic plans generally is lower than for other QHPs. However, catastrophic plans impose a very high deductible, and cost sharing generally is higher. These plans also do not meet the minimum requirements related to coverage generosity (i.e., actuarial value). Catastrophic plans may be offered only in the individual market for (1) individuals under the age of 30 and (2) persons exempt from the ACA requirement to obtain health coverage because no affordable coverage is available or they have a hardship exemption. Certain health plans are not subject to the EHB requirements. Examples of these health plans include grandfathered plans, large-group market plans, self-insured plans, and dental-only plans (see Figure 5 ). Health insurance plans that were in existence (in the non-group, small-group, or large-group market) and in which at least one person was enrolled on the date of the ACA's enactment (March 23, 2010) are considered grandfathered and have a unique status under the ACA. As long as a plan maintains its grandfathered status, the plan has to comply with some but not all ACA provisions. Grandfathered plans are not subject to the EHB requirements. Plans may lose their status if they apply certain changes to benefits, cost sharing, employer contributions, and access to coverage. Large-group market plans typically are employer-sponsored insurance plans and are defined by the number of employees. In general, a large-group plan has 50 or more employees. Many of the market reform provisions in the ACA targeted the non-group and small-group markets. The reforms focused on perceived failures in these markets and provided parity with the large-group market. Accordingly, large-group plans are exempt from a number of ACA market reforms, including coverage of the EHB. Nonetheless, benefits and coverage offered in large-group market plans play an important role for the EHB. Recall that in defining the EHB, HHS examined the scope of benefits under a typical employer-sponsored insurance plan and used that information in determining what services would be covered as well as additional supplemental guidelines. Self-insured plans are a type of group health plan. Organizations that self-insure do not purchase health coverage from insurance carriers. Self-insured plans refer to health coverage that is provided directly by the organization seeking coverage for its members (e.g., a firm providing health benefits to its employees). Such organizations set aside funds and pay for health benefits directly. Under self-insurance, the organization bears the risk for covering medical expenses. Firms that self-insure may contract with third-party administrators to handle administrative duties such as member services, premium collection, and utilization review. Self-insured plans are not subject to many of the ACA market reforms, including the EHB. In the exchanges, an individual can obtain dental coverage as part of a QHP or as a stand-alone dental plan. Dental-only plans must provide coverage for pediatric oral services (1 of the 10 EHB categories). Dental-only plans are not required to cover the remaining EHB categories. The ACA imposes an annual cap on consumer cost sharing for the EHB. The ACA specifies that the limits work in two ways: they prohibit (1) applying deductibles to preventive health services and (2) annual out-of-pocket limits that exceed existing limits in the tax code. The cost-sharing limits apply only to in-network benefits and must include all co-payments, coinsurance, and deductibles. In 2016, the cost-sharing limits are $6,850 for an individual plan and $13,700 for a family plan. For 2017, the cost-sharing limits are $7,150 for an individual plan and $14,300 for a family plan. Prior to the ACA, plans generally were able to set lifetime and annual limits—dollar limits on how much the plan would spend for covered health benefits either during the entire period an individual was enrolled in the plan (lifetime limits) or during a plan year (annual limits). The ACA prohibited both lifetime and annual limits on the EHB. Plans are permitted to place lifetime and annual limits on covered benefits that are not considered EHBs, to the extent that such limits are permitted by federal and state law. The EHB differs from minimum essential coverage. Minimum essential coverage is a term defined in the ACA and its implementing regulations that refers to the individual mandate, or the ACA requirement that most individuals must have health insurance coverage for themselves and their dependents or potentially pay a penalty for noncompliance. The definition of minimum essential coverage does not refer to minimum benefits but rather includes most private and public coverage (e.g., employer-sponsored coverage, individual coverage, Medicare, and Medicaid, among others). | The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) requires all non-grandfathered health plans in the non-group and small-group private health insurance markets to offer a core package of health care services, known as the essential health benefits (EHB). The ACA does not specifically define this core package but rather lists 10 benefit categories from which benefits and services must be included. The 10 benefit categories are as follows: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness and chronic disease management; and pediatric services, including oral and vision care. For the 2014-2017 coverage years, each state was required to select an EHB-benchmark plan. The benchmark plan serves as a reference plan on which non-group and small-group market plans must substantially base their benefits packages. Because states select their own EHB-benchmark plans, there is considerable variation in EHB coverage from state to state. This variation occurs in terms of specific covered services as well as in terms of amount, duration, and scope. For example, some state EHB-benchmark plans may include bariatric surgery as a covered service whereas other state EHB-benchmark plans may not cover bariatric surgery. State benefit mandates also may be considered to be part of that state's EHB and thus add to state-level coverage differences. Furthermore, because states can allow non-group and small-group plans to substitute certain services within the categories, coverage in plans within a state also may vary by benefit amount, duration, and scope. For example, a state's EHB-benchmark plan could offer up to 20 physical therapy visits and 10 occupational therapy visits. Another plan in the state could offer coverage consistent with the EHB-benchmark plan by covering up to 10 physical therapy visits and 20 occupational therapy visits. In addition to covering the EHB, the ACA imposes a limit on cost sharing (which includes co-payments, coinsurance, and deductibles) for the EHB. The ACA also prohibits plans from applying lifetime and annual dollar limits on the EHB. |
The Sixth Amendment to the United States Constitution includes fundamental procedural protections for criminal defendants, among them the guarantee that "[i]n all criminal prosecutions, the accused shall enjoy the right ... to be confronted with the witnesses against him." Along with the Due Process Clause of the Fifth Amendment, the Fourteenth Amendment, and other protections, it comprises the constitutional foundation for fair trials. Complex and oft times technical requirements for conducting a trial—civil or criminal—are further embodied in numerous laws governing trial procedure. The federal courts operate in conformance with the federal rules of civil or criminal procedure, and the federal rules of evidence. State courts have comparable procedural strictures. Simply put, the Confrontation Clause ensures that a defendant has the right to challenge, generally through cross-examination, the testimony of his accusers. The judge and jury's ability to assess the demeanor and credibility of a witness is an essential element of a criminal defense. In practice, however, evidence—both incriminating and exculpatory—is not delivered solely through the testimony of live witnesses at trial. In addition to witness testimony, rules of evidence govern the admissibility at trial of innumerable out-of-court statements, documents, records, and objects. Not all evidence is deemed admissible. Among the more well-known categories of common but inadmissible evidence is "hearsay." Hearsay evidence is defined as: [A] statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted. Hence, a prior out-of-court statement made by someone other than the witness actually testifying, that is, the declarant, which is offered in evidence to prove the matter asserted therein is generally inadmissible. There are, however, many exceptions to the hearsay rule embodied in the Federal Rules of Evidence and those of the states as well. The exceptions, like the rule itself, derive from the common law and have historically been judged as being sufficiently trustworthy to permit their admission into evidence. One well-known exception to the hearsay rule is a "dying declaration." For example, shortly before dying, a homicide victim might tell someone who shot him. The now-deceased victim clearly cannot stand for direct or cross-examination. Accordingly, if the person who heard the statement testifies at trial about the victim's identification of the killer, it would be deemed hearsay. But it can be judged admissible if it comports with the "dying declaration" exception to the hearsay rule. Historically, the U.S. Supreme Court interpreted the Confrontation Clause as being more or less compatible with evidentiary rules governing out-of-court statements. In 1979, in Ohio v. Roberts , the Court expressed the view that evidence that fit within a hearsay exception or had analogous "particularized guarantees of trustworthiness" would also "comport with the substance" of the Confrontation Clause; hearsay rules and the Confrontation Clause were generally designed to protect similar values and stemmed from the same roots. However, in a landmark 2004 decision, Crawford v. Washington, the Court overruled Roberts. The Crawford decision introduced a new standard for Confrontation Clause analysis: testimonial versus nontestimonial statements. In the U.S. Supreme Court's 2010-2011 term, two cases were handed down which are significant post- Crawford interpretations of the Clause. One case, Michigan v. Bryant , held that admitting into evidence a dying man's statements to police officers about his assailant did not violate the Confrontation Clause—not through the "dying declaration" exception, but because they were made to assist law enforcement officers in an "ongoing emergency" and were therefore "nontestimonial." The other, Bullcoming v. New Mexico , addressed the prosecution's use of forensic laboratory reports. It concluded that the Confrontation Clause requires the laboratory analyst who performed the test to appear at trial and confront the defendant in person. This report examines these decisions in the context of the Court's relatively new Confrontation Clause jurisprudence. It considers their implications for admissibility of evidence in criminal prosecutions. Defendant Crawford was tried and convicted in a Washington State court for stabbing a man who allegedly tried to rape his wife. During police questioning, the wife stated that the victim was unarmed at the time of the attack. That statement was recorded by the interrogating police officer. The defendant, charged with assault and attempted murder, alleged that he had acted in self-defense. Because the defendant's wife invoked her marital privilege not to testify against her husband, the prosecution introduced the recording of the wife's statement. The defendant's Sixth Amendment objection was overruled. The Washington State Supreme Court upheld the conviction, which the United States Supreme Court reversed and remanded. In an opinion by Justice Scalia, the Court held that playing the wife's tape-recorded statement at the defendant's trial violated his Sixth Amendment right to be confronted by the witnesses against him. Because the defendant's wife did not take the witness stand, her recorded statement was inadmissible. After an exhaustive survey of the right of confrontation from Roman times through the 17 th -century English common law and continental civil law, the Court concluded that the Framers of the Constitution intended that, where out-of-court testimonial evidence is at issue, the Sixth Amendment demands, at a minimum, that a witness be both unavailable at trial and that the defendant had a prior opportunity for cross-examination. Therefore, the state's admission of the wife's prior testimonial statement against the accused, where the defendant had no opportunity to cross-examine her, constituted a violation of the Sixth Amendment. The Court devoted considerable discussion to the 1603 trial of Sir Walter Raleigh for treason, where accusations made by Lord Cobham before the Privy Council and in a letter were read to the jury hearing Raleigh's case. Raleigh was denied the right to question Cobham. Raleigh was subsequently convicted and sentenced to death. The widely perceived injustice of Sir Walter Raleigh's case led to a series of statutory and judicial reforms regarding a right to confrontation under English law. Many of these were adopted into late 18 th -century and early 19 th -century American jurisprudence. The Court concluded that the Framers viewed "testimonial" evidence as including solemn declarations made for the purpose of establishing or proving some fact in a context that the declarant would reasonably expect to be used prosecutorially. The Court gave examples of "testimonial" statements, including " ex parte in-court testimony or its functional equivalent—that is, material such as affidavits, custodial examinations, prior testimony that the defendant was unable to cross-examine, or similar pretrial statements that declarants would reasonably expect to be used prosecutorially." Testimonial statements include those taken by police officers in the course of interrogations, because, in the Court's view "[p]olice interrogations bear a striking resemblance to examination by justices of the peace in England." Therefore, the Clause "is most naturally read as a reference to the right of confrontation at common law, admitting only those exceptions established at the time of the founding." Since the common law in 1791 conditioned admissibility of an absent witness's examination on unavailability and a prior opportunity to cross-examine, the Sixth Amendment incorporates those limitations. Any contrary common law exceptions to rules of exclusion for hearsay evidence did not apply to testimonial statements against the accused in a criminal case. Despite the historical antecedents for the Court's understanding of testimonial evidence and the Confrontation Clause, it nevertheless had to address the rationale of Ohio v. Roberts , which held that the confrontation right did not bar admission of an unavailable witness's statement against a criminal defendant if the statement bears "adequate 'indicia of reliability,'" a test met when the evidence either falls within a "firmly rooted hearsay exception" or bears "particularized guarantees of trustworthiness." The Court found that the balancing test employed by the courts to determine whether hearsay evidence satisfied "indicia of reliability" did not conform with the intent of the Framers with respect to the Confrontation Clause. It overruled the Roberts standard, replacing it with the standard that "testimonial" evidence may not be admitted absent a right of cross examination: Where testimonial statements are involved, we do not think the Framers meant to leave the Sixth Amendment's protection to the vagaries of the rules of evidence, much less to amorphous notions of "reliability." Certainly none of the authorities discussed above acknowledges any general reliability exception to the common-law rule. Admitting statements deemed reliable by a judge is fundamentally at odds with the right of confrontation. To be sure, the Clause's ultimate goal is to ensure reliability of evidence, but it is a procedural rather than a substantive guarantee. It commands, not that evidence be reliable, but that reliability be assessed in a particular manner: by testing in the crucible of cross-examination . The Court declined to spell out a comprehensive definition of "testimonial" evidence, leaving it for another day. It applies, at a minimum, to prior testimony at a preliminary hearing, before a grand jury, or at a former trial, and to police interrogations. Chief Justice Rehnquist wrote a concurring opinion, which Justice O'Connor joined, agreeing with the decision to overturn the Washington Supreme Court's holding, but taking issue with the majority's decision to overrule Roberts . The majority's distinction between testimonial and nontestimonial statements "contrary to its claim, is no better rooted in history than our current doctrine [under Ohio v. Roberts ]." Chief Justice Rehnquist's interpretation of historical precedent and English common law indicated a more flexible and evolving jurisprudence related to the admissibility of evidence, in general, and the treatment of "testimonial" evidence in particular: It is one thing to trace the right of confrontation back to the Roman Empire; it is quite another to conclude that such a right absolutely excludes a large category of evidence. It is an odd conclusion indeed to think that the Framers created a cut-and-dried rule with respect to the admissibility of testimonial statements when the law during their own time was not fully settled. The concurring opinion expressed concern about the quandary for law enforcement to determine what exactly is "testimonial" evidence—that is, what evidence will be deemed inadmissible under a hearsay exception. It challenged the assertion that the testimonial versus nontestimonial standard will be more easily applied than the pre-existing standards which considered indicia of reliability when applying rules of evidence. In 2006 in Davis v. Washington , the Court attempted to clarify the distinction between testimonial and nontestimonial statements for right of confrontation purposes. Davis consolidated two separate state court cases that involved the introduction into evidence of out-of-court statements. The first, Davis , involved a recording of a 911 call in which a victim of a domestic assault named her attacker while the assault was ongoing. The victim did not testify at the trial. In the second case, Hammon , the prosecution introduced an affidavit completed by a victim of domestic assault, written in response to police questioning in the victim's home after the police had separated her from her attacker. Again, the victim did not testify. The Court held that the affidavit in the second case was "testimonial" because it recounted the events of a past criminal act, just as a witness would do when testifying at trial. However, the 911 recording in the first case was not "testimonial" because its purpose was to seek help during an emergency, and no witness "goes into a courtroom to proclaim an emergency and seek help." The Davis opinion builds upon the rule in Crawford , that is, that the Confrontation Clause bars the admission at a criminal trial of testimonial statements of a witness who does not appear at trial, unless the witness is unavailable to testify and the defendant had a prior opportunity for cross-examination. It analyzed the 911 call and the affidavit and concluded that: For purposes of the Confrontation Clause, statements are nontestimonial when made in the course of police interrogation under circumstances objectively indicating that the primary purpose of the interrogation is to enable police assistance to meet an ongoing emergency ; and testimonial when the circumstances objectively indicate that (i) there is no such ongoing emergency, and (ii) the primary purpose of the interrogation is to establish or prove past events potentially relevant to later criminal prosecution; and The Confrontation Clause applies only to testimonial hearsay, where "testimony" typically means a solemn declaration or affirmation made for the purpose of establishing or proving some fact; but its scope is not limited to testimonial statements of the most formal sort, such as sworn testimony in prior judicial proceedings or formal depositions under oath. In the 2010-2011 term, the Court continued to address the requirements of the Confrontation Clause, fulfilling Chief Justice Rehnquist's prediction in Crawford that the testimonial versus nontestimonial standard would not easily be applied. In parsing out the components of the Crawford standard, the Justices identified and gave different weight to many factors: What is the primary purpose of the police interrogation—that is, to gather incriminating evidence or address an ongoing emergency? What is a police "interrogation"—is it a call to 911, or any incriminating statement made to someone in authority? What is the nature of testimonial evidence—is it a solemn and formal statement by a witness that is the functional equivalent of "bearing testimony" against a defendant, or can it be a less formal utterance? Crawford clearly established that out-of-court testimonial hearsay is inadmissible in a criminal prosecution under the mandates of the Confrontation Clause, regardless of whether it would otherwise be admissible under federal or state rules of evidence. But establishing a working standard to determine whether evidence is testimonial for Confrontation Clause purposes may prove to be a lengthy and litigation intensive process. The cases from the 2010-2011 term do not answer these questions in order to provide a clear standard. They deal with two discrete issues: the admissibility of a statement made to the police during an "ongoing emergency" and the use of forensic analysis reports in criminal prosecutions. They are discussed below. The Court's decision in Bryant is a stepping-stone in the developing rule of testimonial versus nontestimonial hearsay and the admissibility of out-of-court statements in a criminal prosecution. Bryant considered a statement made by a dying man to the police identifying his killer. The Court concluded that the decedent's statement was not testimonial and therefore not inadmissible under the Confrontation Clause, but its reasoning is not easily explained. On April 29, 2001, police responded to a call indicating that a man had been shot. They arrived at a gas station and found the victim, Anthony Covington, lying next to his car in the parking lot. Covington was in great pain from a gunshot wound. Police officers asked Covington who had shot him, what had happened, where the shooting had taken place, and to describe the shooter. Covington answered that the defendant, Richard Bryant, had shot him through the back door of Bryant's house. The police interrogation ended when emergency medical technicians arrived and took Covington to a hospital, where he later died. At Bryant's trial, the police officers testified about Covington's out-of-court statements. Those statements were admitted via a state hearsay exception for "excited utterances." Bryant was convicted of second-degree murder, and appealed on the basis that his Sixth Amendment right of confrontation had been violated. Although the state court of appeals initially affirmed Bryant's conviction, the Michigan Supreme Court reversed for rehearing in consideration of Davis v. Washington . The U.S. Supreme Court granted certiorari to determine whether Covington's statements should have been excluded under the Confrontation Clause. In a six to two opinion, the Court held that the use of Covington's statements did not violate the Confrontation Clause. Justice Sotomayor, writing for the Court, reasoned that the statements were not "testimonial" because they were made to assist the police in an "ongoing emergency." The Court drew upon its previous holding in Davis that whether a statement is "testimonial" or not depends on the "primary purpose" of the interrogation that produced the statement. The Court's analysis, and those of the Michigan state courts, considered Covington's statement as an exception to hearsay by categorizing it as an "excited utterance" under Michigan rules of evidence, rather than a "dying declaration." The facts of the case suggest that Covington's statements could typically be considered a dying declaration as well. In a footnote, the Court explained that the Supreme Court of Michigan did not consider whether the victim's statement would have been admissible as a "dying declaration" because the question was not properly before it. The distinction between these hearsay exceptions may become significant for Confrontation Clause purposes. The exception to hearsay for a dying declaration derives from common law. Obviously, a decedent is not available to testify at trial, and where a defendant may face a charge of homicide, the stakes are high. Because the Bryant decision is framed as addressing the admissibility of an excited utterance in the course of an ongoing emergency, it leaves open the question of the constitutionality of admission of dying declarations, including whether they may be considered testimonial or nontestimonial. In dicta , the Justices expressed different views. The majority opinion, in a footnote, observed that Crawford "suggested that dying declarations, even if testimonial, might be admissible as a historical exception to the Confrontation Clause ." Justice Ginsburg's dissenting opinion in Bryant explicitly reserved the right to decide the question whether dying declarations can survive the constraints of the Confrontation Clause in a future case. As discussed below, the factors employed by the Court to determine the primary purpose for Covington's statements do not appear to be dispositive of future questions that may concern dying declarations. The majority opinion concluded that the statements and actions of decedent Covington and the police objectively demonstrate that the police questioning was intended to assist them to meet an ongoing emergency. The analysis opens with a recap of Davis , noting that it did not attempt to classify all conceivable statements in response to police interrogations as either testimonial or nontestimonial. It reminds readers that the purpose of the Confrontation Clause was to prevent the abuses exemplified at the notorious treason trial of Sir Walter Raleigh. It acknowledges that there may be other circumstances aside from ongoing emergencies when a statement is not procured with a primary purpose of creating an out-of-court substitute for trial testimony, and that, in those cases, standard rules of hearsay, which emphasize the likely reliability of evidence, may be relevant. But it does not elaborate on these possibilities because the Court determined that Covington's questioning occurred in the course of an ongoing emergency. Although the Court cites numerous factors to support its conclusion that there was an ongoing emergency, no individual factor appears controlling. It explains, however, that the "existence of an 'ongoing emergency' at the time of an encounter between an individual and the police is among the most important circumstances informing the 'primary purpose' of an interrogation." In Bryant , the interrogation involved an armed shooter, whose motive for and location after the shooting were unknown. Unlike the domestic violence involved in Hammon, supra, the scope of potential threat to the police and the public arising from a gunman at large made the "primary purpose" of the police questioning a matter of public safety, rather than an attempt to collect incriminating evidence. Domestic violence cases, in the Court's view, often have a narrower zone of potential victims than cases involving threats to public safety. The 911 call in Davis was deemed nontestimonial largely because the victim "was speaking about events as they were actually happening during an ongoing emergency." Likewise, the fact that the gunman remained at large in Bryant led the Court to conclude that the police questioning was not intended to prove past events relevant to future prosecution (that is, the shooting itself), but to assure the gunman posed no further danger. In both cases, the Court concluded that the parties were focused on ending the emergency. The Court listed additional faulty assumptions made by the Michigan Supreme Court in its determination that Covington's statements to the police were testimonial. Namely, that statements made to the police after an assault stops and the defendant leaves the scene signal the end of an emergency; that the medical condition of the declarant is irrelevant to determining existence of "ongoing emergency"; and, that the existence (or not) of an emergency will be dispositive of the testimonial or nontestimonial nature of evidence, or when the transition from one to the other occurs. The Court emphasized that in addition to circumstances in which an encounter occurs, the statements and actions of both the declarant and interrogators provide objective evidence of the primary purpose of the interrogation. In short, a court's determination in future cases will be highly context-specific. In a concurring opinion, Justice Thomas expressed his view that Covington's statements were nontestimonial because they lacked sufficient "formality and solemnity." Rather than reconstructing the primary purpose of the participants, Justice Thomas would use the historical practices employed under the English bail and committal statutes passed during the reign of Queen Mary (Marial law) to inform Confrontation Clause analysis. A spirited dissent authored by Justice Scalia, joined by Justice Ginsburg, viewed the majority decision as distorting Confrontation Clause jurisprudence and leaving it in a "shambles." He advocated a far narrower inquiry to determine the primary purpose of the interrogation—the intent of the declarant. Employing this standard leads to an "absurdly easy" finding that Covington's statement was testimonial. Covington's description of the gunman resembled common testimony by a witness at trial; it "bore accusation" notwithstanding that Covington was dead and could not testify at trial. Justice Scalia did not categorize Covington's statement as a "dying declaration," discussed above, but he described it as a testimonial accusation, assuming that, from Covington's perspective, his statements had little value except to ensure the arrest and eventual prosecution of Richard Bryant. In a detailed discussion of the events at the gas station, Justice Scalia concluded that Covington and the police knew they had nothing further to fear from the gunman. The dissent was concerned that the Court's view of what constitutes an emergency is distorted and will create an expansive exception to the Confrontation Clause for violent crimes. Because almost 90% of murders involve a single victim, Justice Scalia appeared convinced that the officers viewed their encounter with Covington as an investigation, not an emergency: A final word about the Court's active imagination. The Court invents a world where an ongoing emergency exists whenever "an armed shooter, whose motive for and location after the shooting [are] unknown, … mortally wound[s]" one individual "within a few blocks and [25] minutes of the location where the police" ultimately find that victim. Breathlessly, it worries that a shooter could leave the scene armed and ready to pull the trigger again. Nothing suggests the five officers in this case shared the Court's dystopian view of Detroit, where drug dealers hunt their shooting victim down and fire into a crowd of police officers to finish him off, or where spree killers shoot through a door and then roam the streets leaving a trail of bodies behind. Because almost 90 percent of murders involve a single victim, it is much more likely—indeed, I think it certain—that the officers viewed their encounter with Covington for what it was: an investigation into a past crime with no ongoing or immediate consequences. Discounting the majority's vision of the "faux" emergency, he believed the Court reinstated the previously rejected evidentiary standard of "reliability" from Ohio v. Roberts , rather than staying true to the Framers' intent as reflected in 16 th - and 17 th -century English treason trials. The dissent asserted that the two standards, reliability as reflected in the rules of hearsay and evidence, and testimonial versus nontestimonial statements, cannot coexist: Is it possible that the Court does not recognize the contradiction between its focus on reliable statements and Crawford's focus on testimonial ones? Does it not realize that the two cannot coexist? Or does it intend, by following today's illogical roadmap, to resurrect Roberts by a thousand unprincipled distinctions without ever explicitly overruling Crawford ? After all, honestly over-ruling Crawford would destroy the illusion of judicial minimalism and restraint. And it would force the Court to explain how the Justices' preference comports with the meaning of the Confrontation Clause that the People adopted—or to confess that only the Justices' preference really matters. In summary, the Bryant majority held that the primary purpose of Covington's interrogation by police was to address an ongoing emergency. Consequently, the statements of the dying man were not testimonial for Confrontation Clause purposes. The Court employed a highly context-specific analysis and considered factors such as the nature of the crime, its duration, the weapon employed, the medical condition of the declarant, and the intent of the interrogators and the declarant, as significant factors. Arguably, the Court's Confrontation Clause standard for the use of forensic laboratory reports is less complicated. When the investigation of a crime requires laboratory testing—for example, matching a suspect's DNA with DNA found at the crime scene, or analyzing a substance that might be an illegal drug—the results of that testing are presented at trial in a report prepared by laboratory technicians. Since Crawford , the Supreme Court has twice addressed the question of whether such reports are "testimonial." In both cases, the Court has held that because reports are testimonial, the Confrontation Clause requires the actual laboratory analyst who performed the tests to appear at trial and confront the defendant in person. In 2009, the Supreme Court applied the Confrontation Clause to forensic analysis reports in Melendez-Diaz v. Massachusetts . The defendant was charged with distribution of cocaine, and was in possession of a white powder at the time of his arrest. At trial, the results of a laboratory analysis of the white powder were presented via "certificates of analysis." The certificates had been sworn by the analysts before a notary public, and "reported the weight of the seized bags and stated that the bags 'have been examined with the following results: the substance was found to contain: Cocaine.'" The Supreme Court held that the certificates were "quite plainly affidavits," and Crawford had specifically said that affidavits are testimonial. The Court rejected arguments from four dissenting Justices that this holding would needlessly overburden state crime labs by requiring technicians to testify in person at trial. In Bullcoming v. New Mexico , the Court affirmed its Melendez-Diaz rationale and clarified its position with respect to the defendant's right to confront those who prepare a forensic laboratory report. In 2005, defendant Donald Bullcoming rear-ended a pickup truck. The police administered field sobriety tests, which Bullcoming failed. Because he refused to submit to a breathalyzer test, he was taken by the police to a nearby hospital, where a sample of his blood was drawn. The sample was sent to the New Mexico state crime laboratory, known as the Department of Health, Scientific Laboratory Division ("SLD"). At trial, the prosecution presented the results of the blood test, which showed an alcohol content of almost three times the legal limit. The test results were presented in court via a "Report of Blood Alcohol Analysis" prepared by an SLD technician named Caylor. The report contained certifications by Caylor that he had received the blood sample with its seal intact, and that the seal was broken at SLD; that he had followed the procedures set out on the back of the report; and that there had been no "circumstance or condition which might affect the integrity of the sample ... or the validity of the analysis." Caylor himself did not appear in court, as he had been placed on unpaid leave for undisclosed reasons. The prosecution announced on the day of the trial that it intended to introduce the report as a "business record" that would be explained during the testimony of an expert witness. That witness, named Razatos, worked at SLD and was an expert with respect to SLD procedures and the gas chromatograph machine that Caylor used. Bullcoming objected that his Sixth Amendment right of confrontation had been violated. Nevertheless, the trial court admitted the report as a "business record," and Bullcoming was convicted of an aggravated charge of driving while intoxicated. Both the intermediate appellate court and the New Mexico Supreme Court upheld the conviction. The state supreme court held that, while the report was "testimonial," Bullcoming's right of confrontation was not violated because Caylor was not a "witness" but a "mere scrivener" who simply transcribed the results displayed by the gas chromatograph machine. Because Razatos "provided live, in-court testimony, and, thus, was available for cross-examination," Bullcoming was effectively confronted at trial. The Supreme Court granted certiorari to determine whether this method of introducing a forensic analysis report through the testimony of an unrelated expert witness satisfies the Confrontation Clause. In an opinion by Justice Ginsburg, the Court held that Bullcoming's Sixth Amendment right of confrontation was violated and reversed his conviction. The Court emphasized that Razatos was not competent to testify on key issues about which Bullcoming may have wanted to cross-examine Caylor. For example, the SLD Report contained certifications by Caylor that he had received the blood sample with its seal unbroken, that he performed a particular test on the blood sample while adhering to a particular protocol, and that nothing had affected the integrity of the sample or the validity of the analysis. How could Razatos, who was not involved in the analysis of the blood sample, testify about these "human actions not revealed in raw, machine-produced data"? The Court wrote that to allow Razatos to testify about Caylor's report because of Razatos's expertise with SLD equipment and procedures would be like allowing a police officer to testify about the readout of a radar gun, when that officer was not the one who saw the readout, because the officer was also expert with respect to radar guns and police procedures. The Court again rejected arguments that this interpretation of the Confrontation Clause will burden crime labs in exchange for little payoff. The Court wrote that the Confrontation Clause specifies a particular method of protecting defendants—confrontation by their accusers—and the Court does not have the power to reject the Framers' choice and pick another method that might work better: More fundamentally, as this Court stressed in Crawford , "[t]he text of the Sixth Amendment does not suggest any open-ended exceptions from the confrontation requirement to be developed by the courts." 541 U.S., at 54. Justice Sotomayor wrote a concurring opinion concluding that Caylor's lab report was testimonial and thus inadmissible. Unlike the majority, she reached that conclusion by applying the "primary purpose" analysis that she laid out for the Court in Bryant . She considered that Caylor's lab report would be recognized by the rules of hearsay as having been prepared for use as evidence and had a high degree of formality. These factors lead to the conclusion that the "primary purpose" of the report was to create a record for trial. Therefore, the SLD report was "testimonial." Justice Sotomayor identified four factual circumstances that, if present, may have changed her view. She postulated that it might have come out differently (1) if the laboratory report had been prepared for some purpose other than litigation, such as providing medical treatment to Bullcoming; (2) if the person testifying had been a supervisor, reviewer, or anyone with some connection to the actual test performed by Caylor; (3) if the expert witness testified as to his own opinion about a testimonial report that was not itself entered into evidence; or (4) if the lab report entered into evidence had included only machine-generated data and no certifications about the actions of the analyst. Because Justice Sotomayor was part of the 5 to 4 majority that comprises Bullcoming's holding, these reservations could be interpreted as limiting the scope of the holding to situations where none of these four factors are present. The majority opinion in Bullcoming was opposed by the same four Justices who opposed the holding in Melendez-Diaz . Justice Kennedy, author of the dissent, reiterated the main objections from the dissent in Melendez-Diaz . The record in the case before the Court did not indicate that the certifying analyst's role was any greater than that of anyone else in the chain of custody. He wrote that requiring forensic analysts to testify in person at trial is a "hollow formality" that burdens crime laboratories and the justice system while producing no real benefits. The dissenters believe that persistent ambiguities create a requirement that is "not amenable to sensible applications" because it does not make clear which lab technician is the "analyst" who must appear at trial. The dissent also expressed fundamental concerns with possible evidentiary constraints on the courts and burdens for law enforcement that may arise from the holding and rationale of Crawford and its progeny. They are discussed below. The holding in Crawford v. Washington was unanimous. Its emphasis on "testimonial" evidence in relation to the Confrontation Clause and overruling O hio v. Roberts were endorsed by seven Justices. Since then, however, the Court appears to be struggling to adapt Crawford's rationale to the cases before it. The two cases from the 2010-2011 term illustrate the Justices' divergent jurisprudential philosophies and their concerns about the testimonial rule's implications for trial procedure and the administration of justice. Bullcoming' s holding is arguably more straightforward than Bryant . The Confrontation Clause permits a defendant to confront the analyst involved in the preparation of forensic laboratory reports. It is a consistent extension of the holding in Melendez-Diaz . In both cases, the Court, in its holdings and dissenting opinions, engaged in various colloquies: will state laboratories become overwhelmed when analysts are required to appear in court? How many "analysts" in the chain of custody will be required to appear? The majority and dissenting opinions consider and disagree about the impact of Melendez-Diaz and whether it imposes an undue burden on the prosecution. Nevertheless, the issue is discrete. And, when the state conducts forensic testing, many will readily agree that it intuitively comes within the ambit of "testimonial" evidence, because it is most often collected by the state, prepared as a formal document, and introduced into evidence to support an allegation of criminal conduct. One unresolved question about the scope of Bullcoming may be answered next term, when the Court hears Williams v. Illinois . In Williams , police matched a DNA sample from a sexual assault kit, which was analyzed out-of-state, with an in-state sample taken from the defendant on an unrelated charge. At trial, Williams was convicted of aggravated criminal sexual assault, aggravated kidnapping, and robbery. At the trial, a laboratory technician testified about the tests she had performed on the defendant's DNA obtained from the unrelated charge, and presented conclusions based on the data from the out-of-state laboratory regarding the DNA semen sample from the sexual assault kit. No technician from the out-of-state laboratory testified. The Court will likely rule on whether state rules of evidence allowing an expert witness to testify about the results of DNA testing performed by nontestifying analysts, which the defendant had no opportunity to cross examine, violates the Confrontation Clause. All 50 states and the federal government have established repositories of DNA evidence samples that are collected during crime scene investigations. This evidence is analyzed and retained in the hope that unsolved "cold" cases linked to DNA evidence may one day be reopened if a match is later found with a newly identified criminal defendant. However, the longer a "cold" case remains unsolved, the greater the chance that the laboratory technician who analyzed the original DNA sample will retire, move, or become unavailable. If Bullcoming means that records of forensic analyses are not admissible unless the specific analyst who performed the test is available to testify, then it may limit the effectiveness of DNA databases in achieving the purpose for which they were designed, and the role they serve creating persuasive forensic evidence. A more open-ended question is what the impact of Bryant and Bullcoming might imply for law enforcement practices and federal and state rules of evidence. With respect to rules of evidence, whether "dying declarations," discussed above, will continue to be admissible is an open question. Applying the Justices' broad and imprecise criteria to determine whether a statement is testimonial seems especially difficult with respect to this hearsay exception. Will the Court, in a future decision, "grandfather" the hearsay exception into its Confrontation Clause testimonial standard because it existed under 17 th - and 18 th -century common law? If not, will the Court apply the "primary purpose" test to determine whether the declarant intended to "bear testimony" or make an accusation while making the statement? Will the Court rule out declarations made to the police on the scene or at a medical facility when there is no ongoing emergency? Will admissibility depend upon who the witness is—a 911 operator, a medical technician, or a physician? In Bryant , Justice Scalia asserted that a focus on reliable statements cannot coexist with a focus on testimonial ones. The four dissenters in Bullcoming expressed similar concerns: Instead of freeing the Clause from reliance on hearsay doctrines, the Court has now linked the Clause with hearsay rules in their earliest, most rigid, and least refined formulations…. In cases like Melendez-Diaz and this one, the Court has tied the Confrontation Clause to 18th century hearsay rules unleavened by principles tending to make those rules more sensible. The dissent continued, predicting that the testimonial standard will foreclose enhanced modern evidentiary procedures and techniques, determined to be reliable and designed to address long-standing, difficult, sometimes intractable problems that prosecutors confront when attempting to prosecute defendants for crimes against especially vulnerable types of witnesses: Second, the States are not just at risk of having some of their hearsay rules reviewed by this Court. They often are foreclosed now from contributing to the formulation and enactment of rules that make trials fairer and more reliable. For instance, recent state laws allowing admission of well-documented and supported reports of abuse by women whose abusers later murdered them must give way, unless that abuser murdered with the specific purpose of foreclosing the testimony…. Whether those statutes could provide sufficient indicia of reliability and other safeguards to comply with the Confrontation Clause as it should be understood is, to be sure, an open question. The point is that the States cannot now participate in the development of this difficult part of the law. Throughout the Crawford line of cases, reference is repeatedly made to domestic abuse prosecutions. Victims of domestic abuse frequently refuse to testify against their abusers; even more difficult are the traumatized child and adult victims of sexual assault. They, too, are often unable to "confront" their abusers in court. The right of confrontation often precludes a successful prosecution. But the issue, post- Crawford , Davis , Bryant, and Bullcoming, is what types of collateral evidence will continue to be viewed as nontestimonial, that is, admissible when the victim cannot or refuses to testify. In the case of domestic abuse, Davis and Hammon provide some guidance. Pleas for help (the 911 call) constitute an ongoing emergency. But post-abuse statements are problematic. If a victim of abuse refuses to take the stand, information provided to physicians, social workers, or others is far less likely to remain admissible under the testimonial rule of the Confrontation Clause, even if it otherwise conforms to an existing exception to hearsay. With respect to prosecutions for sex crimes, particularly sexual abuse of children, and other types of child abuse, there is significant case law and legislation which attempts to address the widely perceived problem when children must "confront" an alleged assailant (who may be a family member or authority figure) in a courtroom setting in order for prosecutors to obtain a conviction. Whether these procedures and practices will be available to courts in the future remains to be seen. Justice Scalia, for example, has repeatedly signaled his concern with the existing precedent, White v. Illinois, which permitted the admission of statements under exceptions to hearsay that a child victim of sexual assault made to multiple adults, including an investigating police officer. In Crawford , he identified the Court's White holding as being "arguably in tension" with the testimonial rule. He observed: It is questionable whether testimonial statements would ever have been admissible on that ground in 1791; to the extent the hearsay exception for spontaneous declarations existed at all, it required that the statements be made "immediat[ely] upon the hurt received, and before [the declarant] had time to devise or contrive any thing for her own advantage." Thompson v Trevanion, Skin. 402, 90 Eng. Rep. 179 (K. B. 1693). Likewise, in his opinion for the Court in Davis , Justice Scalia cited the 1779 English case, King v. Brasier , to illustrate the distinction between nontestimonial evidence in an ongoing emergency (the 911 call) and common-law testimonial evidence (a child's statement to her mother). He invoked it again in his dissent in Bryant to discredit the majority's "ongoing emergency" analysis: No framing-era confrontation case that I know of, neither here nor in England, took such an enfeebled view of the right to confrontation. For example, King v. Brasier , 1 Leach 199, 200, 168 Eng. Rep. 202, 202-203 (K. B. 1779), held inadmissible a mother's account of her young daughter's statements "immediately on her coming home" after being sexually assaulted. The daughter needed to testify herself. But today's majority presumably would hold the daughter's account to her mother a nontestimonial statement made during an ongoing emergency. She could not have known whether her attacker might reappear to attack again or attempt to silence the lone witness against him. Her mother likely listened to the account to assess the threat to her own safety and to decide whether the rapist posed a threat to the community that required the immediate intervention of the local authorities. Utter nonsense. Legal scholars began speculating on the significance of Braiser's role informing the Court's view of statements of child abuse victims after it was cited by Justice Rehnquist in Crawford and Justice Scalia in Davis . Neither Bryant nor Bullcoming purport to address legal challenges likely to arise in this area, but given the severity of sexual assault and abuse crimes involving adults and children, and the necessity that they be prosecuted vigorously, it is impossible to ignore the potential impact of the testimonial rule on this class of criminal prosecutions. Williams v. Illinois , discussed supra , will address the use of DNA databases for sex crime prosecutions in the upcoming term. In another case of interest, the Court vacated and remanded the Supreme Court of Pennsylvania's decision in Commonwealth v. Allshouse, a post- Davis case on application of the testimonial standard. Defendant Allshouse was convicted of assault and child endangerment for breaking the arm of his seven-month-old son. The trial court admitted statements made by the defendant's four-year-old daughter to a County Youth Service caseworker and a psychologist, finding them "nontestimonial" under the state's Tender Years Hearsay Act and therefore not in violation of the Confrontation Clause. The four-year-old, who did not testify, made statements to others indicating that she had witnessed her father twist the arm of the infant, which caused a spiral fracture indicative of abuse. The Bullcoming dissent reflected a generalized concern about clarifying a future framework for discernible standards governing the use of evidence: Today's majority is not committed in equal shares to a common set of principles in applying the holding of Crawford …. That the Court in the wake of Crawford has had such trouble fashioning a clear vision of that case's meaning is unsettling; for Crawford binds every judge in every criminal trial in every local, state, and federal court in the Nation. This Court's prior decisions leave trial judges to "guess what future rules this Court will distill from the sparse constitutional text," or to struggle to apply an "amorphous, if not entirely subjective," "highly context-dependent inquiry" involving "open-ended balancing." The Court's reasoning will presumably become clearer as it continues to hand down decisions interpreting the right of confrontation. But their more immediate impact on the administration of justice at the prosecutorial level is not clear under current standards. | The Sixth Amendment to the United States Constitution includes the guarantee that "[i]n all criminal prosecutions, the accused shall enjoy the right ... to be confronted with the witnesses against him." Historically, the U.S. Supreme Court interpreted the Confrontation Clause as being more or less compatible with evidentiary rules governing out-of-court statements. In 1979, in Ohio v. Roberts, 448 U.S. 56, the Court expressed the view that evidence that fit within a hearsay exception or had analogous "particularized guarantees of trustworthiness" would also "comport with the substance" of the Confrontation Clause; hearsay rules and the Confrontation Clause were generally designed to protect similar values and stemmed from the same roots. However, in a landmark 2004 decision, Crawford v. Washington, 541 U.S. 36, the Court overruled Roberts. The Crawford decision introduced a new standard for Confrontation Clause analysis: testimonial versus nontestimonial statements. The Court concluded that the Framers of the Constitution intended that, where introduction of out-of-court testimonial evidence is at issue, the Sixth Amendment demands, at a minimum, that a witness be both unavailable and that the defendant had a prior opportunity for cross-examination. Testimonial evidence, though not fully defined by the Court, includes solemn declarations made for the purpose of establishing or proving some fact in a context that the declarant would reasonably expect to be used prosecutorially. When a court determines that an out-of-court statement is "testimonial," it may not be admitted into evidence under any traditional hearsay exceptions if the declarant is unavailable to testify, unless the defendant had a prior opportunity to cross-examine. In the U.S. Supreme Court's 2010-2011 term, two cases were handed down which are significant post-Crawford interpretations of the Clause. One case, Michigan v. Bryant, 131 S. Ct. 1143 (2011), held that admitting into evidence a dying man's statements to police officers about his assailant did not violate the Confrontation Clause—not through the "dying declaration" exception to hearsay, but because they were made to assist law enforcement officers in an "ongoing emergency" and were therefore "nontestimonial." The other, Bullcoming v. New Mexico, 131 S. Ct. 2705 (2011), addressed the prosecution's use of forensic laboratory reports. It concluded that the Confrontation Clause requires the laboratory analyst who performed the test to appear at trial and confront the defendant in person. This report examines these decisions in the context of the Court's relatively new Confrontation Clause jurisprudence. It considers their implications for admissibility of evidence in criminal prosecutions. |
This report, General Management Laws: Major Themes and Management Policy Options , is a companion to CRS Report RL30795, General Management Laws: A Compendium (pdf) (hereafter "compendium"). In combination, these reports have three main objectives: to identify and describe the major general management laws under which the executive branch is required to operate, including their rationale, design, and scope; to assist Members of Congress and their staff in overseeing management of the executive branch; and to help Congress when considering potential changes to the management laws, as well as other legislation, including authorizing statutes and appropriations. The compendium contains profiles of selected "general management laws"—broad statutes designed to regulate the activities, procedures, and administration of all or most executive branch agencies. The quality of the general management laws, as well as their implementation, are considered crucial to maintaining the accountability of the executive branch to Congress, the President, and the public. Moreover, these laws influence the effectiveness of federal agencies when they implement, evaluate, and help formulate public policies. As a complement to the compendium, this report ("companion report") focuses on major themes and possible management policy options for Congress that emerge when the general management laws are viewed together, as a whole. The companion report reflects the status of general management laws at the end of the first session of the 108 th Congress, and will be updated along with the compendium to reflect actions taken through the close of the 108 th Congress. The compendium includes more than 90 separate entries that describe general management laws for the executive branch. The entries are organized into the following seven functional categories: Information and Regulatory Management; Strategic Planning, Performance Measurement, and Program Evaluation; Financial Management, Budget, and Accounting; Organization; Procurement and Real Property Management; Intergovernmental Relations Management; and Human Resources Management and Ethics. Within the management field, functions typically refer to "business areas that require related bundles of skill" or "groups of people with similar skills and performing similar tasks." (In the private sector, by way of comparison, functions often include marketing, finance, production, and human resources.) This functional orientation is a major theme to which this report will return. Most of the compendium's entries profile a specific law, or in some cases, several related laws. The "Human Resources Management and Ethics" section, however, presents most civil service laws according to their codification in Title 5 of the United States Code —the way that practitioners and specialists typically discuss these laws. For each entry in the compendium, one or more CRS analysts present a brief history of the general management law, describe the law's major provisions, close with a discussion of key developments and issues, and provide source readings for readers who might want more information. As a companion to the compendium, this report provides historical background on the roles that Congress and the President play in managing the executive branch. Next, the report briefly discusses the extent to which management in the public and private sectors can or should be compared. Finally, the largest share of the report analyzes major themes that run through the general management laws and identifies potential management policy options. Who manages the executive branch? The President or Congress? Both branches together? Scholars have long debated their constitutional roles, whether one institution is more powerful than the other in this regard, and which should control the activities of federal agencies. The record of the last two centuries provides ample evidence that Congress and the President both manage the executive branch, as scholars have noted. The U.S. Constitution created a system of separated powers, but it also established a system of checks and balances. Justice Robert Jackson captured this subtlety: While the Constitution diffuses power to better secure liberty, it also contemplates that practice will integrate the dispersed powers into a workable government. It enjoins upon its branches separateness but interdependence, autonomy but reciprocity. Thus, the question is about how Congress and the President share power—or should share power—in managing the executive branch. This report and the compendium examine part, but not all, of that conversation so far. The Constitution gives Congress the power to establish administrative agencies and determine how they operate. Article I, Section 1 of the Constitution provides that "[a]ll legislative Powers herein granted shall be vested in a Congress of the United States." Section 8 provides further that Congress ... shall have Power ... [t]o make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof. In turn, the Constitution gives the President considerable power to manage the executive branch. Article II, Section 1 vests the executive power in the President, and Section 3 provides that the President "shall take Care that the Laws be faithfully executed." However, this power is limited. As one commentator states, the President's duty is "to ensure that officials obey Congress's instructions," and Article II's 'take Care' clause "... does not create a presidential power so great that it can be used to frustrate congressional intention." Article II makes only two explicit references to executive departments. Section 2 states the President "may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices." Section 2 also mentions "Heads of Departments" when outlining the President's appointment powers. In September 1789, Congress enacted two of the nation's initial general management laws. The Treasury Act established the Treasury Department and the basic elements of the federal government's financial management system (1 Stat. 65), including provisions for warrants, accounts, and audits. Several days later, Congress enacted a law to establish the annual salaries for the Secretaries of the Departments of the Treasury, State, and War, and to impose a salary cap for clerk positions in these departments (1 Stat. 67). By the end of the 18 th century, only these three departments and the Navy Department had been created, along with the office of Attorney General and the Post Office. Nonetheless, after the nation's founding, elected officials gradually experienced greater difficulty in administering the federal government of a growing nation. The Federalists, including Alexander Hamilton, had by 1801 "created from almost nothing an administrative system," including the establishment of an independent chief executive vested with administrative authority, effective delegation of authority by the President to heads of departments and subordinates, and the formation of a fiscal system for the government. After ascending to power in 1801, the Democratic-Republicans, led by Thomas Jefferson, generally accepted the Federalist framework for government administration that they inherited. Congress, however, became more active in its dealings with the administrative system than it had been previously. In addition, the country was growing in geographic size and population; and by the end of the 1820s, "[b]oth Presidents and department heads were badly overburdened with official work, but neither of the two obvious remedies—delegation or provision of administrative assistants—were grasped." Over time, and in response to the increasing volume of work in government administration, federal employment rose from about 4,837 employees in 1816 to 36,672 in 1861. In addition, the organization of executive departments became more complex: The structure of the executive departments in 1860 was much more complex than in 1800.... The difference, may be stated, with some exaggeration, by asserting that in 1800 a department consisted of the Secretary, clerks, and a field establishment, while in 1860 a department consisted of the Secretary, a group of bureaus handling the mass of routine business usually without the intervention or even knowledge of the Secretary, and a field service that, in the larger establishments, exceeded in size the parent departments of an earlier day. Several developments after the Civil War—including industrialization, the Progressive Movement, efforts to combat the Great Depression, two world wars, and increasingly complex social policy problems—led to the rise and growth of the administrative state and significant challenges to effectively managing the executive branch. To deal with the complexity, "[b]y 1946 ... Congress had become a delegator, vesting much of its legislative authority in administrative agencies, and a great deal of the initiative for policy making and budgeting had passed to the executive branch." Observers noted that Congress sometimes found it difficult to legislate in detail, and increasingly relied upon agencies' discretion and technical expertise to flesh out, and even formulate, public policies. In other words, observers argued that agencies sometimes exercised legislative powers. In response, and also to improve executive branch management practices, Congress over time expanded the number and types of general management laws to address myriad aspects of the modern-day executive branch, as the entries in the CRS compendium help show. For example, Congress moved to increase transparency in its oversight of the executive branch by passing legislation such as the Administrative Procedure Act (1946), the Freedom of Information Act (1966), the Federal Advisory Committee Act (1972), and other laws described in the compendium. To improve congressional oversight and increase executive branch accountability, Congress established inspectors general (1978), enacted the Congressional Review of Regulations Act (CRA), and required agency strategic planning with the Government Performance and Results Act (1993). However, Congress did not merely seek to improve its oversight capacity. Congress also sought to reassert influence over the budget process with the Congressional Budget and Impoundment Control Act (1974). Because many agencies could not accurately account for their financial operations, Congress passed the Chief Financial Officers Act (1990) and other laws to improve agencies' capacities to manage their finances. The list goes on, as the compendium's more than 90 entries illustrate. In sum, then, should general management laws be thought of as legislative action and the results of congressional oversight, necessary to bring disciplined management to executive branch agencies? Or, less favorably, should they be thought of as statutory directives that stifle flexibility and initiative? Or does the answer lie somewhere in between—for example, the laws narrow agency discretion in management and perhaps help the President to motivate changes in agency behaviors? The conclusion likely depends on the viewpoint of the questioner and the situation at hand, but history can help shed light on the matter. In any case, numerous and potentially controversial issues—both perennial and new—remain which Congress may consider. Before the report outlines some of these issues, however, the next section discusses how scholars have approached an important question: to what extent can, or should, management practices in the public and private sectors be compared? Can government be run like a private-sector company? Scholars and practitioners often see points of similarity and overlap between management of the public and private sectors, and frequently seek to take management-related "lessons learned" from one sector to the other. They also conclude that key differences should be recognized and respected. Thus, management and public administration scholars have recommended caution, in general, before applying private-sector management principles to government agencies. Public administration scholar Wallace Sayre is widely cited for his aphorism: "public and private management are fundamentally alike in all unimportant respects" [emphasis added]. One of the most significant differences is that public-sector agencies and private-sector companies operate under different sets of laws, which were established to regulate public-sector and private-sector behaviors for very different purposes. For example, under the Constitution and public law, government has coercive power: government can regulate some private activity and collect taxes. To prevent arbitrary exercise of coercive power, the framers of the Constitution established a system of checks and balances and separation of powers. Federal government agencies may only act under authority provided in public law, as formulated, executed, and adjudicated by Congress, the President, and the courts, on behalf of the American public. These laws authorize an agency's mission (i.e., its purpose for being) and establish how the agency is required to operate. In contrast, a private company operates under laws enacted to create and regulate a functioning market economy (e.g., antitrust and financial reporting laws). Furthermore, these laws generally do not prescribe what the company is to do, or how the company should operate. Under this framework of law, a company is, in principle, accountable primarily to its particular owners or shareholders, who bear financial risk. Scholars and commentators have cited many other differences between government agencies and private sector organizations. For example, [t]o a much greater extent than is true of private bureaucracies, government agencies (1) cannot lawfully retain and devote to the private benefit of their members the earnings of the organization, (2) cannot allocate the factors of production in accordance with the preferences of the organization's administrators, and (3) must serve goals not of the organization's own choosing. Control over revenues, productive factors, and agency goals is all vested to an important degree in entities external to the organization—legislatures, courts, politicians, and interest groups. Given this, agency managers must attend to the demands of these external entities. In addition, government frequently encounters comparative difficulty measuring—and coming to consensus on how to measure—the performance of agencies. Given the history of managing the executive branch and also the differences between management practices in the public and private sectors, the entries in the compendium of general management laws may raise public policy issues, both for the general management laws themselves and for specific agencies. Moreover, when considering the compendium as a whole—viewing the general management laws together—several major themes emerge. Each of these themes, in turn, may raise potential issues and "management policy" options for Congress. Congress frequently faces the question "How much discretion should we leave for the executive branch?" For example, when examining or reexamining any of the general management laws, the question often becomes how much discretion the executive branch should be authorized to determine the contents, scope, or priorities of agency actions. This question has been heavily debated for some time. On one hand, giving discretion to the executive branch can provide agencies flexibility to tailor the implementation of laws to specific circumstances as the President or agencies perceive them. In addition, some observers argue that this discretion allows agencies to be more responsive if circumstances later change. For example, an agency might take less time to issue and implement regulations, or to exercise initiative to pursue a management action, than the time necessary for a law to be passed. Further, many argue that when agency responsibilities involve scientific standard-setting or other technical judgments, the executive is often in a better position to do so. On the other hand, discretion can allow the President or an agency to make decisions or engage in operations that might not have support from Congress, had the subject been considered explicitly during the legislative process. The President's or an agency's views regarding the "right thing to do" might be at variance with those of Congress and key stakeholders. Furthermore, some argue that if the President or an agency has different views and acts accordingly, Congress might not have resources or time to notice the agency actions or to intervene in a timely way. Granting discretion to the executive branch can also put key decisions in the power of unelected agency officials, when some stakeholders might wish for more transparency and political accountability. With regard to general management laws, Congress faced this tension between flexibility and accountability in 2002 and 2003, when considering whether to grant the Departments of Homeland Security (DHS) and Defense (DOD) discretion to determine some of the contents of their human resources management (HRM) systems through regulation. A similar situation arose in 1993, when the Clinton Administration's National Performance Review (NPR) recommended a number of ways to "cut red tape" in procurement policy, culminating in passage of the Federal Acquisition Streamlining Act of 1994 (FASA; 108 Stat. 3243). The tension is perhaps most common in the regulatory arena. In considering situations when Congress weighs whether to give discretion to an agency, and if so, to what extent, scholars have noted four general options that can be used alone or in combination by Congress to address delegation situations and help balance flexibility with accountability. Contract design: Congress can set the conditions for a delegation of authority to better ensure that its intentions will be carried out by the executive branch, as well as reduce risk of adverse consequences. For example, Congress could establish goals, sanctions, probation periods, or sunsets; require the use of pilot projects; or establish "profit-sharing relationships" (i.e., establish incentives for agencies to behave in ways that benefit both the agency and the government as a whole—for example, an agency might be allowed to retain 50% of unspent funds after the end of a fiscal year, thereby providing an incentive against end-of-the-year "use it or lose it" spending behaviors). Screening and selection mechanisms: To avoid delegating authority to an agency in a way that could risk poor "on-the-job" performance with a given task, program, or management initiative, Congress can try to look beforehand for signals or other information that indicate whether the executive branch agency and its officials will likely do the work effectively. For example, Congress could convene hearings to determine whether the agency rigorously analyzed a problem and its potential solutions or look for evidence that the agency has organizational capacity and management skill to do the job. Monitoring and reporting requirements: To increase accountability and transparency for a given activity or program, Congress can require agencies to report their "actions taken," milestones they have reached, and any information the agencies have obtained during their activities. The rationales might be to (a) monitor agency actions that are difficult to oversee and (b) make available information that is difficult for Congress and outside stakeholders to access. The advent of information technology and the Web may enable such reporting to be close to real-time and more frequently updated. However, some commentators argue that a proliferation of reporting requirements can be burdensome, and that reports to Congress are not always used. Institutional checks: When authority is delegated to an agency, Congress can ensure that one or more additional agencies or entities can veto or block the delegate agency's actions. For example, Congress could involve another agency in the promulgation of regulations (such as the DHS personnel system, which requires that regulations be prescribed jointly by DHS and the Office of Personnel Management (OPM)); require notice and comment before an agency is allowed to proceed with certain actions; provide sequential funding within an appropriation that is contingent upon certain conditions at each of several milestones; require the agency or additional agencies to conduct an independent study examining an issue; or use "committee vetoes" to prevent certain actions absent congressional committee approval. Should the management laws under which agencies operate be standardized, with rules that apply uniformly to many different agencies? Or should some (or all) agencies have agency-specific laws that are customized to each agency's internal and external environments? Or should there be a mix of these two approaches? This tension between standardization and customization arises frequently for Congress with respect to management of the executive branch—where varying degrees of standardization and customization can exist in general management laws, authorizing statutes, or appropriations. Many experts believe standardization can help improve executive branch transparency and accountability. For example, the Administrative Procedure Act, enacted in 1946, was intended to establish basic requirements across the executive branch for agency rulemaking. With regard to another functional area, financial management, Congress introduced standardization in stages. The Chief Financial Officers (CFO) Act of 1990 (104 Stat. 2838), as amended by the Government Management Reform Act of 1994 (GMRA; 108 Stat. 3410), required 24 major executive departments and agencies to prepare audited financial statements covering all their accounts. This requirement contributed to many agencies receiving unqualified ("clean") opinions in FY2002. In 2002, Congress further amended the CFO Act to extend similar requirements to most other executive agencies with passage of the Accountability of Tax Dollars Act (116 Stat. 2049). Standardization can also promote accountability by putting the burden of proof on agencies to demonstrate when (or if) exceptions are necessary. By contrast, customization can also be beneficial for effective management. Customization can help align an agency's management with both the agency's internal environment (e.g., culture, size, decision-making processes) and its external environment (e.g., economic conditions, events, stakeholder and client needs). Congress regularly uses authorizing statutes, appropriations, and accompanying reports to require or direct specific actions (or prohibitions) for agencies, but Congress also builds customization into general management laws. For example, until recently, small agencies were not generally required to prepare audited financial statements. Similarly, when the Department of Homeland Security (DHS) was established by the Homeland Security Act of 2002 (116 Stat. 2135, at 2145), the new agency's CFO position was not subject to CFO Act requirements. Another example comes from the HRM area. In the last two years, DHS and the DOD were granted authority to customize several significant (but not all) aspects of their HRM systems apart from the standardized laws of Title 5 of the United States Code . A third possibility is to mix the two approaches. The examples described above move toward standardization or customization, but also represent varying degrees of a mixed approach— balancing standardization with customization. Under a mixed approach, general management laws are applied to all or most agencies, but Congress can, nevertheless, make exceptions to a smaller or larger extent, or allow some flexibility within the laws' broader requirements. An example of the mixed approach is the Government Performance and Results Act of 1993 (GPRA; 107 Stat. 285), which required most executive branch agencies, in consultation with Congress, to develop strategic plans. However, GPRA provided only a general framework within which agencies were required to comply, without prescribing detailed format or contents. Each of these approaches—standardization, customization, and mixed—can bring advantages and disadvantages. Alongside the advantages described above, standardization can sometimes be too rigid, stifling initiative or creativity. In turn, customization can sometimes reduce transparency or accountability if agencies do not report in real-time on the nature and status of their customized efforts, or if oversight and analytical resources are too scarce or distracted to support monitoring how well a customized law is working. Customization can also lead to different entities working at cross-purposes. For example, if agencies gain pay flexibility but then were to begin a bidding war for certain types of employees, the budgets of each agency would come under pressure. Mixed approaches can suffer from all these problems. Therefore, in addition to the three general approaches outlined above, Congress also has policy options for avoiding these problems. Generally, the decision to use one of these approaches is highly contextual, depending on the nature of "the problem" to be solved (as defined differently by numerous stakeholders), the problem's history, the actors who are involved, and a host of other factors. Nonetheless, one overall option is to examine regularly whether increased customization or standardization in a general management law is necessary for improved transparency, accountability, efficiency, or effectiveness. Analytical support in weighing the evidence can come from a variety of sources including agency management, agency program evaluations, inspectors general, the General Accounting Office (GAO), and outside scholars and evaluators. Another overall option in situations where customization is widespread (e.g., human resources related laws) is to reduce the analytical burden for Congress and other stakeholders in their efforts to monitor the situation, by requiring the executive branch to maintain comprehensive, real-time descriptions of the current state of affairs and maintain updated comparisons showing any differences across agencies. As illustrated by the compendium's introductory profile of Title 5 human resources laws (section VII.A., "Title 5: The Federal Civil Service"), increasing fragmentation of civil service laws may increase the difficulty of monitoring, comparing, and analyzing government-wide developments in general areas like pay, performance management, and adverse actions and appeals, for different agency and bureau workforces. Establishment of reporting requirements in areas of widespread customization may help reduce the analytical burden for Congress and the public in examining the extent of customization and standardization, or exploring possible changes if customization does not produce the desired outcomes. Such reporting might be possible on a real-time basis on the Web. Central management agencies like the Office of Management and Budget (OMB), OPM, the General Services Administration (GSA), the Financial Management Service (FMS) of the Treasury Department, or others could be candidates to report how certain management policies are customized and, thereby, facilitate government-wide analysis and comparisons. However, such requirements would likely entail costs for the reporting agencies. It is no coincidence that the general management laws can be grouped into "functions," such as financial management, human resources, and procurement. Most organizations in the private and public sectors manage themselves, to a greater or lesser extent, with a functional orientation or functional structures. For example, even when an organization is structured according to "customers"—or, as in the case of the Internal Revenue Service, "taxpayer groups"—functional perspectives still reside within business or administrative units, shared services, and headquarters. A functional perspective is considered important, because it can boost efficiency through specialization and ensure centralized control over strategic decisions. However, if the functional orientation becomes too inward-looking, organization-wide coordination and decision-making can become problematic, and an organization's internal development of general managers can be inhibited. Thus, borrowing a term from the management literature, various functions can tend to operate as functional silos , in isolation from each other. This can create problems for the organization as a whole, or cause opportunities to be missed. Management literature acknowledges the continuing importance of functional perspectives, but only within the broader context of an integrated, general management perspective. An excerpt from one business school's website explains this perspective: All of us come to a problem, opportunity, or decision with a set of assumptions that are based on our backgrounds and experiences. For example, someone who has spent years in a finance function concentrating on, say, managing cash flow, raising capital, and budgeting will have a particular point of view that is different from someone whose experience has been in marketing focusing on product development, segmenting customers, product positioning, etc. Two implications arise from this: (1) Each person will have only a "limited" view of the whole story, and may be driven to define a problem as a "finance" or "marketing" problem because this is what their experience tells them, and (2) Each person may be correct, but only partially.... The solution is to develop a general management perspective. The general management perspective seeks to integrate multiple functional perspectives to arrive at a complete understanding of a problem or opportunity. A recent example of this general management perspective could include efforts to use information technology to help improve human resources management and financial management. An integrated general management perspective—especially when combined with the perspective of focusing on individual functions—provides a potential toolbox of options for addressing executive branch management problems. Many of the general management laws focus on improving the executive branch's management fundamentals in individual functional areas (e.g., cleaning up agency finances, improving the process for purchasing technology, or addressing human capital problems). But the general management laws need not be viewed in isolation from one another. Instead, from an integrated general management perspective, these laws may be utilized to provide mutual support to each other, as illustrated below. Integration could occur through a variety of means, including changes to the general management laws, agency authorizing statutes, and agency appropriations, and through other legislative and oversight tools. For example, to integrate functional perspectives, Congress might consider: leveraging the E-Government Act of 2002 (information technology perspective) to achieve more timely and frequent financial and performance reporting (financial management and program evaluation perspectives), by requiring agencies and the OMB to utilize the Federal Enterprise Architecture for reporting results closer to real-time, in order to better support congressional oversight, reauthorization, and appropriations (budgeting perspective) activities; directing appropriations (budget perspective) to ensure specific funding is used to hire, train, and retain contract oversight specialists (human resources perspective) in order to help certain agencies better manage and monitor their contracts (acquisition perspective); restructuring the budget accounts of some agencies (budget perspective) to better align resources with individual programs (organizational perspective) and program evaluations of these programs (performance measurement and program evaluation perspective) to align resources with results; or leveraging the Chief Human Capital Officers Act of 2002 by requiring OPM to develop metrics for assessing whether agencies dedicate sufficient staff resources (human resources perspective) for contract management and oversight (acquisition and program evaluation perspectives). Other options for leveraging functional perspectives into an integrated general management perspective could include various combinations of the general management laws in the compendium. These options could be constructed to apply generally to many agencies or only to specific agencies, and could include any of the following functional perspectives: information policy, regulation, strategic planning, performance measurement, program evaluation, auditing, investigation, financial management, budgeting, accounting, organization, acquisition management, real property management, intergovernmental relations, human resources management, and ethics. The history of federal government management reform is replete with efforts, in both the legislative and executive branches, to improve agencies' performance, organization, and management practices. Many of these efforts focused on improving agency management practices and closely involved the general management laws. However, in spite of these efforts, many observers have concluded that progress has been difficult to achieve. Congress has faced major challenges in its oversight of executive branch management, especially regarding: how to ensure executive branch agencies improve their management practices by complying with general management laws, and how (or whether) to measure agencies' progress in improving their management practices. Management literature generally holds that measurement can be a strong motivator to action, and frequently quotes industrial psychologist Mason Haire: "What gets measured gets done. If you are looking for quick ways to change how an organization behaves, change the measurement system." While measurement systems can motivate action and commitment, they can also create perverse incentives in some situations. To use an analogy from the private sector, if a company's employees are rewarded only on the basis of short-term profits and not long-term research and development that would keep the company profitable in the future, employees may show less interest in longer-term performance. An illustration more applicable to the federal government may be the achievement of unqualified financial audits, where "[c]lean audits of an agency's financial systems ... look like a sign of good fiscal management, but not if they are achieved only by applying brute force at audit time in manually working around deficient systems." Some history helps put the current situation into context. In the last 25 years, agency inspectors general (IGs) and the GAO have reported persistent, major management problems in executive branch agencies in such areas as financial management, acquisition, information technology investment, human resources, and the strategic planning and implementation of major programs —areas the general management laws were intended to address. Beginning in 1992 and most recently in 2003, GAO released six continually updated series of reports detailing "high risk" areas and major management challenges that affect specific agencies or cut across many agencies government-wide. GAO stated in these reports that progress was made by the executive branch and Congress to address these issues, but GAO also reported that much work remained to be done. Both before and during this period, several management reform initiatives were pursued by presidential administrations, including, for example, President Ronald Reagan's Reform '88 initiative; President George H. W. Bush's efforts to address financial management, information resources management, and high risk areas; and President William Clinton's NPR. Members of Congress and their committee staff frequently expressed concern during this period about the state of government management. For example, in 1992, the majority staff of the House Committee on Government Operations took a retrospective look and recommended actions to improve central management, procurement, information resources management, financial management, and human resources management. Nearly a decade later, in June 2001, Senator Fred Thompson, Chairman of the Senate Governmental Affairs Committee, released a report concluding that "urgent federal government management problems" faced the administration of President George W. Bush, including problems regarding the federal workforce, financial management, information technology, and overlap and duplication. More recently, in August 2001, President George W. Bush's Office of Management and Budget released the President's Management Agenda (PMA), which includes five government-wide initiatives: (1) Strategic Management of Human Capital, (2) Competitive Sourcing, (3) Improved Financial Performance, (4) Expanded Electronic Government, and (5) Budget and Performance Integration. Under the PMA, OMB leads quarterly evaluations of agencies to gauge "status" and "progress" for each of the initiatives with red, yellow, or green "stoplight scores," based on published "standards for success." These standards cite what the Bush Administration believes should be done to solve the most difficult management problems facing the federal government. According to the PMA website, an agency is green on status for an initiative if the agency meets all the standards for success, yellow if it has achieved some, but not all, of the criteria, and red if it has any one of a number of serious flaws. For progress, OMB assesses each agency "on a case by case basis against the deliverables and time lines established for the five initiatives," as agreed to by the agency and OMB. A green on progress means that "[i]mplementation is proceeding according to plans agreed upon with the agencies." In turn, yellow indicates "[s]ome slippage or other issues requiring adjustment by the agency in order to achieve the initiative objectives on a timely basis." Finally, red shows the "[i]nitiative [is] in serious jeopardy" and is "[u]nlikely to realize objectives absent significant management intervention." The five government-wide PMA initiatives fall, to some extent, into functional categories. However, OMB stated that the five initiatives would be mutually reinforcing, where efforts in one initiative would be consistent with and benefit from efforts in the other initiatives. Notably, the five initiatives also use a number of the general management laws to achieve the PMA's goals. For example, the Competitive Sourcing initiative utilizes ("leverages") the Federal Activities Inventory Reform (FAIR) Act of 1998; the Improved Financial Performance initiative leverages the Antideficiency Act, Federal Managers' Financial Integrity Act of 1982, Chief Financial Officers Act of 1990, Government Management Reform Act of 1994, and Federal Financial Management Improvement Act (FFMIA) of 1996; the Expanded Electronic Government initiative leverages the Clinger-Cohen Act of 1996, E-Government Act of 2002, and Federal Information Security Management Act (FISMA) of 2002; and the Strategic Management of Human Capital and Budget and Performance Integration initiatives leverage the Government Performance and Results Act of 1993. In the news media, some agencies have stated that the PMA is being taken seriously, and that significant progress is being made. However, several additional observations about PMA measurement practices can be made that relate to congressional oversight of the general management laws. First, PMA evaluation practices have not been fully transparent outside of the executive branch. While the standards for success are publicly available, detailed rationales and worksheets behind these grades are not. By contrast, OMB assessments of agency programs using the Program Assessment Rating Tool (PART)—a component of the Budget and Performance Integration initiative—were considerably more transparent. OMB published overall PART assessments in the President's FY2004 budget proposal, but, to increase transparency, OMB also released detailed worksheets showing the evidence OMB used to complete assessments of agency programs. The stoplight scoring criteria may make subjectivity difficult to avoid for some of the initiatives. For example, the current standards for success state that to achieve green on status for the Expanded Electronic Government initiative, an agency must have "acceptable" information technology business cases. Similarly, for the Strategic Management of Human Capital initiative, an agency must have succession strategies that "result in a leadership talent pool." Furthermore, independent evaluation organizations (e.g., GAO or agency IGs) have not conducted verification and validation assessments of the overall agency stoplight scores. Finally, the scope of the PMA does not necessarily cover all aspects of general management laws that outside observers might consider important. For example, the PMA's acquisition-related initiative, Competitive Sourcing, does not include either contract oversight or small business contracting concerns among its criteria, when GAO and outside observers have expressed long-standing concerns over these management issues. Real property management issues are also not explicitly addressed by the PMA. The PMA is not the first time that the executive branch, nongovernmental organizations, or Congress have endeavored to influence agencies to improve their management practices by measuring compliance with general management laws. For decades, agency IGs and GAO have focused in detail on specific problems within agencies. As described earlier, OMB and GAO also created "high risk" programs to focus on particularly troublesome management areas. Moreover, some (especially in Congress) have undertaken measurement efforts to make assessments about specific general management laws and functional areas that are comparable across agencies. For example, for several years, Representative Stephen Horn issued letter grades to evaluate agency financial management and information security performance. Representative Adam Putnam has continued that practice for information security in evaluating agency compliance with the Federal Information Security Management Act of 2002. Senator Fred Thompson similarly issued grades for agency annual performance reports required by the Government Performance and Results Act. In light of this overview, one could again ask the questions that began this section. What options are available to Congress to ensure that executive branch agencies improve their management practices by complying with the general management laws? Furthermore, if it is possible to measure agency progress (through cross-agency comparisons that are easily understood and that motivate action by political appointees and senior career officials), how could Congress measure or monitor the extent to which agencies improve their management practices? Some options include: Maintain current efforts: Congress could continue to use existing oversight tools and institutions, including GAO and agency IGs, to monitor progress selectively in the executive branch's efforts to improve agency management practices, while preserving executive branch discretion in the scope and intensity of these efforts. This option would arguably involve little additional cost and would not constrain the activities of the executive branch more than currently. Critics argue, however, that Congress does not use these tools effectively or frequently enough. Independent verification and validation: Congress could ask (or direct) GAO and agency IGs to more systematically verify and validate PMA stoplight scores and the corresponding agency actions-taken, either government-wide or in selected agencies. This option could increase congressional confidence in executive branch measurements and determinations, but would likely involve costs, and could be perceived negatively by the executive branch as micromanagement or redundant with current activities. Transparency: Congress could secure from OMB or the agencies access to final PMA stoplight worksheets, similar to what OMB currently provides for the PART. This option could further open executive branch management problems to public discussion, but the executive branch might argue that such a requirement would increase costs and managerial workloads. Independent measurement: Congress could direct GAO or IGs to develop measures, and systematically measure agency progress in improving management practices in a way that could be compared easily across agencies—along functional lines or for specific general management laws. This option could make management improvement measurement more systematic so that it would survive the transition from one presidential Administration to another, but could increase workload and costs for GAO, IGs, and agencies. Measurement through GPRA: Congress could amend GPRA to require agencies formally and explicitly to address major management problems and high-risk areas in their strategic plans, annual performance plans, and annual performance reports. This might be done, for example, by requiring the establishment of milestones and timelines for improvement, both in addressing the problems and in building agency management capacity (e.g., identifying whether, where, and to what extent management capacity needs to be improved for an agency to make adequate progress). Congress could also require the President to address these issues in the government-wide performance plan required by 31 U.S.C. § 1105(a)(28). Depending on congressional preference, this option could make management improvement measurement statutory or more systematic, or both, but could increase workload for agency and OMB personnel. A fifth and final major theme that runs through the compendium of general management laws is the expanding set of (a) agency "chief officer" positions (and their equivalents) and (b) interagency councils of these officers. Chief officers, who are sometimes also called "CXOs," include a variety of statutory, senior positions in executive branch agencies that usually head a function (human resources, financial management, procurement, etc.) within each agency. These chief officers now include, in chronological order of establishment by statute: inspectors general (established 1978); chief financial officers (established 1990); chief information officers (CIOs; established 1996); chief human capital officers (CHCOs; established 2002); and chief acquisition officers (CAOs; established 2003). On the next page, Table 1 summarizes key categories of information about each of these officers, including (1) the function(s) with which the officer position is typically associated, (2) the law that established the officer position, (3) a United States Code citation for key statutory provisions, (4) a summary of the statutory rules governing appointments for the position, and (5) the person to whom the chief officer reports. As the table shows, some of these officers are presidentially appointed with Senate confirmation (PAS); some are presidentially appointed, and others may be appointed or designated by an agency head. Many positions can be filled with political or career employees, but CAOs and certain CFOs are required to be political (non-career). With regard to reporting relationships, three chief officers are required to report directly to the agency head (IGs, CFOs, and CIOs), but reporting relationships for the other two officers (CHCOs and CAOs) are left to an agency head's discretion. A detailed history behind the creation of each of these chief officer positions is not within the scope of this report. However, a common theme behind the creation of the positions was many observers' belief that senior managers within executive branch agencies paid insufficient attention to functional perspectives (e.g., financial management) in managing their agencies. Therefore, many observers believed that each functional perspective needed to be "elevated" to a higher, more salient position within agencies' management ranks, as a means to ensure that long-standing problems would be addressed. In turn, each group of chief officers was placed into an interagency council by statute or executive order. Table 2 , on the next page, summarizes key information about each of these councils, including (1) the statutory membership of the council, (2) the chair of the council, (3) a United States Code or Code of Federal Regulations citation for key statutory provisions or the executive order, (4) the law or executive order that established the council, and (5) notes and the council's website location, if available. As the table shows, four of the councils were established by law, but two (the IG councils) exist through executive order. Memberships of the councils vary considerably, but the Office of Management and Budget's deputy director for management is the chair or vice chair for each, thus enabling the Executive Office of the President to direct, or at least influence, each council's activities. President Ronald Reagan established the first of these councils, the President's Council on Integrity and Efficiency (PCIE), with a membership of agency IGs through executive order in 1981. The executive order required the PCIE to develop "plans for coordinated government-wide activities which attack fraud and waste in government programs and operations." According to one observer, "the PCIE would quickly become a continuing source of leverage as the IGs fought for resources within their agencies" and sought to become more independent. Furthermore, the PCIE "was roundly endorsed as a tool for both enhancing the lobbying power of the IGs and building the informal networks that support organizational learning." The PCIE established standing committees in areas where IGs found benefits from sharing ideas or cooperating on projects. According to an IG who was asked what he thought about the PCIE in a hearing before the House Committee on Government Operations in 1988: I think [the PCIE has] been an extraordinarily positive innovation.... [I]t has permitted us to work together, and to come together. We develop our own work plan.... It has provided a mechanism I think is unique in Government.... We're all very close colleagues and friends because of the fact that we can work together; we have a mechanism to go across the Government on fraud, waste, and abuse issues. I can't overstate the value of that particular vehicle of the Council. However, the PCIE was also criticized in the late 1980s as "'a trade union ... for the IGs, ... an opportunity to get together and figure out ways to grow.'" In 1992, President George H. W. Bush issued a new executive order establishing two IG councils, the PCIE for presidentially appointed IGs and an Executive Council on Integrity and Efficiency (ECIE) for IGs typically appointed by agency heads. The Chief Financial Officers (CFO) Council, the second council to be created, was established by the Chief Financial Officers Act of 1990. The CFO Act also established the deputy director for management (DDM) position in the President's Office of Management and Budget. The CFO Act gave the DDM chairperson status over the CFO Council, and, moreover, charged the DDM with overall responsibility for establishing "general management policies" in the executive branch for the "functions" listed at 31 U.S.C. § 503(a) and (b), which include financial management, procurement policy, information and statistical policy, property management, human resources management, and program evaluation, among other functions. According to one commentator, the CFO Council was initially "passive." However, in 1994, council members recommended several actions to energize the council: broaden membership to include career deputy CFO positions that were also established by the CFO Act, elect several council officers, and set the agenda themselves rather than receive it from OMB. OMB supported the recommendations. Similar to the PCIE, the CFO Council also formed a variety of committees for areas of special emphasis. Finally, the commentator concluded: [OMB's deputy director for management] has only modest resources at his disposal, but he has tremendous leveraging opportunities through the many interagency councils he chairs. That approach is clearly working with the CFO Council, which can serve as a model for other interagency efforts. After the CFO Council was established and running, Congress established three additional chief officer councils: the CIO Council in 2002, the CHCO Council in 2002, and the CAO Council in 2003. The establishment of IGs, CFOs, and CIOs has met with little criticism. On the contrary, long-time observers generally concur that these three chief officer positions (the ones with longest track records) are important and have been successful to greater or lesser extents in bringing focus to their functional perspectives. Nonetheless, as the entries in the compendium mention, observers have identified some difficult challenges that face these officers in their efforts to improve agency management practices, including high turnover among CIOs, potential difficulties with change management as agency financial reporting requirements continue to accelerate, and performance measurement. More broadly, some commentators have argued that, even after these positions were created, agencies continued to suffer from persistent management difficulties when budget pressures and lack of attention from political appointees, who typically serve for short times, diminished agencies' management and analytical capabilities. Further, many management scholars remain wary of functional silos that sometimes see the world from a narrow, functional perspective at the expense of a more integrated general management perspective. With regard to interagency councils of chief officers, observers have noted periods of more and less effectiveness, as discussed above. However, observers generally agree that interagency councils have been beneficial. Public management scholars, in recent years, have paid increasing attention to the potential benefits of interagency collaboration. As noted in the compendium's entry for Chapter 14 of Title 5, United States Code , Congress received testimony from a former OMB official that councils can play an important role in improving federal management: I think the [Chief Human Capital Officers] Council is important because more and more academic research on how organizations work well suggests that setting up networks of people to share knowledge, share best practices, share information, share approaches, is a very important thing in getting organizations to perform well. So I think having a situation where the different human capital officers in the different parts of the Federal Government meet regularly, get to know each other, talk to each other, can be very valuable. Within the management literature and in many companies and government agencies, considerable attention has been devoted to this "knowledge management" perspective. However, management theorists are ever-wary of the possible allure of seeing agencies' problems primarily from the perspective of only one function, which they argue should be avoided if that functional perspective becomes too narrow and runs the risk of doing violence to other functions or the agency overall. In addition, some scholars and practitioners have emphasized instead that the problem of improving federal executive branch management requires a re-thinking of the structure and role of OMB, within the Executive Office of the President. Congress might consider further questions with regard to chief officers and interagency councils. For example, should executive branch agencies have additional chief officers, or their equivalents? Are there too many chief officers already? Should anything be done to preserve institutional memory and continuity for chief officer positions occupied by political appointees, whose tenures are short? Should all the councils be statutory? How should the councils be funded? Should the councils be made more accountable to Congress through direct appropriations and periodic reporting? These options are briefly outlined below. " Chief security officers " : GAO has found that agencies may not have adequate plans for ensuring that government services are available in emergencies. In the wake of the war against terrorism and increasing consciousness of physical and information security risks for federal agencies, should Congress establish agency "chief security officers" (CSOs)? According to a 2002 news report, over half of 72 surveyed corporate chief executive officers had designated CSOs. According to the website for CSO Magazine , many CSOs deal solely with information technology and report to the company CIO. However, CSO Magazine 's website also asserts that, "[i]n a growing number of large enterprises, the CSO handles not only IT but all security responsibilities, such as access to buildings and grounds." While establishing statutory CSO positions could encourage battles for turf between CIOs and CSOs with regard to information security, creating these positions might bring a more integrated approach to security and risk management at federal agencies. Many federal agencies, however, may already have established systems and processes to address these issues. In addition, in view of the increasing number of chief officers, some observers might argue that requiring an additional type of chief officer for agencies would be excessive. " Chief program evaluation officers " : Many observers have asserted that agencies frequently do not adequately evaluate the performance or results of their programs—or integrate evaluation efforts across agency boundaries—possibly due to lack of capacity, management attention and commitment, or resources. Congress could establish "chief program evaluation officer" (CPEO) positions in major agencies to bring more attention to this function if it deemed these to be serious problems. Because programs can differ considerably and the field of program evaluation is highly interdisciplinary, evaluation methods differ from program to program. Proponents might argue that establishing these chief officer positions could create a "seat at the table" for program evaluation in agency senior management teams, helping agency efforts to improve performance or coordinate programs with overlapping missions. However, critics might argue that establishing another type of chief officer would be excessive. Chief officer appointments: If Congress decided to alter existing chief officer positions or establish new ones, it would have a number of options regarding appointments. Table 1 shows how the existing chief officers are allowed (or required) to be appointed positions under current law. Some positions are required to be political; others are required to be career, and some are left to an agency head's discretion. In recent years, there has been discussion of these differences. In congressional testimony regarding the proposed CHCO positions, witnesses came down on both sides of the question. Political appointees can get a "seat at the table" with the agency's leadership to ensure that a given functional perspective is considered. However, career officials can provide continuity and institutional memory from one presidential administration to another, while by contrast, political appointees turn over frequently. Similar arguments were voiced with regard to CAOs. In enacting the CFO Act, Congress reflected both of these perspectives; the CFOs were political, while the deputies were career. Chief officer reporting relationships: As illustrated by Table 1 , CFO and CIOs, by law, must report directly to the agency head, while IGs must report to the agency head or to the official "next in rank." However, the reporting relationships of CHCOs and CAOs are left to each agency head's discretion. Are these reporting relationships still appropriate, in view of agency management needs and progress (or lack thereof) in addressing major management problems? One argument made for a direct reporting relationship to the agency head is to ensure that the chief officer (who brings his or her functional perspective) gets personal access to the agency's senior leadership. However, agency heads frequently have a large number of people reporting directly to them (i.e., "direct reports"). An additional direct report could cause too large a span of control for the heads of some executive branch agencies. The IG councils: With regard to interagency councils, a potentially important option for Congress to consider is whether to make the IG councils statutory by codifying the mandates of the PCIE and ECIE into law, versus the status quo of allowing the two councils to continue as organizations established by executive order. As summarized in testimony before the Committee on Government Reform's Subcommittee on Government Efficiency and Financial Management, the vice chair of the PCIE stated his belief that codification would require "modest appropriations," but would facilitate better training, strengthen the relationship between IGs and Congress, and improve coordination between IG offices in the federal government. Others might argue, however, that this change would reduce flexibility or control by the President. More on this subject is discussed in the compendium's profile of the Inspector General Act of 1978. Funding for interagency councils: Congress has several alternatives for providing funding for the different interagency councils. The IG councils (the PCIE and ECIE) self-finance their common activities via memorandum of understanding (MOU) instead of by appropriations or interagency transfers. For example, the IG offices sign an MOU under which one IG office (e.g., the office for the Department of Health and Human Services) pays for the councils' website from that office's regular appropriation, while another two IG offices pay for the publication of the councils' annual report to the President. By contrast, operations for the CHCO Council are funded out of the budget of the Office of Personnel Management. The other three councils (CFO, CIO, and Procurement Executives Council, which may become the newly codified CAO) have been funded in recent years through interagency transfer or reimbursement under Title VI general provisions in the Transportation-Treasury appropriations bill (e.g., $17 million for FY2004; see P.L. 108-199 , Division F, Title VI, Section 627; 118 Stat. 356). These transfers are under the control of OMB, but are administered after transfer by the General Services Administration. Congress could maintain the status quo for these councils. It also might consider making a separate appropriation for each council singly, or all combined. This option could take away some discretion from the President. On the other hand, it could also give Congress additional control and leverage over the activities of these councils, and potentially improve institutional memory and continuity from one presidential administration to the next. Council reporting and strategic planning: Congress could consider altering the reporting and strategic planning requirements for the interagency councils. Currently, some councils have no reporting or strategic planning requirements. Others require only a report to the President or to Congress, but no articulation of strategic plans. For example, the executive order governing the IG councils requires that the PCIE and ECIE report on their activities only to the President. The CFO, CIO, and CAO Councils currently do not have statutory requirements in their author izing legislation to report to Congress or to prepare strategic plans. They could be required to submit plans or reports to the President or to Congress. Congress could also consider requiring OMB to submit an overall plan for how it will lead the interagency chief officer councils, as part of the government-wide performance plan required by GPRA. Given the extent to which OMB and the President sometimes use the interagency councils, planning and reporting requirements might help increase transparency and make the interagency councils more accountable to Congress. Planning and reporting requirements might take discretion away from the President, however, and could increase costs for the councils or OMB. | This report is a companion to CRS Report RL30795, General Management Laws: A Compendium (pdf) (hereafter "compendium"). In combination, these reports have three main objectives: (1) to identify and describe the major management laws under which the executive branch is required to operate, including their rationale, design, and scope; (2) to assist Members of Congress and their staff in oversight of executive branch management; and (3) to help Congress when considering potential changes to the management laws, as well as other legislation, including authorization statutes and appropriations. This report focuses on major themes—and possible policy options for Congress—that emerge when the general management laws are viewed together, as a whole. The report also describes historical context of the roles that Congress and the President play in managing the executive branch, and compares management in the public and private sectors. The themes and policy options address five topics. Discretion for the Executive Branch: Congress frequently faces the issue of how much discretion to give the executive branch. Congress has options to address delegation situations and balance agency flexibility with accountability. Standardization vs. Customization: Should the management laws under which agencies operate be standardized, with uniform rules? Or should some agencies have customized, agency-specific laws? Should there be a mix of the two approaches? Congress has options when confronted with these decisions. Functional Silos vs. Integrated General Management: A functional perspective (e.g., looking at agency operations from the perspective of a budget officer or human resources officer) can boost efficiency. However, if functional orientations become inward-looking, functions can operate in isolation, resulting in coordination problems or missed opportunities. Congress has options to use an integrated general management perspective to solve agency management problems. Making and Measuring Progress: Many executive branch agencies suffer from persistent, major management problems. Often these problems relate to areas the general management laws were intended to address. Congress has options for measuring and motivating agency progress in improving management practices. Agency "Chief Officers" and Interagency Councils: Statutorily created "chief officers" (e.g., chief financial officers and chief acquisition officers) have increased in number in federal agencies. Congress also established interagency councils of these officers. Congress has options when considering whether additional chief officers should be established and how the councils could be more accountable. The report reflects the status of general management laws at the end of the first session of the 108th Congress, and will be updated along with the compendium to reflect actions taken through the close of the 108th Congress. |
Problems with quality of health care in the United States earned the attention of the public with, and have steadily gained in importance since, the release of the first in a series of Institute of Medicine (IOM) reports on this topic, "To Err is Human: Building A Safer Health System," in 1999. The release of the IOM report represented a changing approach to addressing suboptimal health care quality, from one focused primarily on quality assurance to one focused on quality improvement broadly through the realignment of systems of delivering and financing care to incentivize quality of care. This issue now occupies a prominent position on the national agenda for health care reform and is the subject of considerable congressional interest. Policy makers and others have offered a wide range of policy options to improve health care quality. This report provides information on the issue of quality measurement, which serves as the basis of several of the options policy makers are offering for addressing this problem. Specifically, recently introduced health reform bills have included a strong focus on supporting and expanding a coordinated national quality measurement infrastructure. These include efforts that would broadly support the development of national priorities in the area of performance measurement; the development of new quality measures and identification of gaps in existing measures; the expansion of the endorsement process for quality measures; and the delineation of a process, in rulemaking, for selecting and implementing new quality measures for use in public health care programs. This report begins with a brief description of health care quality activity conceptually, the types of quality information that support these activities, and how quality measurement can be placed within these frameworks. It provides a discussion of the definition of quality measurement and a description of the life cycle of quality measures, including the development of quality measures (across provider types); the process of endorsement of quality measures; and the process for implementing those measures. Overviews of selected examples of implementation, including the Physician Quality Reporting Initiative (PQRI) and the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU), are included. The report concludes with an overview of key technical and policy issues in quality measurement. The U.S. health care system is characterized by systemic quality shortcomings. The IOM stated in 2001 that "[c]rucial reports from disciplined review bodies document the scale and gravity of the problems. Quality problems are everywhere, affecting many patients. Between the health care we have and the care we could have lies not just a gap, but a chasm." Significant activity has been undertaken to improve the quality of care delivered in the United States over the past decade, but a number of concerning trends remain. The U.S health care system's quality problems are evidenced by a broad range of relevant quality indicators. These include high rates of medical and medication error; a high amenable mortality rate; overuse, underuse, and misuse of health care services; and a lack of, and variation in, diffusion of evidence-based guidelines. In its 1999 study, the IOM reported that between 44,000 and 98,000 people die each year because of preventable medical errors, at a cost of between $17 billion and $29 billion per year. Serious adverse medication events are estimated to occur in up to 15% of hospitalized patients, and more than 100,000 deaths are attributed annually to such reactions. A July 2008 study reports that despite spending two times more per capita than any other major industrialized country on health care, the United States has an amenable mortality rate—deaths that are amenable to health care intervention and may have been prevented by that intervention—of 110 per 100,000 (ranking 19 th out of 19 surveyed countries). With respect to the problems of overuse, misuse, and underuse of health care services, a study conducted by the Midwest Business Group on Health in 2003 found that approximately "30 percent of all direct health care outlays are the result of poor-quality care, consisting primarily of overuse, misuse and waste." Another study found that as many as 20% to 30% of patients received contraindicated care. In addition, a 2007 RAND study found that only 46.5% of children receive care recommended by evidence-based guidelines, and a similar RAND study conducted in 2003 concluded that adults receive only 55% of indicated care. According to the IOM, an average of 17 years is required for findings from randomized clinical trials to be implemented into clinical practice, and when they are, it is done so in an uneven fashion. Taken together, these findings evidence significant shortfalls in the quality of care provided in the United States. Despite the fact that most experts agree that health care quality is a serious problem deserving of attention, a precise operational definition for the concept can be difficult to identify. Although there is no single universally agreed upon definition for quality of care, or health care quality, perhaps the most commonly cited definition is the IOM's definition, as follows: "(t)he degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge." The 2001 IOM report "Crossing the Quality Chasm" further defines quality of care in terms of six domains: Effective . Providing services based on scientific knowledge to all who could benefit. Efficient . Avoiding waste, including waste of equipment, supplies, ideas, and energy. Equitable . Providing care that does not vary in quality because of personal characteristics. Patient-centered . Providing care that is responsive to and respectful of individual patient preferences. Safe . Avoiding injuries to patients from the care that is supposed to help them. Timely . Reducing waits and sometimes-harmful delays. Most health care quality efforts aim to improve one or more of these six domains of quality of care, and quality care is often colloquially defined as simply delivering the right care to the right person at the right time. However basic it may appear, operationalizing these six domains, and thus improving health care quality, has proven difficult. The effort to improve health care quality is operationally embodied by a wide range of quality activities. One way to consider these activities is by grouping them into one or more of the following four areas: (1) research (basic, translational, and health services); (2) quality measurement; (3) quality reporting (encompassing both increased transparency and incentive alignment); and (4) patient safety activities. Reliable and sound quality information plays a fundamental role in all of these health care quality activities, which may both use and generate such information. For those activities that rely on quality information, such as quality reporting, their effectiveness is directly dependent upon the quality of the information available. There are various types of quality information, including evidence syntheses, health technology assessments, clinical comparative effectiveness data, clinical practice guidelines, quality measure data, and medical error/near miss reports. In many cases, these different types of information are interrelated. For example, evidence syntheses are utilized as the basis for the development of clinical practice guidelines, which in many cases in turn serve as the basis for developing quality measures. Quality information may be broadly leveraged through the types of activities referenced above for a number of purposes, including to educate and inform providers about performance; for public reporting to inform consumer decision making; to create payment incentives; to inform accreditation or maintenance of certification; to inform internal quality assurance or improvement efforts; for public health surveillance efforts and activities; and to inform system-level changes to improve safety. Quality information may be fed back to inform the modification of quality measures, incentive programs, quality assurance activities, health care provider education, or the processes of delivering health care with the goal of improving quality. This report focuses specifically on quality measurement, one subset of quality activities, and will focus on the processes used to develop, endorse, select, and implement quality measures. Broadly, quality measurement focuses on assessing processes, structures, and outcomes of health care, and for this reason, quality measures are informally categorized as structural, process, or outcome measures. This model of quality measurement rests on the premise that a sound structure will support appropriate processes of care that in turn will result in good outcomes. Ideally, process measures are supported by research demonstrating a link to improved outcomes, and all measures will assess things that are under the direct control of the health care system. Structural measures assess whether "the resources and organizational arrangements are in place to deliver care," for example, staffing ratios or health information technology (HIT) implementation. Process measures assess whether the "appropriate provider activities are carried out to deliver care," for example, percentage of indicated patients receiving mammograms within a given timeframe. Finally, outcomes measures assess "the results of physician and other provider activities," for example, 30-day mortality rates post-hospitalization for pneumonia. Composite measures, which summarize performance across separate and discrete measures of quality, are a useful tool for certain end-users, such as policy makers and the general public. The Centers for Medicare and Medicaid Services (CMS) now includes several Agency for Healthcare Research and Quality (AHRQ)-developed composite measures in its Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program (described later in this report). In addition, quality measures may be developed in order to collect patients' reports of system performance. An example of this type of measure may be found in the Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey and the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, both funded by AHRQ. While these measures may assess the delivery of evidence- or consensus-based clinical care, they also include an evaluation of the human aspects of how that care was delivered. Quality measures may attempt to assess or evaluate one of three broader breakdowns in health care quality: (1) overuse of health care services, (2) misuse of health care services, or (3) underuse of health care services. This approach encompasses variation in care patterns as well as disparities in quality of care received. The development of quality measures may be based either on existing clinical practice guidelines (evidence-based) or on consensus-based guidelines. Generally, utilizing an evidence-based guideline as a basis for a quality measure is preferred over using a consensus-based one; however, as there are significant gaps in the evidence base, in many cases, consensus-based guidelines are the only option available. Although the development of reliable and valid quality measures tends to be challenging, the development of structural and process quality measures may be less complicated than the development and specification of outcomes measures, which requires complex risk-adjustment manipulations to account for variation in patient case-mix. Data sources for quality measures vary, but include four primary sources: (1) administrative claims data, (2) medical records, (3) medical registries, and (4) patients' reports. Quality measures may be used for a number of purposes. They may be used to assess performance at the level of a hospital (or other health care facility, for example, a nursing home or outpatient surgical center); a health care provider, group of providers, or practice group; or a health plan. They may be used by payers, purchasers, health care consumers, regulators, accrediting or licensure bodies, researchers, health care providers, or health care facilities. Finally, quality measures may be used as the basis for policies that realign payment incentives; to facilitate internal quality improvement or quality assurance efforts; to empower consumer decision making; or to provide feedback on performance—for the purposes of self-improvement— to health care providers, health plans, or health care facilities. The life cycle of a quality measure is composed of three basic components: the creation and specification of the measure, the endorsement of the measure, and the selection and implementation of the measure. This process may not always be perfectly linear in all cases (for example, an entity may adapt an existing endorsed measure for use in one of its quality-related activities), but with respect to the creation of de novo quality measures, these are the ordered steps generally followed. Each stage is discussed in more detail in the following sections. There is a wide range of current efforts to develop quality metrics that may be used in performance measurement activities and, likewise, there are a number of different entities involved in the development, endorsement, selection, and implementation of quality measures. AHRQ reports in its 2008 National Healthcare Quality Report that the "often opportunistic, incremental, and fragmented development of quality measures without detailed consideration of data sources, analysis and maintenance requirements, and user needs" is a challenge, and that "uncoordinated and isolated measure development can lead different groups to create and advocate competing and sometimes conflicting measures of the same process or outcome." In an attempt to better coordinate performance measurement and other quality activities, in November of 2008, the National Quality Forum (NQF) convened the National Priorities Partnership (NPP), a collaborative effort between 28 key health care stakeholders representing all major health care perspectives. The goal of the NPP is to rapidly improve quality in six priority areas, including patient and family engagement, population health, safety, care coordination, overuse, and palliative and end-of-life care. The NPP aims to achieve measurable progress in these six areas, specifically focusing on payment, public reporting, quality improvement, and consumer engagement. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-275 ) further emphasized the importance of "an integrated national strategy and priorities for health care performance measurement in all applicable settings." MIPPA required the Secretary to enter into a contract with a consensus-based entity (and provided as an example the National Quality Forum) to help strengthen and better focus the nation's performance-measurement infrastructure, and specifically to synthesize evidence and convene stakeholders to provide recommendations on a national performance-measurement infrastructure; to endorse and maintain measures; and to report annually to the Secretary on these activities. The National Quality Forum was awarded this contract and recently released its first report, Improving Healthcare Performance: Setting Priorities and Enhancing Measurement Capacity , in fulfillment of this statutory requirement. The initial phase in the life cycle of a quality measure is the development stage. In this stage, measures are conceived of, created, specified, refined, and oftentimes field tested. Quality measures are developed by a number of different measure developers, including The Joint Commission, the National Committee for Quality Assurance (NCQA), and the American Medical Association (AMA)-convened Physician Consortium for Performance Improvement (PCPI), for application in a wide variety of settings, including hospitals, nursing homes, clinics, and to evaluate health plans. Measures may generally be developed in one of two ways: they may be created entirely anew, or de novo , or existing measures may be identified and adapted for a specific purpose (i.e., hospital accreditation). Traditionally, developers have focused on measures of process rather than outcomes, and they generally direct their efforts toward developing measures focused on a specific setting (e.g., hospital) or in a particular clinical area (e.g., pneumonia). Gaps have occurred in measure development where services span provider settings or where no single entity has sole responsibility for providing a service (e.g., coordination of care or end-of-life care). In addition, measure development may be guided by overuse or cost intensiveness, or rather, may be guided by explicit links to improved outcomes, regardless of cost or cost burden. From a value-based purchasing perspective, development would ideally be guided by both; however, from the consumer perspective, outcomes may be more important than costs. This section details the processes used by measure developers to develop quality measures for evaluating the performance of hospitals, physicians, and health plans. An examination of these processes reveals that they share several attributes: they all solicit public input on measures, they all rely on panels or workgroups of technical and/or clinical specialists for guidance, and they all subject measures to some degree of field testing. In addition, both the Joint Commission and NCQA utilize a set of clearly delineated and specific attributes by which to assess and evaluate measures' value and thus guide their development activities. NQF has recognized the importance of testing quality measures by instituting a mechanism of "time-limited" endorsement for a period of 12-24 months for those measures that meet all of NQF's standards for endorsement, but that have not been subjected to rigorous field testing. The Joint Commission has one of the most well-developed and clearly specified processes of quality-measure development, and has been involved in developing performance measures since 1986 for hospitals (these measures may be used by other health care organizations, including home care, behavioral health care and long term care organizations). Reporting quality data was made a formal requirement for Joint Commission hospital accreditation in 1998. The Joint Commission, formerly the Joint Commission on the Accreditation of Healthcare Organizations, or JCAHO, is a private, non-profit organization that establishes quality and safety standards and accredits health care organizations for participation in federal health insurance programs. For example, The Joint Commission accredits approximately 80% of hospitals for participation in Medicare by assessing their compliance with standards related to patient rights and education, infection control, preventing medical errors, medical staffing ratios, and data-collection processes. The organization describes its mission as "continuously improving the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations." When The Joint Commission began its work in the area of quality measurement in 1986, it focused on developing quality measures completely de novo , an involved and resource-intensive endeavor. However, while The Joint Commission was engaged in this work, many other measure developers began developing and implementing their own measures. For this reason, The Joint Commission changed course in the mid-1990s and redirected its efforts toward adapting (evaluating and testing) existing quality measures for its purposes. This shift resulted in the creation of a standardized process for adapting existing measures consisting of a series of specific steps. The Joint Commission focuses on developing its measures in sets, and defines a "core measure set" as "a unique grouping of performance measures, carefully selected to provide, when viewed together, a robust picture of the care provided in a given focus area." Initial measure development requires significant preliminary work, including a review of the literature to evaluate the evidence base and identify existing measures in a particular topical area. The findings from this review are summarized and serve as the basis of a measurement framework, which is used throughout the development process. The first formal step in the process is the empanelling of a group of experts with balance as a key focus. This expert advisory panel includes representation from relevant medical, nursing, and pharmacy professionals, as well as state hospital associations, consumers, and CMS. Funders are not represented on these panels to avoid conflicts of interest, and full disclosure is required of all members. After the panel has been convened, The Joint Commission issues a "call for measures" to solicit measures from all known measure developers. The measures received are vetted by staff, and evaluated against The Joint Commission's attributes of core performance measures and associated evaluation criteria. These criteria include the following: Measures target improvement in the health of populations. Measures are precisely defined and specified. Measures are reliable. Measures are valid. Measures are easily interpreted by users. Measures are risk-adjusted or stratified. Measures are under provider control. Measures have publicly available measure constructs. Measures are useful in the accreditation process. Measures rely on accessible data and low-cost data collection efforts. There is significant overlap between The Joint Commission's measure attributes, NQF's measure evaluation criteria, and NCQA's desirable measure attributes. Measures that meet these criteria are forwarded to the expert advisory panel, and final candidate measures are posted to The Joint Commission's website, where they undergo a 30-day comment period. Measures are adjusted according to the feedback received during the comment period, at which point general specifications may be formulated and field testing begun. The Joint Commission's field testing is well developed, and involves both alpha testing—for feasibility and utility—and beta testing—for reliability, validity, and cost, among other things. There are opportunities for measure adjustment and refinement at all points in this process. Based on the results of the field testing, the expert advisory panel recommends implementation of a set of final measures, and the measures will then be integrated into ORYX, the performance measurement component of The Joint Commission's accreditation process. The American Medical Association (AMA)-convened Physician Consortium for Performance Improvement (PCPI) is a physician-led, multi-stakeholder group that has taken the lead in the development of quality measures for physicians. The Consortium, staffed by the AMA and led by a 23-member Executive Board, is composed of more than 100 national and state medical societies, experts in methodology and data collection, AHRQ, and CMS. The PCPI supports, and provides in-kind resources for, the establishment of topic-specific work groups that include both clinician specialists as well as technical methodological experts to develop disease- or condition specific-measures. To date, the PCPI has developed more than 250 measures in over 40 clinical areas, and the measures are heavily used by CMS's Physician Quality Reporting Initiative (PQRI). In addition, uses for these measures include integration into electronic health records (EHRs), Maintenance of Certification (MOC) for physicians, and CMS demonstration projects, and measures may be used for quality improvement purposes, as well as for accountability. The process used by PCPI to develop measures is not as longstanding as are those employed by The Joint Commission and NCQA, simply by virtue of the fact that the organization is far younger. While The Joint Commission began developing hospital performance measures in 1986, and NCQA began developing its HEDIS measures in 1992, the PCPI was established in 2000 to help guide medical specialty groups in generating physician-level measures, at least partially in anticipation of a formal, statutorily established physician quality reporting system for Medicare-participating physicians. The scope and depth of PCPI's work was described in late 2007 as nascent; however, PCPI has had the advantage of being able to draw on existing work in this area, and quickly developed its own robust process for measure development (see Figure A -2 ). PCPI has been endeavoring to make strategic changes in emphasis as it matures. It has refocused its measure-development efforts, and requires the following three criteria be met by any topic prior to proceeding with development in the area: 1. The topic is an area designated as high impact (by the IOM, NPP, etc.). 2. The topic is a gap area or an area with high variation in care. 3. The topic has an adequate evidence base. If these three criteria are met, PCPI evaluates whether the topic under consideration is likely to generate measures in the following four areas, which it terms "high value": care coordination, patient safety, appropriateness/overuse, and quality improvement collaboratives. The Consortium has also shifted its focus to developing a comprehensive "core" measure set. After a topic has been approved, an topic-specific expert work group is convened, consisting of two co-chairs with expertise in the clinical area as well as in measure-development methodology; clinicians in all relevant areas; methodologists; guideline experts; patients, purchasers, consumer groups and health plans; and sometimes coding experts, depending on the topical area. Importantly, representatives from The Joint Commission and NCQA are included in the composition of the work groups to ensure measure harmonization to the greatest extent possible. Prior to beginning its actual measure drafting, the work group conducts a literature review (and review of the existing evidence base) and identifies desired outcomes (with respect to either a certain condition or procedure). The work group meets once in person and conducts several conference calls to facilitate the measure-drafting process, after which public comment is solicited on the measures. The work group will then review the comments and incorporate them as necessary. The revised measures are then submitted for approval to PCPI. Measure testing is undertaken on the measures to assess both reliability and feasibility, and then measures are submitted to NQF for potential endorsement and also released for public use. The National Committee for Quality Assurance (NCQA), a private, 501(c)(3) not-for-profit organization dedicated to improving health care quality through the accreditation of health plans and quality-measure development, has taken the lead role in the development of quality measures used to evaluate health plans. Its programs, which focus on evaluating the performance of health plans, also include the development of report cards, public-policy documents, and educational activities. Perhaps NCQA's most well-known performance evaluation tool is the Healthcare Effectiveness Data and Information Set (HEDIS), a set of standardized measures used by more than 90% of health plans to measure clinical performance in areas such as medication use, control of high blood pressure, breast cancer screening, immunization, and comprehensive diabetes care, among others. HEDIS 2009 consists of quality measures in eight health care domains, and may be used to assess clinical quality in both managed care organizations (MCOs) and preferred-provider organizations (PPOs). HEDIS measures are developed by NCQA using a process involving input from a broad range of stakeholders, including purchasers, policy makers, health care providers, patients, and health plans (see Figure A -3 ). There are several key groups involved in this process: Technical Advisory Groups (TAGs) provide guidance on methodological considerations; the Committee on Performance Measurement (CPM) provides guidance throughout the measure-development process and makes final decisions regarding adoption; and Measurement Advisory Panels (MAPs) report to the CPM and provide specialized guidance for measure development in a specific area. The process begins with the identification of a topic, a literature review, and measure identification. Measures are evaluated for inclusion in the development process against a series of three key criteria: relevance, scientific soundness, and feasibility. A MAP is created to guide development, and initial measure specifications are drafted by the TAG and then presented to the MAP. Measures are then field tested, revisions are made, and then the measures are presented to the CPM. The revised measures are posted on the NCQA website for a period of 30 days, with a request for public comment. Finally, the CPM reviews all comments, revises the measures as needed based on the comments, and then votes formally to adopt the measures for inclusion in HEDIS. The Centers for Medicare and Medicaid Services (CMS) plays an important role in providing overall guidance for the development of measures for use in its multiple quality activities. This is reflected in an agency document entitled Quality Measures Development Overview , which explains that "CMS has developed a standardized approach for the development and maintenance of quality measures it uses in its various quality initiatives and programs." This process, referred to by CMS as the Measures Management System and described in more detail below, involves participation by three main entities: CMS, a measure developer (e.g., PCPI or NCQA), and a Technical Expert Panel (TEP) whose responsibility it is to provide expert guidance to both CMS and the measure developer (see Figure A -1 ). The measure-development process CMS has outlined is followed by the CMS-funded measure developer and shares many similarities with those employed by The Joint Commission, NCQA, and the PCPI. It begins with the definition of a topic and the empanelling of a topic-specific TEP. With the guidance of the TEP, the measure developer develops a measure framework, identifies candidate measures, and provides these measures, accompanied by general information, to the TEP for review. After the TEP reviews the candidate measures list, it is submitted to CMS for review and approval, and public comment may be solicited. Measures approved by CMS at this stage move forward to the specification-development stage. Once specifications have been created for the measures, they are approved by CMS, the measures are tested for both reliability and feasibility, and public comment is solicited. Refinements may be made to the measures at this point, based on public feedback, and they will go through a final approval process and then be submitted for consensus endorsement (e.g., to the NQF). Although CMS relies on both TEPs and measure developers in the process of developing the quality measures it will employ in its quality programs, the agency itself plays a critical role at many points during this process. This distinction is not clearly delineated by the agency. In its recently released Roadmap for Quality Measurement in the Traditional Medicare Fee-for-Service Program , CMS states that "(i)n general, CMS does not play a significant role in the development or endorsement of quality measures." This statement, in the context of the Quality Measures Overview Document , may understate the role of CMS in this process. While CMS does not carry out the technical process of specifying quality measures (this task falls to the measure contractor), it is a critical part of the process at many points. CMS helps to define the topic for which measures will be developed; provides approval of candidate measures for specification; determines whether public comment will be required in the early stages of measure development (pre-specification); approves measure specifications; determines whether measures with specifications will be submitted for consensus review prior to testing; and gives final approval of measures for use in its programs after completion of testing and formal public comment. The agency plays a guiding role in the process and appears to make the final decisions regarding measure advancement. The Agency for Healthcare Research and Quality (AHRQ) plays an important role in the development of quality measures. The agency's authorizing language stipulates that it shall conduct and support research, evaluations, and training; support demonstration projects, research networks, and multidisciplinary centers; provide technical assistance; and disseminate information on health care and on systems for the delivery of such care. This activity specifically targets the following areas: the quality, effectiveness, efficiency, appropriateness and value of health care services; quality measurement and improvement; the outcomes, cost, cost-effectiveness, and use of health care services and access to such services; clinical practice, including primary care and practice-oriented research; health care technologies, facilities, and equipment; health care costs, productivity, organization, and market forces; health promotion and disease prevention, including clinical preventive services; health statistics, surveys, database development, and epidemiology; and medical liability." AHRQ carries out a number of measure-development activities, including development of the Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey, the AHRQ Quality Indicators, and the National Healthcare Quality and National Healthcare Disparities reports. The measures developed under these various activities are used both to track and report on quality at the national level (the National Healthcare Quality and National Healthcare Disparities reports) and to monitor quality at the institution level (CAHPS and the Quality Indicators). The AHRQ Quality Indicators is a family of measurement indicators, including indicators focusing on prevention, inpatient care, patient safety, and pediatric care, that make use of hospital inpatient administrative data. For 2009, CMS has incorporated some of AHRQ's Patient Safety Indicators (PSIs) and Inpatient Quality Indicators (IQIs) into its Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program. In addition, a modified version of the CAHPS survey, the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, is used by CMS in its RHQDAPU program. This information is also publicly reported on CMS's Hospital Compare website. The National Quality Forum (NQF) is the entity in the United States with the lead responsibility for endorsing quality measures. Numerous measure developers, including NCQA, PCPI, and The Joint Commission, submit their measures to NQF for endorsement, and other entities, including CMS, the Hospital Quality Alliance (HQA), medical boards, and health care providers, often choose quality measures for their quality activities from among the list of NQF-endorsed measures. The endorsement process provides a mechanism for recognizing those measures that meet certain standards and allows interested parties to identify easily a set of valid and reliable measures. This is valuable, given the large number of extant quality metrics. Many entities rely on NQF-endorsed measures for use in their quality activities. For example, CMS's Physician Quality Reporting Initiative (PQRI) is statutorily required in 2008 and 2009 to use measures that have been "adopted or endorsed by a consensus organization (such as the National Quality Forum or AQA)" and is required in 2010 and subsequent years to use "such measures selected by the Secretary from measures that have been endorsed by the entity with a contract with the Secretary under section 1890(a) of the Social Security Act." Also, with respect to CMS's Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, the Secretary is required to "add other measures that reflect consensus among affected parties and, to the extent feasible and practicable, shall include measures set forth by one or more national consensus building entities." The National Quality Forum (NQF), a public-private not-for-profit membership organization with more than 350 members, was established in 1999 with the mission of improving the quality of health care, specifically through setting national goals for improvement, through endorsing quality measures, and through education and outreach to facilitate the realization of the quality goals it has recommended. The President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry (the Quality Commission) recommended the establishment of what would later come to be known as NQF in a March 1998 report entitled "Quality First: Better Health Care for All Americans." This report recommended "establishing two complementary entities, one public and one private, to provide ongoing national leadership in health care quality improvement. The Commission recommends the creation of a broadly represented, publicly administered—Advisory Council for Health Care Quality—and a privately administered—Forum for Health Care Quality Measurement and Reporting." The NQF is a voluntary consensus standards-setting organization, as defined in law by the National Technology Transfer Advancement Act (NTTAA) and by the Office of Management and Budget (OMB) Circular A-119. According to OMB Circular A-119, the five attributes of a voluntary consensus standards-setting body are balance, openness, due process, consensus, and having an appeals process. Currently, NQF is the only body that meets these formal criterion as a voluntary consensus standards-setting body for health quality measures. In addition, the NTTAA requires federal agencies to use voluntary consensus standards in their activities, unless doing so conflicts with existing law or is impractical. NQF's most prominent and visible role has been in its capacity as a national-level quality measure endorser (it also endorses frameworks, reporting practices, and preferred practices), and it has to date endorsed more than 500 quality measures. Its decisions are highly respected and valued by all stakeholders; however, because the endorsement process is laborious and methodical, and tends to be lengthy, measure endorsement cannot keep pace with measure development. NQF has begun to emphasize the importance of harmonizing measures, and places value, for example, on setting neutrality and common conventions for measures related to a specific condition or targeted group. NQF utilizes a rigorous and methodical process by which it reviews and judges quality measures for potential endorsement, known formally as the consensus development process (CDP) (see Figure B -1 ). This process comprises seven formal steps: (1) the formation of a steering committee, (2) a call for measures, (3) measure evaluation, (4) public and member comment, (5) member voting, (6) consensus standards approval committee review, and (7) appeals. To begin the process, NQF puts out a public call for members for a steering committee. It is the job of the committee to guide the evaluation process and provide expert input and guidance. The next steps entail a call for measures, where measure developers (not necessarily NQF members) are asked to submit their measures for consideration for endorsement. Developers have a period of 30 days during which to submit their measures. Once measures have been collected, the steering committee begins the evaluation process. Measures are evaluated against four criteria, including the following: whether the measure is linked to gains in quality and health outcomes, whether the measure is reliable and valid, whether the measure is usable (results are easy to understand and useful), and whether the measure is feasible (ease of access to required data). A measure is initially evaluated against the first criterion—the relationship between a measure and quality and health outcomes—and if it is judged to pass this threshold, it will then be evaluated against the remaining three criteria. A measure may fail to gain endorsement, for example, if it is judged to assess a core competency, rather than high-quality care. For measures that survive this evaluation process, there is a 30-day public comment period, after which the public's comments are reviewed by the steering committee and incorporated as appropriate. At this time, the revised measures are posted and NQF members have a 30-day period during which they are invited to vote either in favor of or in opposition to endorsement. The final endorsement recommendation is made by the Consensus Standards Approval Committee (CSAC) to the NQF Board of Directors, which affirms the CSAC's recommendation. Appeals may be made for a 30-day period following ratification of endorsement by the NQF Board of Directors. The AQA Alliance, formerly known as the Ambulatory Care Quality Alliance, was established in 2004 and is co-sponsored by the Agency for Healthcare Research and Quality (AHRQ), the American College of Physicians (ACP), the American Academy of Family Physicians (AAFP), and America's Health Insurance Plans (AHIP). AQA is a consensus organization with broad stakeholder representation, which until recently "adopted" physician-quality measures, a status which served as AQA's recommendation that a measure is ready for implementation. During this process, AQA considered measures that were either NQF-endorsed, or would be going through the NQF-endorsement process, for adoption. If an AQA-adopted measure went through the NQF endorsement process but failed to gain endorsement, AQA adoption was rescinded. Although AQA focuses broadly on the three issues of performance measurement, data aggregation, and reporting, one of its key goals was to reach consensus on a set of physician-level quality measures that could be used by government purchasers or to guide private health insurance plan contracting decisions. This should help ultimately to standardize the performance measures used to assess and evaluate physician performance. AQA has now shifted its focus to identifying how quality measures are being used and implemented, as well as assessing where gaps exist in extant quality measures. AQA-adopted measures may be used by CMS in its Physician Quality Reporting Initiative (PQRI), and many AQA-adopted measures were also used in PQRI's predecessor program, the Physician Voluntary Reporting Program (PVRP). For the 2009 PQRI, the measures meet one of the four following criteria: they are measures that were selected from the 2008 measure set, they are NQF-endorsed measures, they are AQA-adopted measures, or they were not NQF-endorsed or AQA-adopted at the time the proposed rule was published by CMS, but received endorsement or adoption by August 31, 2008. This allowed for a mechanism whereby measures were able to be implemented by CMS's PQRI without NQF endorsement, since AQA is recognized as a "consensus organization per section 1848(k)(2)(B) of the (Social Security) Act." Given the lengthiness of NQF's endorsement process, the large number of quality measures needing to go through the process, and AQA's recognized status as a consensus organization under law, AQA adoption allowed for expedited implementation of physician measures. As one commenter notes, this highlights a major challenge and tension inherent in the development and implementation of quality measures: "balancing the need for scientifically sound development processes against the need to have measures available for use." Once quality measures have been developed and ideally received endorsement, they will be considered for use in various quality activities. Since quality activities have varying goals (e.g., accountability, quality improvement) and are conducted in different settings for a variety of purposes, the selection stage is critical. This stage is especially consequential if the measures are being used for purposes of accountability, so the processes used by CMS to select measures for its pay-for-reporting programs (as part of its value-based purchasing initiative), and by CMS and other stakeholders for public reporting, are of particular import. The criteria used by CMS to select measures for its PQRI and RHQDAPU programs are discussed in more detail below. AQA has also played a prominent role in the measure selection stage for physician measures. The AQA encourages and facilitates health plans and physicians to collaborate in determining which quality measures developed by the PCPI or the NCQA should be recommended for implementation. These recommendations are directed primarily to CMS for measure inclusion in its PQRI program, but also to smaller private payers for use in pay-for-performance programs. In this way, AQA contributes to prioritizing measures for implementation. The following sections describe details of selected examples of implementation, specifically the Physician Quality Reporting Initiative (PQRI) and the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) Program. The establishment of a quality reporting system for physicians was required by section 101(b) of the Tax Relief and Health Care Act of 2006 (TRHCA, P.L. 109-432 ), which also outlined a process for arriving at eligible quality measures. In response, CMS established the Physician Quality Reporting Initiative (PQRI) and began collecting physician-level quality data in July of 2007. PQRI was modeled on the Physician Voluntary Reporting Program (PVRP), which enabled physicians to voluntarily report quality data to CMS with no payment incentives, allowing the agency to establish a sound reporting infrastructure. Unlike the PVRP, PQRI is a pay-for-reporting system and includes financial incentives for participation. Section 101(c) of TRHCA provided for financial incentives for the PQRI program and allowed for the awarding of an incentive payment to physicians based on the reporting of certain quality measures to begin in 2007. PQRI was extended for 2008 and 2009 by the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173 ) and was made permanent by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-275 ), which also allowed for incentive payments to continue through 2010. The 2009 PQRI measure set contains more than 150 measures, and physicians are awarded a bonus payment of 2.0% of total allowed Physician Fee Schedule charges for covered professional services if they meet specified quality-reporting requirements. Measure reporting is either claims based or registry based, and physicians may choose to report either on specific measures groups designated by CMS or on a series of unrelated measures, of the physician's choosing, that apply to their patient population. The quality information collected through the PQRI program is not available to the public. As noted previously, the quality measures included in the 2009 PQRI measure set were measures that either were included in the 2008 set, were NQF-endorsed, were AQA-adopted, or were undergoing consideration by either AQA or NQF for either adoption or endorsement. CMS identified six criteria that it employed when considering a measure for inclusion in its 2009 PQRI program. These include whether measures satisfy statutory requirements for selection (i.e., the measure was developed using a consensus-based process); are functional (i.e., useable); increase opportunities for eligible professionals to participate in the program or apply to an area without applicable measures; align with other CMS program health care goals; support CMS priorities (e.g., prevention, chronic conditions, high-cost and high-volume conditions, improved care coordination); and address various aspects of clinical care, including process, outcome, structure or patient experience. In addition, CMS takes the public comments received during the rulemaking process, and in response to other informal requests for input, into account when selecting measures for the PQRI program. The development of the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, as statutorily directed by Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ), represented one of CMS's early steps in the area of value-based purchasing. The RHQDAPU program requires participating hospitals to report specific quality data to CMS in order to receive a full annual payment update. Participation is voluntary, and hospitals may withdraw at any time. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ), Section 5001(a), provided for the continuation of this reporting requirement, and increased the at-risk percentage of the annual payment update from 0.4% to 2.0%. This section also required the Secretary to make the collected facility-specific quality data public. The 2009 RHQDAPU measure set (for determining FY2010 payment) contains more than 40 measures and includes process measures; patient perspectives (through the HCAHPS, or Hospital Consumer Assessment of Healthcare Providers and Systems, survey); outcomes measures (30-day mortality rates); 30-day hospital readmission rates; selected AHRQ patient safety indicators (PSIs) and inpatient quality indicators (IQIs), three of which are composite measures; one measure assessing participation in a clinical registry; and one nursing-sensitive measure. The data reported and collected encompass several conditions identified as common in the Medicare population, including acute myocardial infarction, heart failure, and pneumonia, and also address surgical care improvement. CMS has continually expanded the measure set used in its RHQDAPU program, building on the initial "starter set" of 10 measures, as directed by statute. Initial expansion was guided by a baseline set of measures developed by the IOM and presented in its report "Performance Measurement: Accelerating Improvement." These measures included a number of Hospital Quality Alliance (HQA) measures, several structural measures, and the HCAHPS survey. Established in 2002 by the Federation of American Hospitals (FAH), the American Association of Medical Colleges (AAMC), and the American Hospital Association (AHA), HQA has recommended hospital quality measures much as AQA adopted physician measures. HQA also collects and publishes quality information in partnership with CMS, although there is not perfect overlap between the HQA and RHQDAPU measure sets. The HQA has played an important role in adopting and implementing hospital quality measures, often adopting measures ahead of CMS and in this way allowing for informal user testing prior to adoption by CMS. In addition to statutory requirements, the selection of measures for inclusion in the RHQDAPU program is guided by a series of six specific goals. These include expanding measures beyond process measures, to measures of outcome, patient perspectives, and efficiency; expanding the scope of hospital services to which the measures apply; considering the burden on hospitals; harmonizing the measures with other CMS quality programs; weighing the relevance and utility of the measures compared to the burden on hospitals; and using measures that are based on currently reported data (i.e., to clinical data registries or all-payer claims databases) or that do not require chart abstraction. CMS also prioritizes measures that evaluate high-burden, high-volume and high-cost conditions in the Medicare population and conditions (with established clinical guidelines) that persist in demonstrating wide variation in treatment and cost. As it does when selecting measures for inclusion in PQRI, CMS also considers public comments it receives pursuant to the rulemaking process when selecting measures for the RHQDAPU program. The complexity of quality measurement, and the importance of its potential applications, has generated a number of policy and technical issues in terms of both measure development and implementation. Especially in the context of health care reform, these issues may be useful to consider as Congress develops policies aimed at improving health care quality. Some of these issues are discussed in more detail below. Perhaps the most commonly raised issue with respect to measuring, and therefore reporting, quality is the lack of harmonization of reporting requirements. Many reporting entities (physicians or hospitals, for example) report different quality measures to different entities for different purposes, and the burden and cost associated with this effort can be high. Efforts at streamlining requirements have been initiated, for example, by The Joint Commission and CMS; however, reporting requirements still tend to be complicated and laborious, as well as fairly costly. In addition, reporting entities may not always be provided with timely and useful feedback on their performance, decreasing the potential utility of the activity. As noted previously in this report, a lack of standardized quality measures, and the lack of a uniform approach to generating these measures, have presented both challenges and opportunities. The diversity of stakeholders involved in the quality-measurement enterprise has resulted in a high degree of innovation in terms of measuring quality and related activities. It has also allowed practices to be developed that best suit a particular setting (e.g., hospitals) or purpose (e.g., accreditation). However, it has also created challenges with respect to the development of a set of measures that apply uniformly across all clinical areas and conditions, and this has resulted in a situation where measures may be unavailable to assess certain areas, or where only measures of questionable quality may be available. Measure gap areas include, for example, end-of-life care. These measure gap areas may also result from a lack of evidence-based clinical guidelines in a particular clinical area or for a specific clinical condition. In these cases, in order to meet expedited policy goals, measures may be developed using consensus-based guidelines. While this has the benefit of facilitating measurement, it may also result in less robust quality measures in some cases. From a technical perspective, there are numerous issues that would ideally be addressed in order to achieve a robust quality measurement system. These issues may be divided into those that address validity and those that address reliability. With respect to validity—that is, ensuring that quality measures are in fact measuring what they are intended to measure—a number of issues are critical. These include the proliferation of generally similar, yet slightly different, quality measures that could be used to measure the same process, structure, or outcome. For example, a search of AHRQ's National Quality Measures Clearinghouse (NQMC) identifies 10 quality measures related to receiving mammograms. This not only increases the burden of reporting on reporting entities, but also creates challenges with respect to drawing valid comparisons between measures. The problem of multiple similar measures is partially mitigated both by endorsement of measures and by the NQMC itself, which provides a uniform mechanism for comparing measures. Issues with respect to accurate attribution—assigning the provision of a service to a specific physician or group practice—can make assessing quality of care challenging. Patients see multiple providers, which can complicate attributing processes to either a single encounter or provider. Issues of attribution may be alleviated, at least in part, by collecting patients' reports on the care they receive. Finally, it can be difficult to link performance on outcome measures directly to the actions of providers. Health outcomes are influenced by a variety of variables that are not under the direct control of either the health care provider or the health care system, including environmental factors, access to health care services, and genetics. In addition, even though process and outcome are generally accepted to have a tighter linkage, issues have recently been raised regarding this relationship as well. In particular, it has been unclear whether strong performance on process of care measures is linked to decreased mortality rates. There is some evidence that in fact this relationship is not as tightly linked as it was believed to be. Ensuring reliability—that is, that measured results are consistent across repeated measurements—can also be technically challenging. Data sources must be appropriate and complete, as well as comparable across settings. Sample size (in this case, opportunities to provide "measured" care or to treat specified conditions for which outcomes are being measured) must be large enough to allow for drawing valid inferences about the performance of a single organization, a single provider within an organization, or a particular racial or ethnic group. Finally, standardization of quality measures is necessary in order to ensure that the same thing is being measured, according to the same specifications, across measurements. The issue of improving the quality of health care is multifaceted, and policy makers have offered numerous approaches to addressing this policy problem. Measuring the quality of care delivered has served as the basis for a number of policy options being considered, but the effectiveness of these policy approaches depends on the quality of the data generated through measurement activities. The quality of this data in turn depends on the quality of the measure development process, as well as the way in which the measures are used and for what purpose. Congress may want to consider the issues outlined in this report when developing policy options that rely on quality measurement. Appendix A. Quality Measure Development Processes (CMS, PCPI, and NCQA) Appendix B. NQF's Measure Endorsement Process Appendix C. List of Acronyms AAFP: American Academy of Family Physicians ACP: American College of Physicians AHIP: America's Health Insurance Plans AHRQ : Agency for Healthcare Research and Quality AMA : American Medical Association AQA : The AQA Alliance CMS : Centers for Medicare and Medicaid Services HEDIS : Healthcare Effectiveness Data and Information Set HQA : Hospital Quality Alliance IOM : Institute of Medicine OMB: Office of Management and Budget NCQA : National Committee for Quality Assurance NPP: National Priorities Partnership NQF : National Quality Forum PCPI : Physician Consortium for Performance Improvement PQRI : Physician Quality Reporting Initiative RHQDAPU : Reporting Hospital Quality Data for Annual Payment Update | Problems with quality of health care in the United States earned the attention of the public with, and have steadily gained in importance since, the release of the first in a series of Institute of Medicine (IOM) reports on this topic, "To Err is Human: Building A Safer Health System," in 1999. The release of the IOM report represented a changing approach to addressing suboptimal health care quality, from one focused primarily on quality assurance to one focused on quality improvement broadly through the realignment of systems of delivering and financing care to incentivize quality of care. This issue now occupies a prominent position on the national agenda for health care reform and is the subject of considerable congressional interest. Policy makers and others have offered a wide range of policy options to improve health care quality. This report provides information on the issue of quality measurement, which serves as the basis of several of the options policy makers are offering for addressing this problem. Specifically, recently introduced health reform bills have included a strong focus on supporting and expanding a coordinated national quality-measurement infrastructure. These include efforts that would broadly support the development of national priorities in the area of performance measurement; the development of new quality measures and identification of gaps in existing measures; the expansion of the endorsement process for quality measures; and the delineation of a process, in rulemaking, for selecting and implementing new quality measures for use in public health care programs. This report begins with a brief description of health care quality activity conceptually, the types of quality information that support these activities, and how quality measurement can be placed within these frameworks. It provides a discussion of the definition of quality measurement and a description of the life cycle of quality measures, including the development of quality measures (across provider types), the process of endorsement of quality measures, and the process for implementing those measures. Overviews of selected examples of implementation, including the Physician Quality Reporting Initiative (PQRI) and the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU), are included. The report concludes with an overview of key technical and policy issues in quality measurement. |
a. The latest report was available Feb. 9, 2006, at http://www.fws.gov/endangered/expenditures/reports/FWS%20Endangered%20Species%202004%20Expenditures%20Report.pdf . b. See also Congressional Budget Office, Cost Estimate for H.R. 3824 , available at http://www.cbo.gov/showdoc.cfm?index=6663&sequence=0 , Feb. 9, 2006. Since conservation banks and tax incentives are addressed only in S. 2110 , they will be discussed outside the table to conserve space. Provisions related to conservation banks will be paraphrased and CRS comments arein italics. Page numbers refer to the PDF version of S. 2110 as introduced. Under S. 2110 , a conservation bank is defined as an area of land,water, or other habitat (not necessarily contiguous) that is managed in perpetuity orfor an "appropriate period" under an enforceable legal instrument and for the purposeof conserving and recovering habitat, or an endangered, threatened, or candidatespecies, or a species of special concern (p. 31). The conservation bank definition includes habitat "not necessarilycontiguous," which suggests that a bank could consist of segments of habitat ratherthan a block. Given the importance and benefits of habitat continuity for speciessurvival, some might argue that banks consisting of fragmented portions would haveless value than banks with contiguous habitats. This definition also mentions an"appropriate period" as an alternative to in perpetuity when referring to the lifetimeof the bank. The bill does not identify who will make the determination of anappropriate period or what criteria will be used. Credit is defined as the "unit of currency" of a conservation bank generatedby preserving or restoring habitat in an agreement, and quantified through theconservation values of a species or habitat. Conservation values are to be determinedby the Secretary for each bank and converted into a fixed number of credits (pp.31-32). The definition of credit is written in a way that appears to allow alternativesto money that could be exchanged to pay for the values being purchased out of thebank. There is no indication what those alternatives might be. There is littleguidance on how the Secretary will determine or measure conservation value, andhow much "value" will equal a credit. Due to the changing nature of habitat and thepotential for habitat improvement or degradation, conservation values may changewithin banks. There do not appear to be any provisions that allow the Secretary toreassign values to conservation banks. On the other hand, allowing the Secretaryto determine the value and credits for each bank, has the potential to insure thatthere will be consistency among banks. This may be helpful, since a credit programfor species could involve a wide range of habitat values. A service area is an area identified in a conservation bank agreement. Itincludes a soil type, watershed, habitat type, political boundary, or an area in afederally recognized conservation plan, among others, in which a credit may be usedto offset the effects of a project (p. 32). The scope of a service area may vary broadly under this definition, whichcould allow the Secretary to create areas that fit desired biological criteria. Because person under the ESA includes federal agencies, and page 32 includes a referenceto federally recognized conservation plans, the provisions on conservation bankingmay apply to federal agencies; it is unclear if this was intended. Conservation banks may be established by any private landowner who appliesand demonstrates that the affected area is managed under an enforceable legalinstrument and contributes to the conservation of a listed species, a candidate species,or a species of special concern (pp. 32-33). Secretary shall approve or disapprove abank within 180 days after the application is submitted (p. 33). A bank can bemanaged by a state, a holder of the bank, another party specified in the agreement,or a party that acquires property rights related to the conservation bank (p. 34). While conservation banks would require an enforceable legal instrument, thebill does not specify any contents for that instrument. There may be certain minimalcontents that all such instruments or banking agreements should contain to ensurethat protection of species and habitat will be effective and consistent from site to site. The time limit for a decision will allow approved banks to enter into the program andgain credits within six months, which some feel would encourage participation, butit is unclear whether this period will be sufficient for the Secretary to render adecision with adequate justification. Management of the bank is not restricted,which may relieve the burden of management from the landowner and allow otherentities (e.g., state agencies or non-governmental organizations) to manage the bank. However, no criteria for holders are stated. The holder of a conservation bank is required to establish an agreement thatdescribes the proposed management of the bank (p. 34). The agreement is submittedto the Secretary, who shall approve or disapprove it "as soon as practicable" (p. 35). Conditions for amending and nullifying the agreement are given (pp. 35-36). TheSecretary shall consider the use of banks for implementing recovery plans and mustadopt regulations on managing banks that balance the biological conditions of thetarget species and habitat with "economic free market principles" to ensure value tolandowners through a tradeable credit program (p. 36). A bank management agreement undergoes a separate approval process fromestablishing a conservation bank, and the deadline for approving or disapprovingbank management agreements is uncertain. No standards for acceptable agreementsare provided. An approved agreement does not seem to be required to transfercredits or to maintain a conservation bank. The bill does specify that the bank mustcontribute to the conservation of qualified species, but there is no requirement thatbanks be consistent with approved recovery plans, and it is not clear that bankmanagers must comply with the relevant agreement. The Secretary is to promulgate regulations on managing conservation banks(p. 37). The regulations are to relate to 11 subjects, including conservation andrecovery goals, activities that may be carried out in any conservation bank, measuresthat ensure the viability of conservation banks, "the demonstration of an adequatelegal control of property proposed to be included in the conservation bank" (p. 37),criteria for determining credits and an accounting system for them, and theapplicability of and compliance with §7 and §10 of ESA. Monitoring and reportingrequirements are also to be addressed in the regulations (pp. 37-38). The regulations are to include provisions "relating to" how the consultationrequirements of §7 of the ESA and the incidental take provisions apply in the contextof conservation banks. It is not clear whether the authority given the Secretary todevelop these regulations could be broad enough to eliminate consultation, or toauthorize the issuance of general incidental take permits for activities inconservation bank areas. The requirement that banks be financially viable (pp.37-38) appears to refer to both biological and financial viability. As to the latter,some contend that financial viability should be determined by market forces ratherthan the federal government, which should ensure the biological viability of thespecies or habitat should a bank fail. Biological data would determine how many credits a bank can sell (p. 38),and the Secretary is to establish a standard process by which credits could betransferred. Credit transfers can be used to comply with court injunctions, to meetrequirements of §§7(a), 7(b) or 10(a)(1) of the ESA, and to provide out-of-kindmitigation (p. 39). "Out-of-kind mitigation" is defined as mitigation involving thesame species or habitat, but in a different service area. Additional requirements mustbe met for approval of out-of-kind mitigation, and the Secretary is to give preferenceto in-kind mitigation to the maximum extent practicable (pp. 39-40). The Secretaryis not to regulate the price of credit transfers or to limit participation by any party inthe credit transfer process (p. 40). In some circumstances, credits may be transferredbefore the Secretary approves a bank (p. 41). The criteria for transferring credits do not include habitat or speciesrequirements for the area being mitigated by the purchase of credits. Habitat fordifferent species may not be interchangeable; therefore, if the area being mitigatedcontained habitat for an endangered species of salamander, there are norequirements that credits purchased will be from a conservation bank with similarhabitat. Out-of-kind mitigation is allowed when both ecological desirability andeconomic practicability can be met. The bill allows transfer of credits before thebank is approved if specified conditions can be met, which would seem to be a riskto the federal interest in species protection should the Secretary ultimately reject theapplication for establishing the bank. If the Secretary rejects a bank proposal, howwould that rejection affect any prior purchase of credits? Creation of conservation banks can be integrated with conservation plansdeveloped under §10 of the ESA if certain criteria are met (pp. 41-42). Any party toan agreement, including the United States, may sue for breach of the agreement, andsovereign immunity is waived for participating federal, state, tribal, and localgovernments (pp. 42-43). Subsection (g) (pp. 41-42) requires, to the maximum extent practicable , thata bank be integrated with habitat conservation plans developed under §10 of the ESAif the bank meets the ecological criteria of the habitat conservation plan andprovides greater economic benefits compared with other forms of mitigation ofhabitat destruction. Only a party to the agreement (not interested outsiders withstanding) may sue for breach of the agreement. How this restriction could affectenforcement actions under §10 is not clear. Since a party violating an agreement isnot likely to sue to enforce the agreement, this really means that only the Secretarycan enforce the agreement. "Equitable relief" is specifically allowed, despite thewording that judicial review is allowed for a breach of an agreement -- whichusually connotes a suit for damages. It is not clear in what circumstances states,local governments, or tribes would be defendants. Taxpayers may claim a tax credit based on the taxpayer's qualifiedconservation and recovery costs for the taxable year (pp. 56-62). Qualified costs arethose paid or incurred by the taxpayer in carrying out approved site-specific recoveryactions under §4(f) of ESA or other federal- or state-approved conservation andrecovery agreements that involve an endangered, threatened, or candidate species (p.57). The project must be undertaken according to a binding agreement, and the creditis subject to recapture if the agreement is breached or terminated (pp. 57-58 and 61). The amount of tax credit gained depends on the length of the agreement: 1) if it is forat least 99 years, the credit equals the reduction in the land's fair market value due tothe recovery action or agreement plus the property owner's actual costs; 2) if it is forat least 30 years but less than 99 years, the credit equals 75% of the above amounts;3) if it is for at least 10 years but less than 30 years, the credit equals 75% of theactual costs (pp. 57-58). The qualifications or standards for the binding agreement are unclear. Depending on the specifics of the agreement, the requirements for claiming the taxcredit may be more or less stringent than those for tax incentives that currently existfor similar conservation activities (e.g., the charitable deduction for conservationeasements under IRC §170). The taxpayer must submit to the IRS evidence of the binding agreement anda written verification from a biologist that the conservation and recovery practice isdescribed in the agreement and implemented during the taxable year in accordancewith the agreement's schedule (pp. 58-59). The credit may not be claimed if thetaxpayer received cost-share assistance from the federal or state government underany credit-eligible recovery action or agreement for that year (p. 59). There is anexception for individuals whose adjusted gross income is less than the limitations inIRC §32, the earned income tax credit (p. 59). Also, the taxpayer's qualified costs arereduced by any non-taxable governmental assistance for qualified conservation andrecovery costs received in the year the credit was claimed or in any prior year (p. 61). With respect to the second limitation regarding cost-share assistance, it isunclear as to whether the assistance must have been received for the specific projectfor which the credit is claimed. There are no requirements regarding thequalifications of the biologist who can verify the agreement. The basis of the property for which any credit is allowable must be reducedby the amount of the taxpayer's qualified costs, regardless of whether those costswere greater than the amount that the taxpayer's tax liability exceeded the sum of thespecified credits (p. 60). This could be interpreted to require that the taxpayer reduce the basis by thetotal qualified costs in the first taxable year even if the taxpayer did not claim the fullcredit in that year. Thus, the taxpayer would experience the negative consequencesfrom reducing the basis to account for the total costs without necessarily receivingthe positive benefits from claiming the full credit. The amount of any deduction or other tax credit must be reduced by thetaxpayer's qualified costs, limited to the taxpayer's tax liability (pp. 60-61). This appears to require that the taxpayer reduce all deductions and othercredits by the amount of the credit allowed, regardless of whether they are based onthe same expenses used for this credit. The credit is limited to the taxpayer's tax liability (including alternativeminimum tax liability) after applying certain credits (p. 57). Any portion of the creditthat cannot be claimed because of this limitation may be carried back for one yearand carried forward for 20 years (pp. 59-60). The new credit may be transferredthrough sale and repurchase agreements (p. 60). The tax consequences of such sale are unclear. This provision is unusual asno other tax credit is allowed to be sold. | The Endangered Species Act (ESA) protects species that are determined to be eitherendangered or threatened according to assessments of their risk of extinction. The ESA has not beenreauthorized since September 30, 1992, and efforts to do so have been controversial and complex. Some observers assert that the current ESA is a failure because few species have recovered, and thatit unduly and unevenly restricts the use of private lands. Others assert that since the act's passage,few species have become extinct, many have improved, and that restrictions to preserve species donot place a greater burden on landowners than many other federal, state, and local laws. This report provides a side-by-side analysis of two bills and a proposed amendment thatwould amend the ESA. This analysis compares H.R. 3824 , the Threatened andEndangered Species Recovery Act of 2005, as passed by the House; proposed House Amendment588 to H.R. 3824 (Miller/Boehlert Amendment); and S. 2110 , theCollaboration for the Recovery of Endangered Species Act. Proponents of each proposal indicate that it is designed to make the ESA more effective byredefining the relationship between private and public property uses and species protection,implementing new incentives for species conservation, and removing what some see as undue landuse restrictions. Thus, all three proposals contain provisions meant to encourage greater voluntaryconservation of species by states and private landowners, a concept that has been supported by manyobservers. Further, all three proposals would modify or eliminate certain procedural or otherelements of the current ESA that some have viewed as significant protections and prohibitions,including eliminating or changing the role of "critical habitat" (CH) (which would eliminate oneaspect of the current consultation process); making the listing of all threatened and endangeredspecies more difficult or less likely; expanding §10 permits allowing incidental take (which couldincur a greater need for agency oversight and enforcement); and expanding state rather than federalimplementation of ESA programs (which might make oversight more difficult). Proponents of thesechanges assert that tighter listing standards would enable a better focus on species with the most direneeds, and that other measures would achieve recovery of more species. Critics argue that proposedchanges create gaps in the ESA safety net of protections and prohibitions. It is difficult to assess whether, on balance, the proposals would be likely to achieve greaterprotection and recovery of species, or to what extent the controversies over land use constraintswould diminish. However, replacing some of the protections of the current ESA with newincentives, rather than adding the new incentives to the current protections, arguably makes adequatefunding of the new programs more critical to determining the outcome of the ESA. This report will be updated as events warrant. |
Section 3771 is the product of a long effort to afford greater deference to victims in the criminal justice process. It is a kin to the victims' bill of rights provisions found in the laws of the various states and augments a fairly wide variety of preexisting federal victims' rights legislation. Its enactment followed closely on the heels of discontinued efforts to pass a victims' rights amendment to the U.S. Constitution. The definition of "victim," the question of deciding who should be afforded rights and who should not be, was one of the issues that over the years fired debate during consideration of proposals to amend the U.S. Constitution. Section 3771 provides an explicit definition: For the purposes of this chapter, the term "crime victim" means a person directly and proximately harmed as a result of the commission of a Federal offense or an offense in the District of Columbia. In the case of a crime victim who is under 18 years of age, incompetent, incapacitated, or deceased, the legal guardians of the crime victim or the representatives of the crime victim's estate, family members, or any other persons appointed as suitable by the court, may assume the crime victim's rights under this chapter, but in no event shall the defendant be named as such guardian or representative. Section 3771 speaks of victims who are "persons" ("'crime victim' means a person"). Although in common parlance, this might be thought to restrict the class of victims to human beings, general usage within the United States Code is to the contrary. Unless the context suggests another intent, the word "person" as used in the United States Code is understood to "include corporations, companies, associations, firms, partnerships, societies, and joint stock companies as well as individuals." Earlier restitution cases rejected arguments that only human beings could be "victims." Perhaps because the question is considered settled, the argument has disappeared, and later courts have regularly found restitution appropriate for legal entities without commenting upon their want of human status. Section 3771's coverage of legal entities seems to have been generally assumed and with little explicit discussion. The universal definition of person in 1 U.S.C. 1 does not mention governmental entities. The 2011 AG Guidelines take the position that governmental entities are not eligible for "court enforceable rights," but may be entitled to restitution. Section 3771's limited available case law indicates that a governmental entity is not a person entitled to victim's rights under the statute. An earlier version of the restitution statutes authorized restitution for injuries and losses resulting from certain offenses, but made no mention of direct and proximate harm. "This [earlier] language suggest[ed] persuasively that Congress intended restitution to be tied to the loss caused by the offense of conviction," the Supreme Court said in Hughey v. United States . The implication might have been that restitution was appropriate where the loss would not have occurred but for the offense conviction. Not all persons who suffer a loss as the direct result of an offense are considered victims for purposes of the restitution statutes. The loss must be directly and proximately caused by the offense. A loss caused in part by intervening circumstances cannot be said to have been directly and proximately caused by the offense of conviction, unless the intervening cause is related to or a foreseeable consequence of that offense of conviction. But the restitution statutes enlarge the victim definition by including those directly harmed by an offense one of whose elements is a "scheme, conspiracy or pattern." Section 3771 has no such explicit provision, but it features the restitution statutes' "direct and proximate" cause language. Its use of the phrase "directly and proximately harmed encompasses the traditional 'but for' and proximate cause analyses." Under the restitution statutes, restitution is available only for harm caused by the crime of conviction. The same cannot be said of the victims' rights statute. Section 3771 is focused on the activities and proceedings involving the victimizing offense before and after conviction; the restitution sections are focused on the victimizing offense of conviction. Section 3771 and the restitution statutes are similar, however, in that persons—harmed by crimes other than those of conviction in the case of the restitution statutes or other than those which are the subject of a particular proceeding in the case of the victims' rights statute—are unlikely to be able to claim the benefits of a victim. In particular in both instances, individuals may lose or never acquire the benefit of victim status during the course of criminal proceedings, if charges covering the crimes of which they are the victim are dropped, dismissed, or never filed, even though related crimes are or continue to be prosecuted. The Justice Department's Office of Legal Counsel (OLC) believes that "the CVRA is best read as providing that the rights identified in section 3771(a) are guaranteed from the time that criminal proceedings are initiated (by complaint, information, or indictment) and cease to be available if all charges are dismissed either voluntarily or on the merits (or if the Government declines to bring formal charges after the filing of a complaint)." The 2011 AG Guidelines make the same point: "[T]he particular charges filed in a case will define the group of individuals with CVRA rights.... Absent a conviction, a victim's CVRA rights cease when charges pertaining to that victim are dismissed either voluntarily or on the merits, or if the government declines to bring formal charges after filing a complaint." Congress responded to the OLC opinion with a 2015 amendment which assures victims of the right to notification of plea and deferred prosecution agreements. Section 3771, under other circumstances, moreover, has been found to afford the obvious victim of a clearly identifiable federal crime at least some of its benefits notwithstanding the absence of a charge or even a suspect. Section 3771, like the restitution statutes, states that in the case of a deceased or incapacitated victim, "the legal guardians of the crime victim or the representatives of the crime victim's estate, family members, or any other persons appointed as suitable by the court, may assume the crime victim's rights ." This suggests that family members are not themselves considered victims. It implies that one of the parents and other relatives of an adult homicide victim may assume the victim's rights, but otherwise they are entitled to none of the rights found in the statute. This is not the case. Family members do not lose their status as victims by virtue of the possible appointment of a representative of the incapacitated or deceased victim. Section 3771 applies to the victims harmed as a result of "the commission of a Federal offense or an offense in the District of Columbia." Section 3771 should probably not be read to extend rights to the victims of the crimes proscribed in any of the territorial codes and the Uniform Code of Military Justice. Section 3771 apparently does cover victims of juvenile delinquency with respect to misconduct that in the case of an adult offender would have been a violation of federal or DC law. Section 3771 rights with respect to juvenile proceedings, however, may depend upon whether the juvenile proceedings are open or closed. Moreover, the 2011 AG Guidelines assert that federal juvenile delinquency provisions "restrict[] the type of information that may be disclosed to victims about investigations and proceedings regarding juvenile offenders unless the juvenile waives the restrictions or has been transferred for criminal prosecution as an adult." A corporation or other legal entity may incur criminal liability by virtue of the misconduct of a rogue officer or employee. Thus, under some circumstances, the entity might be considered both an offender and a victim, but not here. A corporation may not claim restitution for losses it incurs as consequences of its executives' misconduct. Section 3771 lists the right to be reasonably protected from the accused first among its victims' rights. The clause appears to have been the subject of little judicial construction. One court understood the term "accused" to mean that the right does not attach until a person has been "accused by criminal complaint, information or indictment." A second court observed that "[r]egardless of what this right might entail outside the bail context, it appears to add no new substance to the protection of crime victims afforded by the Bail Reform Act, which already allows a court to order reasonable conditions of release or the detention of an accused defendant to 'assure ... the safety of any other person.'" (18 U.S.C. 3142(c)(1)). Notice allows victims to assert their rights, facilitates their participation, assures them that justice is being done, and affords them the opportunity to take protective measures when the accused is at large. Section 3771 explicitly excuses a failure to notify victims of the release of an accused when to do so might be dangerous, and it permits the courts to seek reasonable accommodations when the number of victims in a given case precludes strict compliance with the section's demands. The notice clause has several distinctive features: (1) the notice rights apply only with respect to public court proceedings and parole proceedings ; (2) the rights attach to those proceedings involving the crime but not necessarily to all those related to the crime; (3) victims are entitled to reasonable, accurate and timely notice; and (4) victims are entitled to notice of the release or escape only of the accused . Section 3771(a)(3) assures victims of the right not to be excluded from any public proceedings involving the crime except when to attend would color their subsequent testimony. It is one area where balancing the interests of victim, defendant, and government may be the most challenging. Unlike the rights to notice and not to be excluded, the right to be heard is a right to participate. The section describes the proceedings at which it may be invoked with greater particularity, and here too limits application to reasonable participation in public court and parole proceedings. It does not on its face give victims the right to be heard in closed proceedings or to be heard on other pretrial motions, at trial, perhaps on appeal, or with respect to related forfeiture proceedings. Nor does it explicitly give the victim the right to be heard in any particular form. Section 3771 assures crime victims the right to be reasonably heard at proceedings where a plea bargain is accepted, a right which the 2015 amendments confirm. The right clearly does not vest a victim with the right to participate in plea negotiations. By the same token, the right to be heard is not the right to decide; victims must be heard, but their views are not necessarily controlling. Section 3771 might be read to afford a right to confer beginning with the commission of the offense, including with regard to the manner in which the investigation is conducted and the decision as to what charges to bring and against whom. The Senate sponsors of the section, however, described an extensive but more limited right. Section 3771's language here is reminiscent of the constitutional amendment proposals in the 108 th and 107 th Congresses, which spoke of a right "to full and timely restitution." Those proposals were very different from earlier proposals. They did not establish a right to restitution in so many words. They did not explicitly convey a right to have proceedings reopened for failure to accommodate a victim's right to restitution. Instead, for the first time they spoke of just and timely claims to restitution, two concepts which could be subject to several interpretations. The first victims' rights proposals promised either a right "to an order of restitution from the convicted offender," or a right "to full restitution from the convicted offender." Subsequent proposals opted for the right to a restitution order. The proposals appeared to make restitution orders mandatory as a matter of right. The scope of the right was unstated. Although the proposals applied to juvenile proceedings, the use of the term "convicted offender" might have been construed to limit their restitution command to criminal convictions and therefore not reach findings of delinquency. Restitution orders in a nominal amount or subject to priorities for criminal fines or forfeiture or other claims against the defendant's assets might have seemed inconsistent with the decision to elevate mandatory victim restitution to a constitutional right. Their legislative history indicated that these early proposals did "not confer on victims any rights to a specific amount of restitution, leaving the court free to order nominal restitution.... The right conferred on victims [was] one to an 'order' of restitution. With the order in hand, questions of enforcement of the order and its priority as against other judgments [were] left to the applicable Federal and State law." The committee reports, however, continuously suggested that the right might include the right to a pretrial restraining order to prevent an accused from dissipating assets that might be used to satisfy a restitution order. The right also might have extended to prevent dissipation in the form of payment of attorneys' fees for the accused, since the accused has only a qualified right to the assistance of counsel of his choice. What was a right to a restitution order prior to the 107 th Congress became the right to consideration of just and timely victims' claims, appropriate to the circumstances, weighed against the interests of others, and perhaps applicable only during proceedings on other matters. At first glance, it appeared that as long as the victim's interest in just restitution when asserted in a timely manner was recognized, the amendment proposals left the law of restitution unchanged. The implication was that in horrific cases, victims had a right to restitution without reference to any other factors. Yet insertion of the word "just" for the first time in the restitution component of the amendment proposal presumably called for consideration of such factors when appropriate. Moreover, it probably precluded restitution claims by the "ripped-off" drug dealer or others victimized in the course of their own illegal conduct, at least in some circumstances. Historical proposals explicitly allowed victims to reopen final proceedings in vindication of their right to restitution. That language disappeared, and in its place was a reference to "timely" claims to restitution. The implications were obvious, but the statement quoted above seems to suggest that "timeliness" may be judged by the date of the injury, the date of sentencing, or the date on which the offender had the resources to begin paying restitution. Section 3771 affords victims "the right to full and timely restitution as provided by law." It seems to confirm rather than enlarge existing law in the area of restitution. Sponsors felt that elsewhere the section bolsters the victim's restitution interest by ensuring the victim's rights to notice, consultation and participation. One appellate court has pointed out that the promise of "full" restitution extends only as far as the law provides, a fact that "makes it clear that Congress recognized that there would be numerous situations when it would be impossible for multiple crime victims to the same set of crimes to be repaid every dollar they had lost." Section 3771(a)(7) describes the right to delay avoidance in limiting terms. The case law indicates that the courts are sensitive to victims' interest in delay avoidance; that in some instances delay may be in the interest of at least some victims; and that the provision "appears to add little if anything substantive to existing law ... except that it does appear to confer ... the right to object to delay and ask the Court to hold both government and defendant to what the Speedy Trial Act already requires." This right to be treated with fairness and respect for one's dignity and privacy rarely found explicit expression in the proposed constitutional amendments, although it clearly lies at the heart of all of them. The same language appears in the earlier federal "best efforts" statute, and a similar right is featured in many of the state constitutional and statutory victims' rights provisions. The Justice for Victims of Trafficking Act added this to the inventory of victims' rights. It is something many understood to be a component of the original right to be heard (i.e., "the right to be ... heard at any ... proceeding ... involving ... [a] plea ... "). The Justice Department, however, believed that the right attached only after a defendant had been formally charged, by which point plea bargaining has often already been completed. The provision is designed to correct any misunderstanding for the benefit of victims. The reference in the new right to a "timely manner" seems to negate any suggestion that notification may occur after the court has accepted the plea or deferred prosecution agreement. This, too, the Justice for Victims of Trafficking added to the inventory of victims' rights. It, too, is something that may have been thought implicit from the beginning, given the command elsewhere in the statute. Section 3771(c)(1), for example, has declared from the beginning that "[o]fficers and employees of the Department of Justice and other departments and agencies of the United States engaged in the detection, investigation, or prosecution of crime shall make their best efforts to see that crime victims are notified of, and accorded the rights described in subsection (a)." Section 3771(a)(10) now supplements the command with an explicit right. Section 3771(c)(1) replicates the language of 42 U.S.C. 10606(a)(2000 ed.) with the addition of the notification in italics above. Section 3771(c)(2) is new, and was added in recognition of the fact that the interests of the government and the interests of the victim may not always coincide. The Department of Justice's implementing regulations create a complaint procedure and enforcement mechanism to ensure compliance. None of the proposed constitutional amendments had a provision comparable to either of these provisions. Section 3771(b) assigns the federal courts responsibility in two areas. One deals with the obligations that follow from the rights granted the victims of crimes under the laws of the United States and the District of Columbia. The other addresses obligations federal courts conducting federal habeas corpus proceedings owe the victims of state crimes. None of the proposed constitutional amendments featured an equivalent. It has no counterpart in the earlier federal "best efforts" provision. At least one court has expressed the view that "the provision requires at least some proactive procedure designed to ensure victims' rights," while noting the apparent primacy of the right to attend. The trial court's obligation to "ensure" victims' rights seems to set its responsibilities a notch above the "best efforts" level of obligation imposed upon other officials. Section 3771(b)(2) provides the victims of state offenses limited rights when the offender seeks federal habeas corpus relief. It affords these victims a limited range of rights which related to matters within the control of the federal courts: attendance rights; the right to be heard; protection from unreasonable delays; the right to fair and respectful treatment; and the right to enforce those rights. Section 3771(b)(2)'s most interesting feature may be the absence of a right to notice. It does not list a federal right to be notified of federal habeas proceedings among the rights it provides. The section further absolves federal executive branch officials of any obligations under the habeas provision. Section 3771(d)(1) is an expansion of the related proposals contained in the proposed constitutional amendments. They contained an exclusive provision and made no mention of governmental representation. Section 3771(d)(1) grants standing to victims and their representatives, and it expressly authorizes the government to assert rights on behalf of the victim. The legislative history confirms the impression that "representatives" include both victims' attorneys and those standing in the stead of a legally unavailable victim; and it negates somewhat the implication that anyone other than the actual victim enjoys ultimate control of the victim's rights. Some of the cases note the propriety of prosecutors asserting victims' rights. Section 3771(d)(3) is more explicit than any of the proposed constitutional amendments. Furthermore, it contemplates interlocutory appeals with stays or continuances of pending criminal proceedings of no more than five days. Early constitutional amendment proposals limited the use of stays, and later proposals were simply silent on the issue. The provision's Senate sponsors apparently saw the availability of mandamus as a means of appellate review. In other contexts mandamus is more limited; it is a "drastic and extraordinary remedy reserved for really extraordinary cases." The federal appellate courts were divided over this standard applied in the case of victims' rights. Congress resolved the dispute in the Justice for Victims of Trafficking Act. The usual appellate standard, espoused by the Second Circuit, applies. The government's prerogative to assert the rights of a victim includes the right to appeal and to petition for mandamus relief on a victim's behalf. In a case where the court finds that the number of crime victims makes it impracticable to accord all of the crime victims the rights described in the section, the court shall fashion a reasonable procedure to give effect to the section that does not unduly complicate or prolong the proceedings. Proponents of the proposed constitutional amendment wrestled with the question of the circumstances, if any, under which criminal proceedings could be reopened to correct a denial of a victim's rights. Section 3771(d)(5) bars a new trial. It grants a limited opportunity to revisit plea and sentencing proceedings. It says nothing about bail, restitution, or other trial proceedings, all of which are thus presumably subject to the expedited, five-day stay and mandamus procedure of the statute. Moreover, on its face it permits a plea agreement when the accused has pled to the highest crime charged, but should the agreement be reopened, the statute promises the victim no more than the right to advise the court on the question of whether the agreement should be accepted. Section 3771(d)(6) has two components—(1) a denial of any intent to create a cause of action for damages against the United States or its officers or employees and (2) a denial of any intent to impair prosecutorial discretion. The courts have confirmed that the statute creates no cause of action for damages against the United States or its officials; negates the possibility of Bivens action; and provides no grounds for a claim against the United States. Section 3771(d)(6)'s prosecutorial discretion limitation "gives victims not a veto," but that does not mean that victims' rights stand at the prosecutor's convenience or that only the prosecutor's voice will be heard. | Section 3771 of Title 18 of the United States Code is a statutory bill of rights for victims of crimes committed in violation of federal law or the laws of the District of Columbia. It defines victims as anyone directly and proximately harmed by such an offense, individuals and legal entities alike. It does not appear to include family relatives of a deceased, child, or incapacitated victim, except in a representative capacity. Numbered among the rights it conveys are (1) the right to be reasonably protected from the accused; (2) the right to notification of public court and parole proceedings and of any release of the accused; (3) the right not to be excluded from public court proceedings under most circumstances; (4) the right to be heard in public court proceedings relating to bail, the acceptance of a plea bargain, sentencing, or parole; (5) the right to confer with the prosecutor; (6) the right to restitution under the law; (7) the right to proceedings free from unwarranted delays; (8) the right to be treated fairly and with respect to one's dignity and privacy; (9) the right to be informed in a timely manner of any plea bargain or deferred prosecution agreement; and (10) the right to be informed of the statutory rights and services to which one is entitled. The section directs the courts and law enforcement officials to see to it that the rights it creates are honored. Both victims and prosecutors may assert the rights and seek review from the appellate courts should the rights be initially denied. The section vests no rights in the accused; nor does it create cause of action damages in any instance where a victim is afforded less than the section's full benefits. Conforming amendments to the Federal Rules of Criminal Procedure became effective on December 1, 2008. The Justice Department promulgated implementing regulations on November 17, 2005. The Justice for Victims of Trafficking Act of 2015 added to the inventory of victims' statutory rights and clarified the appellate standard to be used to enforce those rights. This report is an abridged form of a longer report, without quotation marks, footnotes, appendixes, and most of the citations to authority found in the longer version, which is available as CRS Report RL33679, Crime Victims' Rights Act: A Summary and Legal Analysis of 18 U.S.C. 3771, by [author name scrubbed]. |
Under the provisions of Title XVI of the Social Security Act, disabled individuals and persons who are 65 or older are entitled to benefits from the Supplemental Security Income (SSI) program if they have income and assets that fall below program guidelines. SSI benefits are paid out of the general revenue of the United States and all participants receive the same basic monthly federal benefit. In most states, adults who collect SSI are automatically entitled to coverage under the Medicaid health insurance program. A participant in the SSI program receives the federal benefit rate (FBR), plus any state supplement, minus any countable income. At the end of June 2011, more than 8 million people received SSI benefits. In that month, these SSI beneficiaries each received an average cash benefit of $499.40 and the program paid out a total of nearly $4.3 billion in federally administered SSI benefits. The average monthly benefit is lower than the FBR because a person's final monthly benefit is based, in part, on his or her earnings and other income. Individuals and couples must have limited assets or resources to qualify for SSI benefits. Resources are defined by regulation as "cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance." The countable resource limit for SSI eligibility is $2,000 for individuals and $3,000 for couples. These limits are set by law, are not indexed for inflation, and have been at their current levels since 1989. Not all resources are counted for the purposes of determining SSI eligibility. The Social Security Act and federal regulations provide various types of resource exclusions that allow individuals or couples to own certain assets and not have them counted against their $2,000 or $3,000 resource limit. In addition, the laws governing several federal benefit programs, including the Food Stamp program, prohibit the Social Security Administration (SSA) from counting benefits paid under these programs as resources when determining SSI eligibility. The following section of this report will detail the four types of accounts that a person or couple may have money in and not have that money counted as a resource for the purposes of determining their SSI eligibility. Money set aside by an SSI recipient to pay for his or her burial expenses can be excluded from the SSI resource limits. Each person may set aside up to $1,500 for burial expenses and these expenses must be separately identifiable from other assets and money held. A burial plot owned by an individual or a couple is not considered a resource and its value is not counted against the $2,000 or $3,000 resource limit. There are two cases in which the amount of the burial expense exclusion may be reduced. First, the total amount permitted to be excluded is reduced by the face value of all life insurance policies held by the individual or his or her spouse. The face value of a policy is the amount the insurer agrees to pay the beneficiary upon the death of the insured. Second, the excluded amount of burial expenses is reduced by the total amount of money held in an irrevocable trust (commonly called an irrevocable burial trust) available to meet the burial expenses of the individual or his or her spouse. Under the provisions of the Foster Care Independence Act of 1999, P.L. 106 - 169 , the corpus , or total value, of any trust established by an individual is counted as a resource when determining SSI eligibility unless there is no circumstance under which a payment from the trust could ever be made for the benefit of the individual or the individual's spouse. Nearly all trusts, even irrevocable burial trusts, trusts deemed irrevocable under state law and trusts with specific exculpatory clauses exempting the trust from parts of the Social Security Act, are covered by this provision and the entire value of the corpora of these trusts is counted as a resource. While most irrevocable burial trusts are not excluded from the SSI resource rules, the value of the corpora of these trusts is still used to reduce the amount of the burial expense exclusion. A Plan for Achieving Self-Support (PASS) is an individual plan for employment designed by an SSI beneficiary. An SSI beneficiary designs his or her own PASS, usually with the assistance of a state Vocational Rehabilitation agency, disability service organization or Ticket to Work Employment Network. The plan must be submitted in writing to the SSA and must be approved by a special network of SSA employees called the PASS Cadre. A PASS must include a specific goal for employment, such as a specific job type desired or a plan for setting up a small business. In addition, a PASS must include a time line for achieving the employment goal. The PASS must also include a list of any goods, such as assistive devices or job-specific tools, or services, such as schooling, that will be needed by the beneficiary to achieve his or her goal and must include a time line for the use of these goods or services and their cost. Resources included in an approved PASS are not counted against the SSI resource limits. There is no limit to the amount of resources that can be excluded as part of a PASS and these resources can include money set aside to pay for elements of the PASS such as training or items purchased as part of the PASS such as assistive technology devices. If a beneficiary does not fulfill the terms of the PASS, then these resources can be counted and he or she may lose SSI eligibility and be required to reimburse the SSA for benefits paid after eligibility was lost. Individual Development Accounts (IDAs) are matched savings accounts that allow families and persons with low-incomes to set aside money for education, the purchase of a home, or the creation of a business. An individual may place money from his or her earnings into an IDA and have that amount of money matched by the state with funds from the state's Temporary Assistance for Needy Families (TANF) block grant. In addition, under the provisions of the Assets for Independence Act, P.L. 105 - 285 , nonprofit organizations, and state, local, or tribal governments may compete for grants to fund IDAs for low-income households. IDAs funded through this grant process are often referred to as Demonstration Project IDAs. Money saved in a TANF IDA or a Demonstration Project IDA, including the state contribution and any interest earned, is not counted as a resource for the purposes of determining SSI eligibility. There is no limit to the amount of money in an IDA that can be excluded from the SSI resource calculation. However, there are limits to the amounts states and other entities can contribute to IDAs. When a child SSI beneficiary is owed back SSI benefits of more than six months, his or her representative payee is required to place those benefits in a dedicated account at a financial institution. This dedicated account must be in the child's name and can not be invested in stocks, bonds, or other types of securities. Any money placed in the account and any interest earned on the account is the property of the child. The representative payee may use the money from the dedicated account for the medical care or education and training needs of the child. In addition, money from this account can be used for personal needs assistance, special equipment, housing modifications, or therapy for the child based on his or her disability or for other items and services for the child approved in advance by the SSA. Money from a dedicated account can not be used for the daily expenses, food, clothing, or shelter of the child. The representative payee is responsible for keeping records and receipts of all deposits and expenditures and is liable to the SSA for any misuse of money in a dedicated account. Money in a dedicated account for children is not counted as a resource for the purposes of determining the child's SSI eligibility or the SSI eligibility of the representative payee. | As a means tested program, Supplemental Security Income (SSI) places a limit on the assets or resources of its beneficiaries. However, there are four types of accounts that can be used by SSI beneficiaries for specific purposes without affecting their SSI eligibility. Money placed into burial accounts, money used as part of a Plan for Achieving Self-Support (PASS), money placed in Individual Development Accounts (IDAs), and money placed in dedicated accounts for children are not counted as resources for the purposes of determining SSI eligibility. These accounts can be used by SSI beneficiaries to build assets or plan for the future and represent an important part of the overall SSI program. This report provides an overview of these four types of accounts and outlines the cases when money placed into these accounts is exempt from the SSI resource limitations. This report will be updated to reflect any changes in this legislation or other relevant legislative activity. |
P.L. 108-334 Signed Into Law. OnOctober 18, 2004, the President signed P.L. 108-334 into law providing $33.1 billion in newobligational budget authority with a direct appropriation of $30.1 billion. The conference report to H.R. 4567 was approved by the House on October 9, 2004, by a vote of 368-0; andapproved by voice vote in the Senate on October 11. H.R. 4567 Passed in the Senate in Lieu of S. 2537. On September 14, 2004, the Senate passed H.R. 4567 afterstriking the House-passed language and inserting the language of S. 2537 . TheSenate-passed version of H.R. 4567 provides a total appropriation of $33.8 billion for theDepartment of Homeland Security (DHS); an increase of $1.3 billion over the Administration'srequest, and an 11.5% increase over the enacted FY2004 level of $30.3 billion. H.R. 4567 Passed in the House. On June 18, 2004, H.R. 4567 was passed in the House by a vote of 400-5. The bill would providea total appropriation of $33.1 billion for the Department of Homeland Security (DHS); an increaseof $500 million over the Administration's request, and a 9.2% increase over the enacted FY2004level of $30.3 billion. S. 2537 Reported. On June 17, 2004, S. 2537 was introduced in the Senate. The bill would provide a total appropriation of$33.1 billion for (DHS); an increase of $500 million over the Administration's request, and a 9.2%increase over the enacted FY2004 level. S. 2537 was accompanied by Senate Report, S.Rept. 108-280 , which was reported by the Senate Appropriations Committee on June 17, 2004,by a vote of 29-0. President's FY2005 Budget Submitted. On February 2, 2004, the President submitted the FY2005 budget request to Congress, proposing $32.6billion in appropriations for the DHS. This represents a 7.7% increase over net enacted FY2004funding of $30.3 billion. (1) Table 1 summarizes the legislative status of DHS appropriations for FY2005. Table 1. Legislative Status of Homeland Security Appropriations Note: vv = voice vote a. House Appropriations Subcommittee for Homeland Security held a markup on June 3, 2004. b. Senate Appropriations Subcommittee for Homeland Security held a markup on June 16, 2004. c. House Appropriations Committee reported by voice vote the report ( H.Rept. 108-541 ) to theFY2005 DHS Appropriations bill ( H.R. 4567 ). d. The House passed H.R. 4567 June 18, 2004 by a vote of 400-5. e. Senate Appropriations Committee reported by a vote of 29-0, the report ( S.Rept. 108-280 ) to theFY2005 DHS Appropriations bill ( S. 2537 ). f. The Senate passed its own version of H.R. 4567 after striking the House-passed textand inserting the text of S. 2537 . The Senate also adopted several amendments priorto passage. Note on Most Recent Data. The data in this report are based on the P.L. 108-334 , the conference report to H.R. 4567 ( H.Rept. 108-774 ); House report ( H.Rept. 108-541 ) to H.R.4567; the House-passed version of H.R. 4567; the Senate-passed version of H.R.4567; and on Senate report ( S.Rept. 108-280 ) to S. 2537 . 302(a) and 302(b) Allocation Ceilings. The maximum budget authority for annual DHSappropriations is determined through a two-stage congressional budget process. Inthe first stage, the Congress agrees to overall spending totals in the annual concurrentresolution on the budget. Subsequently, these amounts are allocated among thevarious committees, usually through the statement of managers for the conferencereport on the budget resolution. These amounts are known as the 302(a) allocations. They include the discretionary totals available to the House and Senate Committeeson Appropriations for enactment in annual appropriations through the 13subcommittees responsible for the development of the appropriation bills specific toeach. In the second stage of the process, the appropriations committees allocate the 302(a) discretionary funds among their subcommittees for each of the 13 annualappropriation bills. These amounts are known as the 302(b) allocations. Theseallocations must add up to no more than the 302(a) discretionary allocation, and formthe basis for enforcing budget discipline, since any bill reported with total above theceiling is subject to a point of order. 302(b) allocations may be adjusted during theyear as the various appropriations bills progress toward final enactment. On May 19,2004, the House agreed to the conference report on the FY2005 budget resolution S.Con.Res. 95 . The Senate did not pass the FY2005 budget resolution(S.Con.Res. 95). On June 15, 2004, House Appropriations Committee ChairmanYoung submitted H.Rept. 108-543 , which included subcommittee 302(b) allocationsbased on the amounts agreed to in the conference report on S.Con.Res. 95 . The 302(a) allocation in the House version of S.Con.Res. 95 is $821 billion, andthe discretionary 302(b) allocation listed in H.Rept. 108-543 for Homeland Securityis $32 billion. On September 8, 2004, the Senate Appropriations Committeeapproved its 302(b) allocations with a total budget authority for Homeland Securityof $32 million. Table 2 shows the 302(b) discretionary allocations for DHS, thus farin the process. Table 2. FY2005 302(b) Discretionary Allocations for DHS (budget authority in billions of dollars) Source: H.Rept. 108-543 , Suballocation of Budget Allocations for FY2005 ,submitted June 15, 2004, and Senate Appropriations Committee press release,September 8, 2004, available at http://appropriations.senate.gov/releases/Allocations%202005.pdf . This report describes the President's proposal for FY2005 appropriations forDHS programs, as submitted to the Congress on February 2, 2004, and thecongressional response to that proposal. It compares the FY2005 amounts proposedin the President's budget, the current estimates of the FY2004 amounts for programsand activities that were transferred to DHS after its establishment on January 24,2003. This report tracks legislative action and congressional issues related to theFY2005 DHS appropriations bill, with particular attention paid to discretionaryprograms. However, the report does not follow specific funding issues related tomandatory DHS programs -- such as retirement pay -- nor does it systematicallyfollow any legislation related to the authorization or amendment of DHS programs. FY2005 represents the second annual appropriations cycle for DHS. Of the 13 annual appropriations bills, the DHS bill is estimated to be the fifth largest source ofdiscretionary funds, accounting for approximately 3.5% of the estimated $818.4billion total for all federal discretionary budget authority, as reported in the Budgetof the United States Government Fiscal Year 2005 , Table S-5. (2) Though not the focus of this paper, it is important to note that not all federal spending on homeland security is funneled through DHS. According to a recentCongressional Budget Office (CBO) report, (3) theAdministration has requested $47.3billion in FY2005 gross budget authority for federal homeland security activities. Ofthis total, according to CBO, $40 (4) billion or 86%is allocated to DHS. However, itis also important to note that DHS performs many missions that are not related tohomeland security. (5) According to CBO,approximately $27.1 billion or 68% of thetotal FY2005 requested gross budget authority for DHS is devoted to homelandsecurity missions. Therefore, the requested DHS homeland security budget authorityfor FY2005 ($27.1 billion) represents approximately 57% of the total federalresources ($47.3 billion) sought by the Administration for homeland securityactivities in FY2005. (6) The Homeland Security Act of 2002 ( P.L. 107-296 ) transferred the functions, relevant funding, and most of the personnel of 22 agencies and offices to the newDHS created by the act. The act organized DHS into four major directorates: Borderand Transportation Security (BTS); Emergency Preparedness and Response (EPR);Science and Technology (S&T); and Information Analysis and InfrastructureProtection (IAIP). During congressional debate on the FY2004 appropriations cycle, the structure of accounts and titles under the bill ( H.R. 2555 ) was reorganized severaltimes. The House and Senate Appropriations Committees each organized theappropriations slightly differently, and the Conference committee decided upon thefinal organization, which was adopted in P.L. 108-90 . The House and Senate tablescontained within H.Rept. 108-541 and S.Rept. 108-280 for FY2005 generally reflectthe organization adopted in P.L. 108-90 , and is the organization used in this report. Table 3 is a summary table comparing appropriations for FY2004 and the requested amount for FY2005. As shown in Table 3 , the Administration hasrequested a total appropriation of $32.6 billion for DHS for FY2005. This totalrepresents a 7.7% increase in funding over the enacted FY2004 amount. Thediscretionary funding amount is $31.5 billion, and represents a 7.7% increase overthe net enacted FY2004 level. Requested mandatory FY2005 funding represents a6.4% increase over the enacted FY2004 level. On October 18, 2004, P.L. 108-334 was signed into law providing $33.1 billion in appropriations for DHS for FY2005. P.L. 108-334 provides the following amounts for the four titles of the DHSappropriation: (I) Departmental Management and Operations, $607 million; (II)Security, Enforcement and Investigations, $20.6 billion; (III) Preparedness andRecovery, $9.5 billion; and (IV) Research and Development, Training, Assessments,and Services, $2.4 billion. H.Rept. 108-541 (to H.R. 4567 ) recommends a total appropriation of $33.1 billion for DHS, representing an increase of $500 million compared to theAdministration's request, and a 9.3% increase compared to the FY2004 enactedlevel. S.Rept. 108-280 (to S. 2537 ) also provides $33.1 billion for DHS. The House passed H.R. 4567 , June 18, 2004, providing a total of $33.1 billion for DHS. Prior to passage, the House adopted five amendments, twoof which changed amounts to be appropriated. H.Amdt. 568 provided$50 million to the Staffing of Adequate Fire and Emergency Response Firefighters(SAFER) program, which was offset by a $50 million reduction for the Office of theUndersecretary for Management in the Operations Account of Title I. H.Amdt. 569 increased funding for Customs and Border Protection(CBP) in Title II, by $450 thousand (less than $0.5 million), which was offset by areduction in amounts provided to the Office of the Undersecretary for Managementin Title I. The Senate passed H.R. 4567 on September 14, 2004. Prior to debating the bill, the Senate struck all of the House-passed provisions and insertedthe language from S. 2537 . During the debate, the Senate adopted morethan 40 amendments to the bill. Of the adopted amendments, 8 increased ordecreased amounts to be appropriated. S.Amdt. 3616 added a total of$170 million to the Office of State and Local Government Preparedness (OSLGCP)distributed as follows: $50 million for State and Local Programs; $50 million forFirefighter Assistance Grants; and $20 million for Emergency Management PlanningGrants (EMPG). S.Amdt. 3578 adds $200 million for Air and MarineInterdiction, Operations, Maintenance and Procurement. S.Amdt 3578 includes anoffset in the form of an extension of Customs User fees from March 1, 2005 to June1, 2005. (7) S.Amdt. 3618 adds a total of $414 million distributed as follows: $150 million for Customs and Border Protection (CBP) Salaries and Expenses; $100million for Immigration and Customs Enforcement (ICE) Salaries and Expenses (ofwhich $50 million is for investigative personnel, and $50 million is for Detention andRemoval bedspace and operations); $128 million to the OSLCGP for State and LocalPrograms for rail and transit security; and $36 million to the OSLGCP for EMPG. S.Amdt. 3618 also includes an offset in the form of an extension of Customs Userfees from June 1, 2005 to September 30, 2005. S.Amdt. 3611 appliesan overtime cap to certain CBP employees and reduces the CBP Salaries andExpenses account by $1 million. S.Amdt. 3598 provides an additional$75 million for baggage screening activities. S.Amdt. 3630 provides anadditional $100 million for Federal Fire Prevention and Control Act with decreasesin amounts from the following sources: $70 million from Title I in the Office of theUnder Secretary for Management; $20 million from Title IV in Information Analysisand Infrastructure Protection's (IAIP) Management and Administration Account; and$10 million from Science and Technology's (S&T) Management and AdministrationAccount. The Senate also adopted amendments to provide additional assistance pertaining to the recent round of hurricanes including Bonnie, Charley, and Frances. (8) S.Amdt. 3607 provided an additional $70 million to the Red Cross forresponse to hurricanes Bonnie, Charley, and Frances. S.Amdt. 3636 would provide an estimated $3 billion in emergency supplemental farm disasterassistance in response to various natural disasters. Table 3. Department of Homeland Security: Summary of Appropriations ($ in millions) Source: P.L. 108-334 ; H.R. 4567 passed by the House June 18, 2004; H.R. 4567passed by the Senate September 14, 2004; S. 2537 introduced by theSenate June 17, 2004. Note: Rounding may affect totals. a. Net, after considering fee receipts. b. Title I total includes total reductions of $50.4 million contained in H.Amdt. 568 and H.Amdt. 569 that were adoptedduring the debate on passage of H.R. 4567 . $50 million of thesereductions were transferred to the Firefighter Assistance Account under theOffice of State and Local Government Preparedness (OSLGCP) in Title III; and$450,000 ($0.4 million) were transferred to CBP in Title II. c. Includes amounts for Air and Marine Interdiction (AMO) to reflect DHS' transferof AMO from ICE to CBP; also includes a $63 million rescission. d. Does not include funding for AMO which was transferred from ICE to CBP byDHS. Title I covers the general administrative expenses of DHS, including the Office of the Secretary and Executive Management Offices; the Under Secretary forManagement; the Counterterrorism Fund; the Department-wide TechnologyInvestments Account; and the Office of the Inspector General. (9) Table 4 showsappropriations for FY2004, and congressional action on the request for FY2005. Thetotal FY2005 request for Title I is $713 million. This represents a 57.4% increaseover the FY2004 enacted level. H.Rept. 108-541 recommends $634 million for TitleI, representing a $79 million decrease compared to the Administration's request, anda 40% increase compared to the FY2004 enacted level. However, during the floordebate on H.R. 4567 , H.Amdt. 568 and H.Amdt. 569 were adopted reducing the total amounts available in TitleI, by $50.4 million to $584 million. S.Rept. 108-280 provides a total of $632 millionfor Title I. During the floor debate for H.R. 4567, the Senate adopted S.Amdt. 3630 , which decreased Title I by $70 million to $562 million. The conferees provide a total of $607 million for Title I. Table 4. Title I: Departmental Management andOperations ($ in millions) Source: P.L. 108-334 ; H.R. 4567 passed by the House June 18, 2004;H.R. 4567 passed by the Senate September 14, 2004; S. 2537 introducedby the Senate June 17, 2004. Note: Rounding may affect totals. a. The conferees deleted a separate appropriation line for Department-wide Technology Investment and include this funding within the Operations Salariesand Expenses account with the funding for the Chief Information Officer. Operations. Included in the Operations account is the Office of the Secretary and the Executive ManagementOffices, which perform several functions including public affairs, congressionalaffairs, privacy, security, general counsel, and civil rights and liberties. The Officeof the Immigration Ombudsman is also housed in the Executive ManagementOffices. The Undersecretary for Management is responsible for several functionsincluding, for example, monitoring and managing appropriations, accounting andfinance, procurement, human resources and personnel, and the tracking ofperformance measurements relating to the department. The FY2005 request forOperations of $405 million represents a 92% increase in funding over the enactedFY2004 level of $211 million. The conferees provide $524 million for Operations,but this amount includes funding previously appropriated under Department-wideTechnology Investments. H.Rept. 108-541 provides $341 million for the OperationsAccount, representing a decrease of $64 million from the Administration's FY2005request; and a 62% increase in funding over the enacted FY2004 level. However,during the floor debate on H.R. 4567 , H.Amdt. 568 and H.Amdt. 569 were adopted reducing the total amounts available in theOffice of the Undersecretary for Management, by $50.4 million, leaving a total of$291 million provided by H.R. 4567 for the Operations account. S.Rept. 108-280 provides $328 for the Operations Account, representing a $13 million decreasecompared to H.Rept. 108-541 , and a 55% increase compared to the enacted FY2004level. The $13 million difference between the House and Senate bills is spreadacross many sub-accounts and activities. Significant comparisons between theAdministration's request; H.Rept. 108-541 ; and S.Rept. 108-280 for Operationsinclude the following: $103 million requested by the administration for the new human resources personnel system, including additional resources for trainingsupervisory personnel, and creating the information technology framework for theperformance-based personnel system (the conferees in P.L. 108-334 , provide $36million for this activity) ( H.Rept. 108-541 provides $70 million under this account,and $21 million under the Department-Wide Technology Investment account, while S.Rept. 108-280 provides $70 million under this account); $45 million requested by the Administration for the continuedexpansion of DHS headquarters, of which $19 million would be available for 'tenantimprovement' and move costs, and $26 million is for the relocation of U.S. Navyoperations from the Nebraska Avenue Complex to leased facilities (fully funded by P.L. 108-334 , H.Rept. 108-541 , and S Rept. 108-280); and $17 million for headquarters staffing adjustments, of which$3.5 million is to implement a new regional field structure (half-year funding, or $1.7million provided by H.Rept. 108-541 , but not funded by P.L. 108-334 or S.Rept.108-280 ), $4.6 million for the Immigration Ombudsman (not funded by H.Rept.108-541 , but funded at $3.5 million by P.L. 108-334 and S.Rept. 108-280 ), and $5.9million to align the Office of Immigration Statistics under the Office of the UnderSecretary for Management (fully funded by P.L. 108-334 , H.Rept. 108-541 and S.Rept. 108-280 ). In addition, H.Rept. 108-541 zeroed out (-$6 million) funding for the DHS Office of Legislative Affairs, while this office is fully funded by S.Rept. 108-280 ; P.L. 108-334 funds this office at $5.4 million. Department-wide Technology Investments. The FY2005 Department-wide TechnologyInvestment (DTI) request of $226 million represents a 23% increase over the FY2004enacted level of $184 million. H.Rept. 108-541 provides $211 million for thisaccount, representing a decrease of $15 million as compared to the Administration'srequest, and an increase of 15% compared to the FY2004 enacted level. S.Rept.108-280 provides $222 million for this account, representing an $11 increasecompared to H.Rept. 108-541 , and a 21% increase compared to the FY2004 enactedlevel. P.L. 108-334 provides $275 million in funding for the Office of the ChiefInformation Officer (CIO) which includes funding previously appropriated under theDepartment-wide Technology Investments account. This amount includes: $208million for Department-wide Technology Investments, and $67 million for salariesand expenses. Significant comparisons between the Administration's request, H.Rept. 108-541 , and S.Rept. 108-280 for Department-wide Technology Investment: $21 million for the design, development and implementation of a new human resources information system integrating and consolidating theexisting legacy systems and implementing e-Government solutions (fully funded by P.L. 108-334 , H.Rept. 108-541 and S.Rept. 108-280 ); and $17 million for the 'eMERGE' (10) financial management systemthat will consolidate the existing legacy financial management systems into oneuniform solution for the Department (funded at $10 million by P.L. 108-334 ; fundedat $13 million, by H.Rept. 108-541 and S.Rept. 108-280 , due to the identification of$4 million in savings for this program). The difference between the H.R. 4567 and S. 2537 can be accounted for by the H.Rept. 108-541 transfer of $11 million for SAFECOM(secure interoperable communications) from this account to the Directorate ofScience and Technology. S.Rept. 108-280 does not transfer these funds to S&T,providing $11 million under DTI. S.Rept. 108-280 also provides an additional $11million for SAFECOM under the S&T Directorate, for a total of $22 million forSAFECOM. The conferees, in P.L. 108-334 , provide $11 million for SAFECOMunder the S&T directorate. Title II funds Security, Enforcement, and Investigations. The largest component of Title II is the Directorate of Border and Transportation Security (BTS). (11) BTS iscomprised of the inspection, investigative, and enforcement operations of the formerU.S. Customs Service (Customs), the former Immigration and Naturalization Service(INS), portions of the Animal and Plant Health Inspection Service (APHIS) (whosefunctions have been split between the Customs and Border Protection and theImmigration and Customs Enforcement); and the TSA. The Coast Guard and theSecret Service are also funded under Title II, though they are not a part of BTS. Table 5 shows funding for Title II. The table compares the funding of Title II activities for FY2004 with the amounts requested for FY2005. The Administrationhas requested a total Title II appropriation of $20.4 billion for FY2005. The BTSDirectorate accounts for 62.6% of the entire DHS budget. The FY2005 total requestrepresents an increase of $1.4 billion or 7.3% over the FY2004 enacted level. H.Rept. 108-541 recommends $20.6 billion for Title II, representing a $153 millionincrease compared to the request, and a 8% increase compared to the FY2004 enactedlevel. S.Rept. 108-280 provides $20.7 billion for Title II, representing a $153 millionincrease compared to the amounts provided in H.Rept. 108-541 , and a 9% increasecompared to the FY2004 enacted level. During floor debate, the Senate addedseveral amendments to HR4567 that increased overall Title II appropriations to $21.3billion. This represents an increase of $881 million over the FY2005 request and12% over the FY2004 enacted level. P.L. 108-334 provides $20.6 billion inappropriations for Title II. Table 5. Title II: Security, Enforcement, and Investigations ($ in millions) Source: P.L. 108-334 ; H.R. 4567 passed by the House June 18, 2004;H.R. 4567 passed by the Senate September 14, 2004; S. 2537 introducedby the Senate June 17, 2004. Note: Rounding may affect totals. a. If the FY2004 offset for FPS funding is directly applied, as it is in FY2005, ICE actually receives an increase of 11%. The presentation contained in Table 5 matches that of the unofficial House Appropriations Committee tables. b. The direct offsetting of FPS funding with FPS fee collections in FY2005 is achange in the accounting for the fees, and does not represent a new fee. c. The decrease in Maritime and Land security reflects a reorganization of grants(primarily port security grants) that, pursuant to the Secretary's Jan. 26, 2004reorganization proposal, were moved from TSA to ODP. d. Both the Administration's request and H.R. 4567 fund this activityunder the Science and Technology Directorate. Office of the Undersecretary for Border and Transportation Security. The Administration's request for thisoffice includes an increase of nearly $2 million for additional staff in the Office ofthe Undersecretary for BTS. H.Rept. 108-541 fully funds this request, while S.Rept.108-280 does not include increased funding for staffing adjustments. P.L. 108-334 provides $9.6 million for the Under Secretary for Border and Transportation Security. US-VISIT. The Administration has requested an increase of $12 million for the US-VISIT program to continue theimplementation of existing capabilities, and to deploy additional entry and exitcontrol capabilities at land ports of entry. The total funding request for US-VISITis $340 million, representing a 3.7% increase over the FY2004 enacted level of $328million. (12) P.L. 108-344 , H.Rept. 108-541 , and S.Rept. 108-280 , fully fund theAdministration's request for US-VISIT. The conferees also continue to requiredetailed expenditure plans for US-VISIT. Customs and Border Protection (CBP). CBP has responsibility for security at and betweenports-of-entry along the border. These responsibilities include inspecting people andgoods to determine that they are authorized for entry and maintaining border crossingstations to process persons seeking entry to the U.S. The inspection andborder-related functions of the Customs Service, the border security functions of theformer INS (including the Border Patrol), and the inspection functions of theAgricultural Quarantine Inspection (AQI) program are consolidated under CBP. P.L. 108-344 provides a net appropriation of $5,270 million for CBP. This includes $50 million for radiation detection technology, and upto an additional $30million for radiation detection technology or non-intrusive inspection equipment; $1million for an in-bond cargo security pilot project; $2 million for the ImmigrationSecurity Initiative; and $5 million for CBP's advanced training center. This amountalso includes the nearly $390 million for the Office of Air and Marine Interdiction(AMO), which was transferred by DHS to CBP from ICE. The funding for AMO isdivided between two appropriations lines with $130 million appropriated in CBP'sSalaries and Expenses account, and $258 million appropriated as a separateappropriation line for Air and Marine Operations, Personnel Compensation andBenefits. The CBP appropriation also includes a rescission of $63 million frompreviously appropriated FY2004 funds. The net FY2005 request for CBP was $5,122 million, representing a 4.4% increase over the enacted FY2004 level of $4,899 million. H.Rept. 108-541 recommended $5,154 million for CBP, representing a $32 million increase comparedto the Administration's request; and a 5% increase over the enacted FY2004 level. (13) S.Rept. 108-280 recommended $5,009 million for CBP, $145 million less thanprovided by H.Rept. 108-541 , $113 million less than requested, and 2% more thanthe enacted FY2004 level. P.L. 108-344 , H.Rept. 108-541 , and S.Rept. 108-280 fully fund the following FY2005 requested increases: $25 million to expand the Container Security Initiative (CSI), a cargo security program that stations CBP officers in foreign ports to target andpre-screen cargo containers before they are loaded on U.S. boundships; $15 million to expand Customs-Trade Partnership AgainstTerrorism (C-TPAT) a supply chain security program that engages participatingprivate sector actors in securing their own supply chains; $50 million for radiation detection and non-intrusive inspectiontechnology used in inspecting conveyances and cargo entering the country at portsof entry; $21 million for enhancements to several modules of CBP'sAutomated Targeting System (ATS), used to identify high-risk people and cargoworthy of a more intense inspection; $64 million to expand the remote video system deployedbetween ports of entry along the northern and southern borders;and $10 million to purchase Unmanned Aerial Vehicles to supportthe Border Patrol and other CBP components ( P.L. 108-344 funds this request underCBP to reflect the Department's transfer of AMO from ICE to CBP) ( S.Rept.108-280 funded this increase under the Office of Air and Marine Operations inICE). P.L. 108-334 provides an additional $30 million above the request for radiation detection equipment, ( H.Rept. 108-541 , and the Senate-passed H.R. 4567 had recommended an additional $50 million above the request for radiationdetection equipment), an additional $2 million for the Immigration Security Initiative( H.Rept 108-541 had recommended an additional $3 million), and an additional $1million to monitor 'in-bond' (14) cargo containers(recommended by H.Rept. 108-541 ). The Conference also transfer $23 million in training funds to reflect the transfer ofthe Charleston Training Center to FLETC (recommended by both the House andSenate). During floor debate, the Senate added two amendments to H.R. 4567 that resulted in a $149 million increase to CBP appropriations. S.Amdt. 3618 added $50 million for radiation detection devices, $50million for additional CBP inspectors, and $50 million for additional Border Patrolagents. S.Amdt. 3611 places a $30,000 aggregate overtime limitationon CBP employee remuneration and reduces overall CBP Salaries and Expenses by$1 million. Immigration and Customs Enforcement (ICE). (15) ICE focuses on enforcementof immigration and customslaws within the United States, as well as investigations into such activities as fraud,forced labor, trade agreement noncompliance, smuggling and illegal transshipmentof people and goods, and vehicle and cargo theft. In addition, this bureau overseesthe building security activities of the Federal Protective Service (FPS), formerly ofthe General Services Administration; and the aviation security activities of theFederal Air Marshals (FAMS), formerly of the TSA. ICE combined theinvestigations and intelligence functions of the U.S. Customs Service and the formerINS, the air and marine interdiction functions of those agencies, and the immigrationdetention and removal programs (including the operations of the FPS). P.L. 108-334 provides $3,167 million for ICE, however, this amount does not include amounts provided for AMO which, as noted earlier, has been transferred toCBP. The FY2005 request for ICE of $3,307 million represents an 11% increasefrom the enacted FY2004 level. Though Table 5 indicates that the FY2005 requestfor ICE consitutes a 2.9% decrease from the enacted FY2004 level, this is due to achange in accounting for the fee receipts used to offset the expenses of the FPS. Ifthe offsets are applied to the enacted FY2004 level in the same manner in which theFY2005 offsets are applied (zeroing out FPS funding in FY2004), ICE actuallyreceives an increase of nearly 11% from the FY2004 enacted level. Using this sameaccounting, H.Rept. 108-541 recommended $3,364 million for ICE, representing a$57 million increase over the Administration's request and a $381 million or 13%increase from the enacted FY2004 level. S.Rept. 108-280 recommended $3,410million for ICE, $46 million more than provided by H.Rept. 108-541 , $103 millionmore than requested, and a 14% increase compared to the FY2004 enacted level. ICE has six budget accounts into which its funding is appropriated: Salaries andExpenses; FPS; FAMS; Automation Modernization; Air and Marine Operations(AMO); and Construction. The bulk of ICE's funding is provided through theSalaries and Expenses account, which is separated into three activities:Investigations; Detention and Removal; and AMO (which has now been transferredto CBP). The Investigations program focuses its resources on the investigation of numerous national security, financial and smuggling violations including contrabandsmuggling; human trafficking; money laundering; commercial fraud; identity andbenefit fraud; and the illegal trafficking of weapons and critical technology. TheAdministration requested $78 million (355 FTE) over base resources for thefollowing Investigations program initiatives: $16 million (65 FTE) for compliance teams to analyze data generated from the Student Exchange and Visitor Information System (SEVIS) andUS-VISIT (fully funded by P.L. 108-334 , and the House and Senatereports); $14 million (90 FTE) for International Affairs of which $10million is to support the new Visa Security Unit, and the remaining $4 million isrequested to replace funding previously provided through the Examination FeeAccount (fully funded by P.L. 108-334 , and the House and Senatereports); $25 million to support benefit fraud operations, requested toreplace funding previously provided by the Examination Fee Account (fully fundedby P.L. 108-334 , but not funded by the Senate); and $23 million for worksite enforcement (funded at $5 million by P.L. 108-334 , funded by the House at $15.6 million, and not funded by the Senatereport). The Detention and Removal program is responsible for ensuring that all removable aliens depart the U.S. The Administration requested, and P.L. 108-334 fully funds, $108.2 million (342 FTE) over base resources for the followingDetention and Removal program initiatives: $30 million (140 FTE) to expand the Institutional Removal Program nationally to all Federal, State, and local institutions housing criminalaliens; $50 million (118 FTE) to continue implementation of theNational Fugitive Operations Program (NFOP) which seeks to reduce the fugitivealien population over the next six years; $11 million (30 FTE) to establish alternatives to detention thatinclude additional non-traditional family and female-friendly detention settings andestablish community supervision operations (the House report provides an additional$5 million above the request, which was not funded by P.L.108-334 ); $6 million (40 FTE) for the Legal Program to eliminate thebacklog of matters pending in the Immigration Court; $6.2 million to fund DHS's efforts to interdict illegal alienmigrants in the Caribbean region; and $5 million (14FTE) for additional detention bed space ( P.L.108-334 provides an additional $16.5 million above the House and Senaterecommendations for a total of $20.5 million above the request)(the House andSenate reports both recommended an additional $5 million above therequest). AMO utilizes an integrated and coordinated air and marine force to identify, deter, interdict, and investigate acts of terrorism and the unlawful smuggling ofpeople or goods across U.S. borders. The Administration requested, and P.L.108-334 fully funds, $40.5 million for the following AMO program initiatives thathave been transferred to CBP: $28 million to increase the number of P-3 (a radar equipped aircraft) flight hours which will be allocated to the Caribbean to support counternarcotics programs in source countries (Columbia Airbridge Denial Program);and $12.5 million for long range radar to support drug interdictionefforts along the southern border. P.L. 108-334 also provides AMO with an additional $3 million for AMO's National Capital Region Coordination Center (NCRCC) and National Capital Regionair branch. H.Rept. 108-541 provided an additional $5 million in ICE's Salaries andExpenses Account, for AMO's NCRCC and National Capital Region air branchoperations; this additional amount was not provided by S.Rept. 108-280 . The Administration did not request additional funding for new initiatives for the FAMS, FPS, Automation Modernization, or Construction accounts. However, P.L.108-334 provides, and H.Rept. 108-541 and S.Rept. 108-280 each recommended atotal increase of $60 million for Federal Air Marshals: $50 million in the FAMSaccount for FAMS operations; and $10 million under the Directorate of Science andTechnology for the FAMS air-to-ground communications system. Transportation Security Administration(TSA). P.L. 108-334 provides a net appropriation of $3,260 millionfor TSA. The Administration's net FY2005 request for TSA of $2,752 millionrepresents a 9.7% increase over the enacted FY2004 level of $2,508 million. According to TSA, this increase does not include funding to expand currentprograms, nor does it fund any new program initiatives. (16) Instead, this increase iscomprised primarily of annualizations of prior year funding and pay inflation. H.Rept. 108-541 recommended a net appropriation of $3,225 million for TSA. While this appears to be a $473 million increase over the FY2005 request, and a 29%increase over the enacted FY2004 level, H.Rept. 108-541 in fact recommendsincreases totaling $73 million. According to S.Rept. 108-280 , the Administrationbudget request included a $400 million increase in aviation security fees. However,neither House nor Senate reports funded this request, instead they recommended the$400 million in appropriated funds. Table 5 reflects the amounts contained in P.L.108-334 , H.Rept. 108-541 and S.Rept. 108-280 . S.Rept. 108-280 recommended atotal appropriation of $3,337 for TSA for FY2005. However, during floor debate for H.R. 4567 , the Senate adopted amendment 3598 which added $75million to TSA for baggage screening activities. Within the Aviation Security Account, P.L. 108-334 provides $22 million over the request for Passenger Screening, while the House recommended $10 million lessthan requested and the Senate report recommended $50 million more than requested. For Baggage Screening, P.L. 108-334 provides $75 million above the request; whilethe House recommended $29 million above the Administration's request and theSenate in S.Rept. 108-280 recommended $60 million above the request for thepurchase and installation of EDS/ETD equipment. For Airport Security Directionand Enforcement, P.L. 108-334 provides $12 million less than requested, while theHouse recommended an additional $3 million above the request for aviationregulation and other enforcement, and an additional $10.4 million above the requestfor air cargo security; and the Senate recommended $38 million above theadministration's request, of which $25 million is for airport information technologyand support, and $13 million is for air cargo security activities. United States Coast Guard. (17) TheCoast Guard is the lead federal agency for the maritime component of homelandsecurity. As such, it is the lead agency responsible for border and transportationsecurity as it applies to U.S. ports, coastal and inland waterways, and territorialwaters. The Coast Guard also performs other missions, including some (such asfisheries enforcement) not related to homeland security. P.L. 108-334 provides $7,373 million for the Coast Guard for FY2005. This amount includes a rescission of $16 million of funding previously appropriated inFY2004 for Rescue 21 because of contract delays and high unobligated balances forthat program. The total FY2005 request for the Coast Guard of $7,335 millionrepresents an 8.5% increase over the enacted FY2004 level of $6,764 million. H.Rept. 108-541 provides $7,307 million for the Coast Guard, representing adecrease of $29 million compared to the Administration's request, and an increaseof $542 million or 8% compared to the FY2004 enacted level. H.Rept. 108-541 includes a rescission of $33 million of unexpended funds appropriated in FY2003and FY2004 for Maritime Patrol Aircraft under the Deepwater Program. S.Rept.108-280 provides $7,469 million for the Coast Guard (this amount does not includethe $33 million rescission contained in H.R. 4567 ). There is adifference of $162 million ($129 million after accounting for the rescission in H.R.4567) between the amounts provided the Coast Guard in the House-passed H.R.4567, and S.Rept. 108-280 . The Administration has requested increased funding for several FY2005 Coast Guard initiatives. The requested amounts and the funding levels provided by P.L.108-334 , H.Rept. 108-541 , and S.Rept. 108-280 include the following: $102 million to facilitate the development, review, and approval of port and maritime security plans required by the Maritime TransportationSecurity Act (MTSA) ( P.L. 108-334 , H.Rept. 108-541 and S.Rept. 108-280 fullyfund this request); $27 million for the Rescue 21 Project, which is recapitalizingthe Coast Guard's coastal zone communications network (not funded by P.L.108-334 or H.Rept. 108-541 , but fully funded by S.Rept.108-280 ); $10 million for the Integrated Deepwater Program (fully funded by P.L. 108-334 , H.Rept. 108-541 and S.Rept.108-280 ); (18) $10 million for a pay and performance demonstration project(not funded by P.L. 108-334 , H.Rept. 108-541 , but fully funded by S.Rept.108-280 ); $6 million for the Great Lakes Icebreaker Project (fully fundedby P.L. 108-334 , H.Rept. 108-541 and S.Rept. 108-280 ); and $2 million to arm existing helicopter assets at Air Station CapeCod, as prototypes for arming all Coast Guard helicopters (fully funded by P.L.108-334 , H.Rept. 108-541 , and S.Rept. 108-280 ). Additionally, with regard to research and development, H.Rept. 108-541 transferred $13.5 million to the S&T Directorate (as requested), while S.Rept.108-280 recommended $18.5 million for research and development under the CoastGuard (deferring the transfer pending the completion of a study). P.L. 108-334 provides $18.5 million for research and development funding in the Coast Guardaccount. United States Secret Service. P.L. 108-334 provides $1,175 million for the Secret Service. This amount includes arescission of $700,000 of previously appropriated FY2004 funds. This amount alsoincludes "not less than $5 million above the request for National Security SpecialEvents (NSSE)," (the conferees also stated that the foreseeable costs of the NSSEsshould be funded from within the Secret Service's base budget); $2.1 million forforensic support to the National Center for Missing and Exploited Children(NCMEC); and an additional $3 million above the request for the training andsupport of new special agents assigned to the Electronic Crimes Task Force (ECTF). The FY2005 request was $1,163 million, and represented a 2.5% increase over the enacted FY2004 level. The Administration did not request additional funding forSecret Service initiatives for FY2005. H.Rept. 108-541 recommended a total of$1,184 million for the Secret Service, representing an increase of $20 million overthe Administration's request. This recommended increase included $10 million tosupport Secret Service operations concerning NSSEs; $5 million for ElectronicCrimes Task Forces (ECTF); and $5 million in transfers for grant assistance for theNational Center for Missing and Exploited Children (NCMEC). S.Rept. 108-280 recommended $1,163 million, $11 million less than amounts recommended by H.Rept. 108-541 . The amounts recommended by S.Rept. 108-280 did not includethe requested additional $10 million for NSSE, which the committee stated shouldbe funded from within the base budget. S.Rept. 108-280 also did not fund therequested increase for the ECTF, but did include the $5 million for the NCMEC. The DHS Emergency Preparedness and Recovery (EPR) (19) functions are intendedto improve the nation's capability to reduce losses from all disasters, includingterrorist attacks. EPR promotes the effectiveness of emergency responders; supportsthe Nuclear Incident Response Teams through standards, training exercises, andprovision of funds to named federal agencies; coordinates the federal response aftercatastrophic disasters by managing, directing, overseeing, and coordinating specifiedfederal resources; aids recovery efforts; contributes to the development of nationalpreparedness and planning efforts; consolidates existing federal response plans intoa single plan; and develops programs for interoperative communications foremergency responders. EPR also incorporates all activities formerly administeredby the Federal Emergency Management Agency (FEMA). Table 6 includes funds expended during FY2004 for these functions, and compares them to amounts requested and appropriated for FY2005. P.L. 108-334 provides a total of $9,491 for FY2005 for activities funded under Title III. TheAdministration requested a total of $9.2 billion for FY2005 activities funded underTitle III, representing a 31.5% decline compared with the enacted FY2004 level. Oneexplanation for that decrease is that, the enacted FY2004 amount included anadvance appropriation (20) of $4.7 billion for ProjectBioShield (21) but limited the currentyear (FY2004) obligation of these funds to $884 million. The FY2005 requestcontained an obligation limitation of $2.5 billion for Project BioShield, which wasadopted by the conference and approved in P.L. 108-334 . H.Rept. 108-541 recommended $9,500 million for Title III; while the Senate-passed version of H.R.4567 recommended $9,792. H.Rept. 108-541 and S.Rept. 108-280 transfer andmerge the ODP with the Office of State and Local Government Coordination into anew organization called the Office for State and Local Government Coordination andPreparedness (OSLGCP); P.L. 108-334 also reflects this new organization. Duringfloor debate, the Senate added two amendments, which increased appropriations forOSLGCP by $284 million in the Senate-passed version of H.R. 4567 ,for a Title III total of $9,792 million. Emergency Preparedness and Response (EPR). P.L. 108-334 provides $5,499 for EPR. This amountincludes a rescission of $5 million in funds previsouly appropriated by P.L. 108-11 . (22) The Administration requested increased funding for the following FY2005 EPRinitiatives, which are fully funded by P.L. 108-334 , H.Rept. 108-541 , and S.Rept.108-280 : $8 million in new budget authority for four Incident Management Teams; and $7 million for the development and implementation of theNational Incident Management System (NIMS). P.L. 108-334 provides $240 million for preparedness, mitigation, response and recovery, of which $30 million is provided for Urban Search and Rescue Teams; $2 million is provided in support of EPR's Emergency Housingplan; and $15 million is provided for the NIMS. P.L. 108-334 also includes $203 million for Administrative and Regional Operations; $34 million for Public Health Programs; $2,042 million for Disaster Relief (does not include $70 millionfor the American Red Cross as recommended by the Senate which are addressed inthe FY2004 emergency supplemental) (23) ;and $153 million for Emergency Food and Shelter. Both the House and Senate reports propose a $447 million decrease for Public Health Programs, funding only one of the three components at the FY2004 enactedlevel, and transferring budget authority for the other two. The National DisasterMedical System receives level funding of $34 million in both reports; P.L. 108-334 also provides $34 million. Both the House and Senate reports stated concurrencewith the Administration proposal to return budget authority for the Strategic NationalStockpile (funded at $400 million in FY2004) to the Department of Health andHuman Services (HHS). Funding for the stockpile had been transferred from HHSto DHS by the Homeland Security Act, P.L. 107-296 . The Metropolitan MedicalResponse System (MMRS) grants, slated for elimination in the FY2005 budgetrequest, are transferred to the OSLGCP, though only the House provides funding forthe program, maintaining the FY2004 level of $50 million. P.L. 108-334 provides$30 for MMRS grants under OSLGCP. Office of Domestic Preparedness (ODP) or Office of State and Local Government Coordination and Preparedness(OSLGCP). (24) ODP has primaryresponsibility for preparing firstresponders and public safety officials for terror-related or weapons of massdestruction event, and for administering grants to state, local, tribal, and regionaljurisdictions. On January 26, 2004, the Secretary of DHS sent a reorganizationproposal to Congress consolidating grants formerly in the TSA (port security grants),and in FEMA (Emergency Performance Grants) under ODP. This is a part of theAdministration's effort to position ODP as the 'one-stop shop' for preparednessassistance. As mentioned above, the FY2005 $3.6 billion request for ODP wouldhave been a net decrease of 11.3% from the enacted FY2004 level. H.Rept. 108-541 recommended a total of $4,065 million for the OSLGCP, an increase of $504 millionover the request. In addition, prior to passage, the House adopted H.Amdt. 568 , which transferred $50 million from Title I, to theFirefighter Assistance account for the Staffing for Adequate Fire and EmergencyResponse Firefighters (SAFER) program. (25) Thisbrought the total recommended bythe House-passed version of H.R. 4567 for the OSLGCP to $4,115million. S.Rept. 108-280 recommended a total of $3,750 million for OSLGCP, or$365 million less than provided by H.Rept. 108-541 , and $189 million more thanrequested. However, as mentioned above, during floor debate the Senate added twoamendments, which increased appropriations for OSLGCP by $284 million in theSenate-passed version of H.R. 4567. The Senate-passed version of H.R. 4567recommended a total of $4,134 million for OSLGCP. P.L. 108-334 provides $3,985million. As shown in Table 6 , P.L. 108-334 provides $3.5 million for OSLGCP Salaries and Expenses compared to the $25 million recommended by the Senate, and the $41million recommended by the House. The conferees agreed to provide $4 million,and note that management and administrative expenses are provided as a percentageof the formula-based grants. P.L. 108-334 provides $3,086 for State and Local Programs. The main categories of grants provided under this account include: Formula-based Grants;Discretionary Grants; and National Programs. P.L. 108-334 provides $1,500 million for Formula-based grants, including $1,100 million for the formula-based grants themselves; and $400 million for Law Enforcement Terrorism PreventionGrants. P.L. 108-334 provides $1,200 million for Discretionary Grants, including $885 million for High-Threat, High-Density Urban Area Grants; $150 million for Rail and Transit SecurityGrants; $150 million for Port Security Grants; $10 million for Intercity Bus Security Grants; and $5 million for Trucking Security Grants. P.L. 108-334 provides $336 million for National Programs, including $135 million for the National Domestic Preparedness Consortium; $52 million for the National ExerciseProgram; $30 million for the Metropolitan Medical ResponseSystem; $30 million for Technical Assistance; $30 million for Demonstration TrainingGrants; $25 million for Continuing TrainingGrants; $15 million for Citizen Corps; and $5 million for the Rural Domestic PreparednessConsortium. P.L. 108-334 also provides $715 million for Firefighter Assistance Grants; of which $65 million is for the Staffing for Adequate Fire and Emergency ResponseFirefighters (SAFER) program. Table 6. Title III: Preparedness andRecovery ($ in millions) Source: P.L. 108-334 ; H.R. 4567 passed by the House June 18, 2004;H.R. 4567 passed by the Senate September 14, 2004; S. 2537 introducedby the Senate June 17, 2004. Note: Rounding may affect totals. a. During the floor debate to the Senate-passed version of H.R. 4567 , the Senate adopted amendments providing $178 million in additional funds(over what was recommended in S.Rept. 108-280 ) for State and LocalPrograms: S.Amdt. 3616 provided $50 million; and S.Amdt. 3618 provided $128 million. b. This funding was appropriated and funded under the Undersecretary forManagement and ODP for FY2003 and FY2004 ($32.9 million), the requestedamount for FY2005 is ($41.9 million). c. The Administration proposed that for FY2005 Emergency Management Performance Grant (EMPG) funding move from EPR to the Office of State andLocal Government Coordination and Planning (OSLGCP). The Administrationrequested and in H.R. 4567 the House provided a total of $170million for EMPG under the State and Local Program Account in the OSLGCP. S.Rept. 108-280 provides $180 million for EMP grants as a separate accountunder OSLGCP. The Senate-passed version of H.R. 4567 included anadditional $58 million for EMP grants as noted below. d. During the floor debate on the Senate-passed version of H.R. 4567 ,the Senate adopted amendments providing $58 million in addition to the $180million recommended in S.Rept. 108-280 for EMPG: S.Amdt. 3616 provided $20 million ; and S.Amdt. 3618 provided $36million. e. Prior to passage, the House adopted H.Amdt. 568, which transferred $50 millionfrom Title I to this account for the Staffing for Adequate Fire and EmergencyResponse Firefighters (SAFER) program. f. During the floor debate on the Senate-passed version of H.R. 4567 ,the Senate adopted amendments providing $150 million above the $700 millionprovided in S.Rept. 108-280 : S.Amdt. 3616 provided $50 million for FirefighterAssistance; and S.Amdt. 3630 provided $100 million for SAFER. g. For FY2005 the Strategic National Stockpile (funded at $400 million in FY2004)has been transferred to the Department of Health and Human Services, and theMetropolitan Medical Response System (funded at $50 million in FY2004) hasbeen transferred to the OSLGCP. h. Fully funded through offsetting fee collections at $113 million under theAdministration's request, H.R. 4567 and S. 2537 . i. The Administration requested that the flood mitigation and the Pre-disasterMitigation program be merged into one account, Mitigation Grants. The Housedid not accept this merger proposal, and provided funding under the twoseparate sub-accounts. The Senate accepted the proposal, and funds both theNational Flood Mitigation and the National Pre-disaster Mitigation Fund underthe Mitigation Grants account. The $150 million provided by the Senate doesnot include $20 million in transfers from the National Flood Insurance Fund. Hazard Mitigation Grant Program would continue to be funded through thedisaster relief fund. The $100 million provided by the conference also does not include $20 million in transfers. Activities funded by Title IV include the Bureau of Citizenship and Immigration Services (CIS); Information Analysis and Infrastructure Protection (IAIP); FederalLaw Enforcement Training Center (FLETC); and the Science and TechnologyDirectorate (S&T). Table 7 shows amounts provided for these functions in FY2004 together with the amounts requested and appropriated for FY2005. P.L. 108-334 provides $2,392million for the activities of Title IV, including: $160 million in net appropriations forCIS; $894 million for IAIP; $222 million for FLETC; and $1,115 million for S&T. The Administration requested a total of $2.24 billion dollars for Title IV for FY2005. This represented a 3% increase over the FY2004 enacted level of $2.17 billion. H.Rept. 108-541 recommended a total of $2,368 million for Title IV, representingan increase of $128 million compared to the request, and a 9% increase compared tothe enacted FY2004 level. S.Rept. 108-280 recommended $2,309 million for TitleIV, $59 million less than provided by H.Rept. 108-541 , and $69 million more thanrequested by the Administration. During floor debate on H.R. 4567 , theSenate adopted an amendment that reduced Title IV funding by $30 million. Thislowered overall Title IV Senate recommendation to $2,279 million. Table 7. Title IV: Research and Development, Training, Assessments, and Services ($ in millions) Source: P.L. 108-334 ; H.R. 4567 passed by the House June 18, 2004;H.R. 4567 passed by the Senate September 14, 2004; S. 2537 introducedby the Senate June 17, 2004. Note: Rounding may affect totals. Citizenship and Immigration Services (CIS). When the former INS was disbanded and split, the inspectionand enforcement functions were placed in CBP and ICE respectively, and theimmigration service functions were placed in a new agency named Citizenship andImmigration Service. CIS is responsible for providing immigration information andbenefits to eligible individuals. The Administration requested an additional $60million to support efforts to reduce the backlog in processing immigration benefitapplications. H.Rept. 108-541 recommended a net appropriation of $160 million forCIS. This fully funded the Administration's request and provides an additional $20million to convert old immigration records into electronic form (adopted by theconference, and included in P.L. 108-334 ). S.Rept. 108-280 provides $140 millionfor CIS, and does not included the additional $20 million for record conversioncontained in H.Rept. 108-541 . Information Analysis and Infrastructure Protection (IAIP). IAIP's primary responsibilities include integratingcomprehensive terrorist threat information and mapping that information againstcritical infrastructure vulnerabilities; issuing warnings and advisories; andrecommending preventative and protective actions against threats. The IAIP FY2005request of $865 million represented a 3.7% increase from the enacted FY2004funding level of $834 million. P.L. 108-334 provides $894 million for IAIP. H.Rept.108-541 recommended a total of $855 million for IAIP, representing a $10 milliondecrease compared to the Administration's request, and a 2.5% increase over theenacted FY2004 level. S.Rept. 108-280 recommended $876 million for IAIP, $21million more than provided in H.Rept. 108-541 , and $11 million more thanrequested. The Administration requested, and P.L. 108-334 , H.Rept. 108-541 , and S.Rept. 108-280 fully fund the following FY2005 IAIP initiatives: $11 million for the Bio-Surveillance Initiative (26) which willallow IAIP to integrate data from various agencies to enhance IAIP's situationalawareness of the health of the population, animals, plants, food supply, andenvironment; $10 million for renovations and upgrades to the currentHomeland Security Operations Center; and $2 million for cyber exercises to test the critical infrastructuresof the nation to potential cyber attacks. P.L. 108-334 also provides $762 million for Assessments and evaluations, including $107 million for Critical Infrastructure outreach and partnerships; $78 million for Critical Infrastructure identification andevaluation; $20 million for the National Infrastructure Simulation andAnalysis Center (NISAC); $192 million for Protective Actions; $11 million for Biosurveillance; $67 million for Cyber Security; $140 million for National Security Emergency PreparednessTelecommunications; $4 million for Competitive Analysis andEvaluation; $22 million for Threat Determination andAssessment; $71 million for Infrastructure Vulnerability and RiskAssessment; $14 million for Evaluation and Studies; and $35 million for the Homeland Security OperationsCenter. Federal Law Enforcement Training Center (FLETC). FLETC offers law enforcement training programs tofederal, state, and local law enforcement entities. P.L. 108-334 provides $222million for FLETC. The FY2005 request for FLETC of $196 million representeda 2.6% increase over the FY2004 enacted level of $192 million. The Administrationrequested an increase of $2 million to complete the construction of the Harper's FerryTraining Center (HFTC). H.Rept. 108-541 recommended a total of $221 million forFLETC, representing an increase of $25 million compared to the Administration'srequest, and 15.1% increase compared to the enacted FY2004 level. This increasewas comprised of $23 million in funds transferred from CBP for the Charleston,South Carolina Training Facility; and $2 million for the DHS pay and performancedemonstration project. S.Rept. 108-280 recommended $224 million for FLETC. S.Rept. 108-280 did not include the requested $2 million to complete constructionat the HFTC; but does include the $23 million transfer for CBP's Charleston facility,and the $2 million for the pay and performance demonstration. S.Rept. 108-280 alsoincludes an additional $5 million for the construction of perimeter security atFLETC's Artesia firearms range. Science and Technology Directorate (S&T). The S&T Directorate is tasked with the research,development, testing, and evaluation of homeland security capabilities. S&T alsocoordinates with federal, state and local government and the private sector to conductits activities. As mentioned above, S&T is requesting the largest increase in fundingof all the Title IV components. The FY2005 request of $1,039 million representeda 13.8% increase over enacted FY2004 funding. P.L. 108-334 provides $1,115million for S&T. H.Rept. 108-541 recommended a total appropriation of $1,132million for S&T, (including the $11 million transfer of SAFECOM funds from DTI)representing an increase of $93 million compared to the Administration's request,and 9% above the enacted FY2004 level. S.Rept. 108-280 recommended $1,069million for S&T, $63 million less than the amounts recommended by H.Rept.108-541 , and $31 million above the requested amount. P.L. 108-334 provides $1,047 million for S&T Research and Development, including $363 million for biological countermeasures; $123 million for nuclear and radiologicalcountermeasures; $53 million for chemicalcountermeasures; $20 million for high explosivescountermeasures; $66 million for threat and vulnerability, testing andassessment; $27 million for critical infrastructureprotection; $55 million for conventional missions in support of DHS(includes transfers from the consolidated transfer account); $76 million for the rapid prototypingprogram; $40 million for standards; $ 11 million for emerging threats; $70 million for university programs and homeland securityfellowship programs; $35 million for the National Biodefense Analysis &Countermeasures Center (NBAC); $61 million for counter MANPADS; $10 million for the SAFETY Act; $18 million for cyber security; and $21 million for interoperability andcommunications. This section of the report discusses legislative proposals related to the FY2005DHS appropriations. The concurrent resolution sets forth the congressional budget for FY2005. The resolution proposes federal budget levels for FY2005 through FY2009. On May 19,2004, the House agreed to the conference report to S.Con.Res. 95 . TheSenate did not adopt the conference agreement before the end of FY2004. (27) The Senate passed its version of the budget resolution, S.Con.Res. 95 , on March 12, 2004. H.Con.Res. 393 ( H.Rept. 108-441 ) was passedby the House on March 25, 2004. On March 29, 2004, the House incorporated theprovisions of H.Con.Res. 393 into S.Con.Res. 95 , whichthen passed the House. H.Con.Res. 393 (and the House-passed version of S.Con.Res. 95 ) contains a new budget function '(100) HomelandSecurity'. In the report accompanying H.Con.Res. 393 ( H.Rept.108-441 ) the House Committee on Appropriation states that the additional functionalcategory is necessary because "homeland security has become an important separatespending category." (28) According to H.Rept.108-441 , Function 100 comprises allhomeland security spending in the federal government, except the portion providedby the Department of Defense. H.Rept. 108-441 also states that approximately 58%of federal government spending on homeland security "occurs in the Department ofHomeland Security." The Senate-passed version of S.Con.Res. 95 does not containa new budget function for homeland security. The conference agreement H.Rept.108-498 does not include a new budget function for Homeland Security. The following websites are specific to either homeland security or the budget: House Select Committee on Homeland Security http://hsc.house.gov Congressional Research Service (CRS) Issues on Homeland Security http://www.crs.gov/products/browse/is-homelandsecurity.shtml Department of Homeland Security (DHS) http://www.dhs.gov/dhspublic/ http://www.dhs.gov/dhspublic/display?theme=12 White House http://www.whitehouse.gov/homeland http://www.whitehouse.gov/infocus/budget/index.html House Committees http://appropriations.house.gov/ http://www.house.gov/budget/ Senate Committees http://appropriations.senate.gov/ http://www.senate.gov/~budget Congressional Budget Office http://www.cbo.gov Congressional Research Service (CRS ) http://www.crs.gov/products/appropriations/appage.shtml General Accounting Office (GAO) http://www.gao.gov Government Printing Office (GPO) http://www.gpoaccess.gov/usbudget/index.html Office of Management and Budget (OMB) http://www.whitehouse.gov/omb/budget/index.html http://www.whitehouse.gov/omb/legislative/sap/index.html | This report describes the FY2005 appropriations for the Department of Homeland Security (DHS). On October 18, 2004, P.L. 108-334 was signed into law providing $33.1 billion inappropriations for DHS for FY2005. The report includes tables that compare the FY2004appropriations for the programs and activities of DHS, the President's FY2005 request, thecongressional response to the request, and the amounts enacted for FY2005. P.L. 108-334 provides the following amounts for the four titles of the DHS appropriation: (I) Departmental Management and Operations, $607 million; (II) Security, Enforcement andInvestigations, $20.6 billion; (III) Preparedness and Recovery, $9.5 billion; and (IV) Research andDevelopment, Training, Assessments, and Services, $2.4 billion. The President's FY2005 Budget requested total appropriations of $32.6 billion for DHS. H.R. 4567 and S. 2567 recommended a total appropriation of $33.1 billionrepresenting an increase of $500 million compared to the request, and a 9.2% increase compared tothe FY2004 enacted level. P.L. 108-334 provides the following amounts for the major components of DHS. Included under Title II: Customs and Border Protection (CBP) $5.3 billion; Immigration and CustomsEnforcement (ICE) $3.2 billion; Transportation Security Administration (TSA) $3.3 billion; the U.S.Coast Guard $7.4 billion; the U.S. Secret Service $1.2 billion; and the U.S. Visitor and ImmigrantStatus Indicator Technology (US-VISIT) $340 million. Included under Title III is $4.0 billion forthe Office of State and Local Government Coordination and Preparedness (OSLGCP), and $5.5billion for Emergency Preparedness and Response (EPR) activities. Title IV includes $160 millionfor Citizenship and Immigration Services (CIS); $894 million for Information Analysis andInfrastructure Protection (IAIP); $222 million for the Federal Law Enforcement Training Center(FLETC); and $1.1 billion for the Science and Technology Directorate. This report will not be updated. Key Policy Staff: Homeland Security |
The Commerce Clause (Art. I, §8, cl. 3) of the United States Constitution provides that the Congress shall have the power to regulate interstate and foreign commerce. The plain meaning of this language might indicate a limited power to regulate commercial trade between persons in one state and persons outside of that state. However, the Commerce Clause has never been construed quite so narrowly. Rather, the clause, along with the economy of the United States, has grown and become more complex. In addition, when Congress began to address national social problems, the Commerce Clause was often cited as the constitutional basis for such legislation. As a result, the Commerce Clause has become the constitutional basis for a significant portion of the laws passed by Congress over the last 50 years, and it currently represents one of the broadest bases for the exercise of congressional powers. An examination of the United States Code shows that more than 700 statutory provisions explicitly refer to either "interstate" or "foreign" commerce, covering a significant number of issues. These issues include agriculture, banking, antitrust, securities, business regulation, energy regulation, hazardous substances, consumer credit, sports regulation, the Internet, endangered species, civil rights, child support, child pornography, abortion, criminal law, controlled substances, food, firearms control, terrorism, obscenity, gambling devices, labor, industrial safety, pensions, environmental law, fish and wildlife, medical products, water pollution, atomic energy, shipping, motor vehicle safety, airplanes, and tort litigation. Since the 1990s, however, Supreme Court case law has brought the limits of the Commerce Clause into question. While these cases have resulted in the overturning of federal laws, their overall effect has so far been relatively modest in scope. A 2005 Supreme Court case, Gonzales v. Raich , seems to confirm that the effect of these previous cases will be limited. The Commerce Clause provides that "The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." The word "commerce" appears to have the same primary meaning today as it did in 1789—"an interchange of goods or commodities between different countries or between areas of the same country" or in other words "trade." However, commentators have argued that a secondary meaning of commerce which was understood at the time of the drafting of the Constitution includes all productive activity which relates to commerce, such as manufacturing and agriculture. A further question is then raised whether Congress's power to regulate commerce is significantly limited by the phrase "with foreign Nations, and among the several states, and with the Indian Tribes." For instance, the phrase "among the several States" could either be interpreted as "between people of different states" or more broadly as "between people who live in the various states." Some have argued that the broader definition, which would cover commerce between people of the same state, would render the phrase "among the several States" superfluous. This question, generally characterized as whether the power to regulate "interstate commerce" extends to "intrastate" commerce, has been mostly settled by case law, and most "intrastate" commercial transactions are vulnerable to some form of federal regulation. The integration of commercial activities in the United States was a central theme of the Constitutional Convention of 1787. It appears, however, that the parameters of the Commerce Clause were not of particular concern to the framers of the Constitution. The commentary contemporary to the Constitution on the power did not concern itself with the federalism implications of managing interstate economic transactions, but rather focused on the issue of foreign trade. The primary purpose of the clause appears to have been raising federal revenue by the nationalization of the states' power to impose import tariffs, while a secondary purpose was apparently to allow Congress to regulate and restrict foreign commerce to advance American interests. The argument has been made that while regulating free and fair trade between states was the principal motivation for adopting various other provisions of the Constitution, it may not have been a strong motivation for the drafting of the Commerce Clause. This is because state restrictions on trade between states were already prohibited under the Articles of Confederation, and the states generally complied with these restrictions. Consequently, commentary contemporary to the ratification of the Constitution indicating that the Commerce Clause was intended to limit state restrictions on interstate commerce was minimal. In Gibbons v. Ogden, the Supreme Court, in an opinion by Chief Justice Marshall, considered a challenge to a monopoly on the operation of steam-propelled vessels in New York waters. This monopoly was challenged by Gibbons, who transported passengers from New Jersey to New York under an act of Congress. The Chief Justice, in striking down the monopoly, wrote that "the power over commerce ... is vested in Congress as absolutely as it would be in a single government ..." and that "the influence which their constituents possess at elections, are ... the sole restraints" on this power. The Chief Justice went on to write that "[t]he counsel for the appellee would limit [the term commerce] to traffic, to buying and selling, or the interchange of commodities, and do not admit that it comprehends navigation. This would restrict a general term, applicable to many objects, to one of its significations. Commerce, undoubtedly, is traffic, but it is something more—it is intercourse," which the Court found easily included the issue of navigation. Marshall did qualify the word "intercourse" with the word "commercial," thus retaining the element of monetary transactions. The Court did not soon revisit this expansive view of the Commerce Clause. Instead, over the next several decades, the Court considered the boundaries of the "dormant Commerce Clause" doctrine—the implied limitation of the Commerce Clause on a state's ability to regulate commerce. This, combined with the relatively cautious exercise of the power by the early Congresses, meant that the Supreme Court did not have occasion to consider the limits of Congress's power under this doctrine for almost 60 years. When the Court again revisited Congress's power under the clause, it generally approved of statutes regulating the interstate movement of goods or persons, such as lottery tickets, adulterated food, or prostitutes. But, during the early 1900s, the Supreme Court was confronted with statutes which went beyond regulation of trade, and addressed other related economic activities. Consequently, the Court struck down a series of federal statutes which attempted to extend commerce regulation to activities such as "production," "manufacturing" or "mining." Starting in 1937, however, with the decision in NLRB v. Jones & Laughlin Steel Corporation , the Supreme Court held that Congress has the ability to protect interstate commerce from burdens and obstructions which "affect" commercial transactions. In the NLRB case, the Court upheld the National Labor Relations Act, finding that by controlling industrial labor strife, Congress was preventing burdens from being placed on interstate commerce. Thus, the Court rejected previous distinctions between the economic activities (such as manufacturing) which led up to interstate economic transactions, and the interstate transactions themselves. By allowing Congress to regulate activities which were in the "stream" of commerce, the Court also set the stage for the regulation of a variety of other activities which "affect" commerce. Subsequent Court decisions found that Congress had considerable discretion in regulating activities which "affect" interstate commerce, as long as the legislation was "reasonably" related to achieving its goals of regulating interstate commerce. Thus the Court found that in some cases, events of purely local commerce (such as local working conditions) might, because of market forces, negatively affect interstate commerce, and thus would be susceptible to regulation. The Court has also held that an activity which in itself does not affect interstate commerce could be regulated if all such activities taken together in the aggregate did affect interstate commerce. Under the reasoning of these cases, the Court has upheld many diverse laws, including laws regulating production of wheat on farms, racial discrimination by businesses, and loan-sharking. In the 1995 case of United States v. Lopez , however, the Supreme Court brought into question the extent to which Congress can rely on the Commerce Clause as a basis for federal jurisdiction. Under the Gun-Free School Zones Act of 1990, Congress made it a federal offense for "any individual knowingly to possess a firearm at a place that the individual knows, or has reasonable cause to believe, is a school zone." In Lopez , the Court held that, because the act neither regulated a commercial activity nor contained a requirement that the possession was connected to interstate commerce, the act exceeded the authority of Congress under the Commerce Clause. Although the Court did not explicitly overrule any previous rulings upholding federal statutes passed under the authority of the Commerce Clause, the decision would appear to suggest new limits to Congress's legislative authority. The Lopez case was significant in that it was the first time since 1937 that the Supreme Court struck down a federal statute purely based on a finding that Congress had exceeded it powers under the Commerce Clause. In doing so, the Court revisited its prior cases, sorted the commerce power into three categories, and asserted that Congress could not go beyond these three categories: (1) regulation of channels of commerce; (2) regulation of instrumentalities of commerce; and (3) regulation of economic activities which "affect" commerce. Within the third category of activities which "affect commerce," the Court determined that the power to regulate commerce applies to intrastate activities only when they "substantially" affect commerce. Still, the Court in Lopez spoke approvingly of earlier cases upholding laws which regulated intrastate credit transactions, restaurants utilizing interstate supplies, and hotels catering to interstate guests. The Court also recognized that while some intrastate activities may by themselves have a trivial effect on commerce, regulation of these activities may be constitutional if their regulation is an essential part of a larger economic regulatory scheme. Thus, the Court even approved what has been perceived as one of its most expansive rulings, Wickard v. Filburn , which allowed the regulation of the production of wheat for home consumption. The Court in Lopez found, however, that the Gun-Free School Zones Act fell into none of the three categories set out above. It held that it was not a regulation of channels of commerce, nor did it protect an instrumentality of commerce. Finally, its effect on interstate commerce was found to be too removed to be "substantial." The Court noted that the activity regulated, the possession of a gun in a school zone, neither by itself nor in the aggregate affected commercial transactions. Further, the statute contained no requirement that interstate commerce be affected, such as that the gun had been previously transported in interstate commerce. Nor was the criminalization of possession of a gun near a school part of a larger regulatory scheme which did regulate commerce. Finally, the Court indicated that criminal law enforcement is an area of law traditionally reserved to the states. Consequently, the Court found that Congress did not have the authority to pass the Gun-Free School Zones Act. The Court also discussed the absence of legislative findings with respect to the statute's effect on interstate commerce. While noting that Congress is not formally required to make such findings, the Court nevertheless held that "to the extent that congressional findings would enable us to evaluate the legislative judgment that the activity in question substantially affected interstate commerce, even though no such substantial effect was visible to the naked eye, they are lacking here." Although the Supreme Court has confirmed the dictates of Lopez in the case of United States v. Morrison , discussed infra , both of these decisions dealt primarily with the issue of "substantial impact" on commerce. However, as noted, the Court has identified two other categories of power that Congress has under the Commerce Clause—regulation of channels of commerce and regulation of instrumentalities of commerce—that have been interpreted almost as broadly. Thus, an evaluation of the impact of these cases requires an examination of all three categories of power. The channels of commerce doctrine has been interpreted so as to represent a broad power to regulate. To begin, this category is the basis for a variety of statutes that directly regulate the movement of persons or goods across state lines. For instance, the United States Code contains extensive references to mailing or shipping material in interstate commerce, including regulations or bans on shipping biological agents, counterfeit documents, explosives, or threatening communications. Of more significance is that the Court has not required that any nexus exist between the time that a person crosses a state border and the time the person engages in a prohibited activity. For instance, in United States v. Sullivan , the Court addressed the application of Section 301k of the Federal Food, Drug, and Cosmetic Act to a local pharmacist. The section prohibits the "doing of any ... act with respect to, a ... drug ... if such act is done while such article is held for sale after shipment in interstate commerce and results in such article being misbranded." The pharmacist was charged with "misbranding" sulfathiazole by not providing sufficient information regarding dosage and usage. The Court in Sullivan relied on precedent finding that Congress has not only the power to regulate commerce among the states, but also the power to "keep the channels of such commerce free from the transportation of illicit or harmful articles." The fact that the defendant here had bought the item after it had passed over state lines was not found to be of constitutional significance. Thus, the Court appears to require only that the criminal activity in question has some relation to the crossing of state lines. Consistent with this line of reasoning, there are laws, such as criminal prohibitions on mail fraud, where the material is regulated not because it is by nature harmful, but rather because it relates to other behavior which is criminal. Or, there are laws prohibiting crimes based on a person crossing the state line with the intent to commit the sexual abuse of minors, where it is the activity engaged in after the line is crossed that is criminal. Finally, there are laws that regulate activities which utilize materials after they have been shipped in interstate commerce, even if the materials were perfectly legal when they were transported. Ultimately, based on cases such as Sullivan , it would appear that statutes that would otherwise be in violation of the limitations of Lopez could be approved by courts because of the presence of the jurisdictional element that an item related to the crime had crossed a state line. Under this reasoning, the gun possession law struck down in Lopez, which has since been amended to require that the gun had previously been shipped in interstate commerce, would be upheld. Thus, an expansive reading of the channels of commerce doctrine would appear to stand in the way of a limited interpretation of the Commerce Clause. Under the "instrumentalities of commerce" category, Congress may properly make whatever regulations it sees fit for the safety, efficiency, and accessibility of the nationwide transportation and communications networks. For instance, in Preseault v. Interstate Commerce Commission , the Court considered whether Congress could prevent the reversion of railroad rights-of-way to property owners after abandonment in order to create recreational trails. The Interstate Commerce Commission (ICC) argued that turning the right-of-ways into recreational trails was preserving the rail corridors for future railroad use. Despite arguments that the preservation argument was a pretext, the Court held that it must defer to a congressional finding that a regulated activity affects interstate commerce "if there is any rational basis for such a finding." The instrumentalities of commerce category represents yet another significant basis for expansive congressional authority. As noted previously, federal mail and wire fraud statutes make it a crime to engage in fraud while using the telephone or the mail. By analogy, Congress could reach many other activities that utilize these networks or similar networks such as railroads, interstate highways, and even the Internet. While this category has not been fully occupied by Congress, it would appear that a significant amount of federal power could be exercised in this manner, regardless of whether the matter regulated involved non-economic activity. The Court has not yet indicated whether the Lopez requirement that regulated activities have some connection to a commercial activity would be applicable in this category. The third prong of Congress's power to regulate under the Commerce Clause involves those activities that have a substantial impact or effect on interstate commerce. To fully understand the scope and reach of this power, it is important to begin with an examination of the Court's 1942 decision in Wickard v. Filburn , which led to the expansive view of the Commerce Clause that Congress operated under until 1995. In Wickard , the Court was asked to determine whether, under the Commerce Clause, amendments to the Agricultural Adjustment Act of 1938 implementing a quota system to restrict the amount of wheat that could be harvested and sold applied to individuals who produced and consumed homegrown bushels of wheat. In upholding the statute as constitutional, the Court held that economic activities, regardless of their nature, could be regulated by Congress if the activity "asserts a substantial impact on interstate commerce.... " The Court reasoned that the growing of wheat, even if only for a family's personal consumption, provided an alternative to the marketplace that was both viable and competitive. Although the Court admitted that one family's production alone would likely have a negligible impact on the overall price of wheat, if combined with other personal producers the effect would be substantial enough to make the activity subject to congressional regulation. The rationale of combining individual effects to find substantial impacts on interstate commerce has become known as the "aggregation theory," and arguably represents the most far reaching example of Congress's authority to regulate under the Commerce Clause. After Wickard , the Court consistently held that a "rational basis" existed for Congress to enact laws under the theory that the regulated behavior substantially affected interstate commerce. Despite the consistency of these decisions, it was not always clear whether the activity in question met the "substantially affects" test. Then in 1995, when the Court decided the Lopez case, as discussed previously, it explored the limits of the "substantially affects" test. Subsequently, in United States v. Morrison , the Court invalidated a portion of the Violence Against Women Act, which specifically created a private right of action against anyone who committed such a crime, allowing an injured party to obtain damages and other compensatory relief. Applying its holding in Lopez , the Court concluded that the activity regulated by the act could not be classified as "economic activity," and therefore the aggregation principle established by Wickard did not apply. The Court, however, stopped short of establishing a rule that all non-economic activity cannot be aggregated. In addition, the Court concluded that the act contained no jurisdictional element connecting the creation of a federal cause of action for gender-motivated violence to Congress's power to regulate interstate commerce. Further, while in Morrison , unlike in Lopez , there were numerous congressional findings, the Court stressed that although findings by the legislative branch can serve to illuminate the relationship between the regulation and interstate commerce, constitutionality ultimately turns on the legal aspects of the substantial effects doctrine, and therefore, is for the Court to decide. In this case, the Court found that the legislative findings detailing the effects on interstate commerce by gender-motivated violence were based in large part on the "costs of crime," which was nearly identical to the reasoning expressly rejected by the Court in Lopez . Finally, the Court considered the level of attenuation between the regulated activity and its effect on interstate commerce. In this case, the Court concluded that the regulation of gender-motivated violent crime was not directed at the instrumentalities, channels or goods involved in interstate commerce, and was therefore beyond the scope of Congress's authority. In sum, after Lopez and Morrison , the test to determine whether a regulation has a substantial effect on interstate commerce requires reviewing courts to consider the following four factors: (1) whether the regulated activity is commercial or economic in nature; (2) whether an express jurisdictional element is provided in the statute to limit its reach; (3) whether Congress made express findings about the effects of the proscribed activity on interstate commerce; and (4) whether the link between the prohibited activity and the effect on interstate commerce is attenuated. After the decision in Lopez and Morrison , the question arose as to whether these cases were a harbinger of future restrictions on Congress's power to legislate. Arguably, the Court had intended Lopez and Morrison to have a limited effect, as the Court specifically reaffirmed much of its previous Commerce Clause case law. Further, the statutory provisions challenged in Lopez (criminal penalties for gun possession in or near schools) and Morrison (civil suits for gender-motivated crime) were relatively unusual for statutes based on the Commerce Clause in that they did not contain a specific requirement that the activities be related to commerce. In addition, while broad economic regulation may have noneconomic elements (e.g. , record-keeping requirements), the provisions in question were activities not associated with such larger schemes. Accordingly, when provisions contained in broader regulatory schemes were challenged after Lopez and Morrison, the lower courts generally upheld them under a "broader scheme" doctrine. This doctrine is largely derived from language in Lopez that arguably permits congressional regulation of noneconomic activity if the regulation is "an essential part of a larger regulatory scheme, in which the regulatory scheme would be undercut unless the intrastate activity was regulated." Nonetheless, some lower courts considering non-economic provisions of larger regulatory schemes found that such laws might be struck down in certain applications. Generally, a court reviewing the constitutionality of a federal statute may declare the statute unconstitutional either as invalid on its face, or "as applied" to a particular set of circumstances. Utilizing an "as applied" standard, various lower courts struck down particular applications of broader statutory schemes. When presented with an "as applied" challenge, these courts initially attempted to define the relevant "class of activity" presented by the facts of the specific case. For instance, in Ashcroft v. Raich , the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) considered a challenge to the Controlled Substances Act. The challenging parties were seriously ill California residents who had obtained marijuana consistent with California's Compassionate Use Act but in violation of the federal Controlled Substances Act (CSA). The Ninth Circuit found the class of activity to be the "intrastate, noncommercial cultivation, possession and use of marijuana for personal medical purposes on the advice of a physician and in accordance with state law." Having defined the relevant class of activity, the court proceeded to apply the four factor Morrison test. With respect to the first factor—whether or not the activity is commercial or economic in nature—the court concluded that the narrow class of activity in this case could not be considered commercial or economic in nature. The court next considered whether the CSA contains an express jurisdictional element that would limit its reach to those cases that substantially affect interstate commerce. With no stated analysis, and apparently persuaded by the reasoning of a district court opinion, the court concluded that "[n]o such jurisdictional hook exists in the relevant portions of the CSA." With respect to whether the legislative history contains congressional findings regarding the effects on interstate commerce, the court was able to cite findings relating to the effect that intrastate drug trafficking activity would have on interstate commerce. While admitting that the legislative history lends support to the constitutionality of the statute under the Commerce Clause, the court proceeded to diminish the importance of these findings by arguing that they were not specific to either marijuana or the medicinal use of marijuana, but rather related to the general effects of drug trafficking on interstate commerce. In addition, the court referred to language in Morrison , discussing the limited role of congressional findings. Moreover, the court referenced Ninth Circuit precedent concluding that the first and fourth prongs of the Morrison test—whether the statute regulates an economic enterprise and whether the link is attenuated—are the most significant factors to the analysis. Finally, with respect to whether the link between the regulated activity and a substantial effect on interstate commerce is attenuated, the court expressed doubt that the interstate effect of homegrown medical marijuana is substantial. Citing authority questioning the validity of the federal government's claim of an effect on interstate commerce, the court concluded that "this factor favors a finding that the CSA cannot constitutionally be applied to the class of activities at issue in this case." The United States Supreme Court granted certiorari specifically on the question of whether the power vested in Congress by both the "Necessary and Proper Clause, and the Commerce Clause of Article I includes the power to prohibit the local growth, possession, and use of marijuana permissible as a result of California's law." Justice Stevens, writing for the majority in the now-entitled Gonzales v. Raich , reversed the Ninth Circuit's decision and held that Congress's power to regulate commerce extends to purely local activities that are "part of an economic class of activities that have a substantial effect on interstate commerce." In reaching its conclusions, the Court relied heavily on its 1942 decision in Wickard v. Filburn , which held that the Agricultural Adjustment Act's federal quota system applied to bushels of wheat that were homegrown and personally consumed. Wickard stands for the proposition that Congress can rationally combine the effects that individual producers have on a commercial market to find substantial impacts on interstate commerce. The Court pointed to numerous similarities between the facts presented in Raich and those in Wickard . Initially, the Court noted that because the commodities being cultivated in both cases are fungible and that well-established interstate markets exist, both markets are susceptible to fluctuations in supply and demand based on production intended for home consumption being introduced into the national market. According to the Court, just as there was no difference between the wheat Mr. Wickard produced for personal consumption and the wheat cultivated for sale on the open market, there is no discernable difference between personal home-grown medicinal marijuana and marijuana grown for the express purpose of being sold in the interstate market. Thus, the Court concluded that Congress had a rational basis for concluding that "leaving home-consumed marijuana outside federal control would similarly affect price and market conditions." Respondents argued that Wickard was distinguishable because in the case of wheat the activity involved was purely commercial, and the evidence clearly established that the aggregate production of wheat had a significant effect on the interstate market. Conversely, respondents claimed that the activity at issue in Raich was non-commercial—the respondents had never attempted to sell their marijuana—and Congress had made no finding that the personal cultivation and use of medicinal marijuana has a substantial effect on the interstate marijuana market. The Court, however, noted that the standard for assessing the scope of Congress's power under the Commerce Clause is not whether the activity at issue, when aggregated, substantially affects interstate commerce; but rather, whether there exists a "rational basis" for Congress to have concluded as such. The Court, applying this deferential standard, concluded that "Congress had a rational basis for believing that failure to regulate the intrastate manufacture and possession of marijuana would leave a gaping hole in the CSA." Moreover, the Court affirmed that "Congress was acting well within its authority to 'make all Laws which shall be necessary and proper' to 'regulate Commerce ... among the several States.'" Despite having concluded that under the "rational basis test" Congress had acted within its constitutional authority when it enacted the CSA and applied it to intrastate possession of marijuana, the Court nevertheless had to distinguish Lopez and Morrison , the Court's more recent Commerce Clause decisions. The Court concluded that the CSA, unlike the statutes in either Lopez (Gun-Free School Zones Act) or Morrison (Violence Against Women Act), regulated activity that is "quintessentially economic," therefore, neither Lopez or Morrison cast any doubts on the constitutionality of the statute. The Court specifically rejected the reasoning used by the Ninth Circuit, concluding that "Congress acted rationally in determining that none of the characteristics making up the purported class, whether viewed individually or in the aggregate, compelled an exemption from the CSA; rather, the subdivided class of activities defined by the Court of Appeals was an essential part of the larger regulatory scheme." In supporting its conclusions, the Court noted that, by characterizing marijuana as a "Schedule I" narcotic, Congress was implicitly finding that it had no medicinal value at all. In addition, the Court returned to the fact that medicinal marijuana was a fungible good, thus making it indistinguishable from the recreational versions that Congress had clearly intended to regulate. According to the Court, to carve out medicinal use as a distinct class of activity, as the Ninth Circuit had done, would effectively make " any federal regulation (including quality, prescription, or quantity controls) of any locally cultivated and possessed controlled substance for any purpose beyond the 'outer limits' of Congress'[s] Commerce Clause authority." Moreover, the Court held that California's state law permitting the use of marijuana for medicinal purposes cannot be the basis for placing the respondent's class of activity beyond the reach of the federal government, due to the Supremacy Clause, which requires that, in the event of a conflict between state and federal law, the federal law shall prevail. Finally, the Court replied to the respondent's argument that its activities are not an "essential part of a larger regulatory scheme" because they are both isolated and policed by the State of California and they are completely separate and distinct from the interstate market. The Court held that not only could Congress have rationally rejected this argument, but also that it "seem[ed] obvious" that doctors, patients, and caregivers will increase the supply and demand for the substance on the open market. In sum, the Court concluded that the case for exemption can be distilled down to an argument that a locally grown product used domestically is immune from federal regulation, which has already been precluded by the Court's decision in Wickard v. Filburn . While the decision in Raich seemed to indicate that Congress still retained broad power over activity that affects interstate commerce, the Court has subsequently held that this power extends only to cases into which commercial activity has already been entered. In 2010, Congress passed the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010. Jointly referred to as the Affordable Care Act (ACA), the ACA, among other things, mandates the purchasing of health insurance by certain individuals who do not have such insurance. Following the enactment of the ACA, state attorneys general and others brought several lawsuits challenging various provisions of the ACA on constitutional grounds. Much of this litigation was resolved by the Supreme Court in the case of National Federation of Independent Business (NFIB) v. Sebelius . Chief Justice Roberts, in a controlling opinion, found that the Commerce Clause does not provide Congress with the authority to enact the individual mandate. While the Chief Justice acknowledged that Congress's authority to regulate interstate commerce is quite broad, he also pointed out that Congress had never attempted to use this power to make individuals buy an undesired product. The Chief Justice further noted that the language of the clause (i.e., the power to regulate interstate commerce) reflects the idea that there must be something to regulate in the first place (i.e., some type of "activity"). The problem with the individual mandate, as indicated by the Chief Justice, is that it "does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product on the ground that their failure to do so affects interstate commerce." The Chief Justice concluded that such a construction of the Commerce Clause would greatly expand the reach of the clause beyond permissible bounds. He further explained that regulating individuals based on what they fail to do would fundamentally change the relationship between the citizen and the federal government in a way that was not intended by the framers of the Constitution. The Obama Administration had argued that virtually all individuals are active in the health care market because they will need health care at some point. However, the Chief Justice declined to accept this line of reasoning, opining that the Court's Commerce Clause precedent does not support the idea that Congress can dictate the conduct of an individual today based on predicted future activity. The Administration had also argued that the requirement to purchase health insurance was different from other products because, for example, individuals receive health care services even though they cannot pay for them, and the costs of those services can be passed on to others in various ways such as higher insurance premiums. The Chief Justice disagreed with this argument, noting that if the Court followed this reasoning, a mandatory purchase could be permitted to solve almost any problem. In other words, if Congress could require the purchase of health insurance, it could require Americans to purchase anything. | The Commerce Clause of the United States Constitution provides that the Congress shall have the power to regulate interstate and foreign commerce. The plain meaning of this language might indicate a limited power to regulate commercial trade between persons in one state and persons outside of that state. However, the Commerce Clause has never been construed quite so narrowly. Rather, the clause, along with the economy of the United States, has grown and become more complex. In addition, when Congress began to address national social problems, the Commerce Clause was often cited as the constitutional basis for such legislation. As a result, the Commerce Clause has become the constitutional basis for a significant portion of the laws passed by Congress over the last 50 years, and it currently represents one of the broadest bases for the exercise of congressional powers. An examination of the United States Code shows that more than 700 statutory provisions, covering a range of issues, are explicitly based on regulation of either "interstate" or "foreign" commerce. Over the last two decades, however, the Supreme Court in United States v. Lopez and United States v. Morrison held that a gun possession law and a law regarding sexual violence were, respectively, beyond Congress's authority to regulate commerce. The effect of these cases, however, has so far been relatively modest in scope. For instance, a later case, Gonzales v. Raich, confirmed the authority of Congress to regulate medical marijuana, suggesting that the effect of the prior cases will be limited. Yet, in the case of National Federation of Business v. Sebelius, considering a challenge to an individual mandate to buy health insurance, the Court found that the Commerce Clause did not provide authority for such mandate. In Sebelius, the Court limited the use of the Commerce Clause to instances where individuals have already chosen to engage in a commercial activity (although it did find that such mandate could be enforced under Congress's power to tax). |
The bursting of the housing bubble in 2007 and the multi-year downturn in the housing and mortgage markets have led some to question whether the pre-crisis structure of the housing finance system is appropriate for the future. Many different housing finance reform plans have subsequently been proposed, and from the debate some broad principles appear to have emerged. Among those principles are Prevent taxpayers from having to provide assistance again in the future . Fannie Mae and Freddie Mac—two government-sponsored enterprises or GSEs—experienced significant financial losses when house prices fell and foreclosure rates increased. The GSEs were placed in conservatorship by their regulator, the Federal Housing Finance Agency (FHFA), in September 2008. Nearly six years later, the GSEs remain in conservatorship and have received approximately $187 billion in assistance in the form of senior preferred stock purchased by the Department of the Treasury. Though the GSEs have made significant dividend payments to the Treasury since entering conservatorship, none of these payments count toward paying back the amount injected by Treasury. The dividends compensate Treasury for its assistance and the risk it has assumed. Furthermore, the Federal Housing Administration (FHA), an agency within the Department of Housing and Urban Development (HUD) that provides federal mortgage insurance, received $1.7 billion from Treasury at the end of FY2013 to ensure that it had enough funds on hand to pay for all of the expected future costs associated with the mortgages that it currently insures. These funds were provided under the permanent and indefinite budget authority provided to all federal credit programs under the Federal Credit Reform Act of 1990, and the transfer of funds from Treasury did not require additional congressional action. Although FHA does not anticipate needing additional funds from Treasury in FY2014, concerns persist about its ongoing financial stability. Return private capital to the mortgage market. The increased role of the federal government in the mortgage market since 2008 is shown in Figure 1 . In addition to Fannie Mae and Freddie Mac, the government guarantees mortgage loans through FHA, the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). The government guarantees mortgage-backed securities (MBS) composed of FHA, VA, and USDA mortgages through Ginnie Mae, an agency within HUD. Since 2008, Ginnie Mae and the GSEs have collectively provided funding for approximately 75% to 85% of annual mortgage originations, up from about 30% in 2006, as the share of non-agency (private label) MBS fell precipitously. Ensure that mortgage credit is available and affordable to creditworthy borrowers . During the housing downturn, underwriting criteria for mortgages generally tightened, requiring higher credit scores and higher downpayments. Some borrowers had a more difficult time financing the purchase of a home. Reform proposals would attempt to make mortgage credit and certain mortgage products, such as the 30-year fixed-rate mortgage, both available and affordable to creditworthy borrowers. Although different plans have similar goals, their different diagnoses of problems facing the market have led to divergent proposals. Some believe that private capital has been slow to return to the mortgage market because the government (through Fannie Mae, Freddie Mac, and FHA) is crowding out the private sector, and because there are insufficient standards for the private sector to function appropriately. By shrinking the government's footprint and by establishing "rules of the road," the argument goes, the private sector will step up to fill the government's void. Others argue that while the government may need to reduce its role, the main impediment to the private sector returning is a lack of appetite for risk among private investors. They argue that the government must continue to provide some type of guarantee to ensure that the mortgage market will continue to provide enough credit at an affordable rate to creditworthy borrowers. The 113 th Congress has seen several developments in the effort to reform the housing finance system. In the House, the Protecting American Taxpayers and Homeowners Act of 2013 (PATH Act; H.R. 2767 ), which proposes to wind down the GSEs and would reform FHA, was ordered to be reported out of the House Financial Services Committee on July 24, 2013. In the Senate, the Housing Finance Reform and Taxpayer Protection Act ( S. 1217 ) was ordered to be reported with an amendment in the nature of a substitute by the Senate Committee on Banking, Housing, and Urban Affairs on May 15, 2014. Senator Corker introduced S. 1217 , which was referred to as the "Corker-Warner GSE bill." After a series of hearings, the committee held a markup on S. 1217 . The committee agreed to a substitute amendment offered by Chairman Tim Johnson (now referred to as the "Johnson-Crapo GSE bill") and voted to report S. 1217 with amendments. In analyzing S. 1217 , this report focuses on S. 1217 as reported. Unlike the PATH Act, the Johnson-Crapo GSE bill does not make significant reforms to FHA. However, the Banking Committee has also reported a separate FHA reform bill, the FHA Solvency Act of 2013 ( S. 1376 ; popularly known as the Johnson-Crapo FHA bill). This report briefly explains the different approaches to housing finance reform contained in these legislative proposals, focusing on efforts to replace Fannie Mae and Freddie Mac and to reform FHA. The report does not describe every provision of the proposals but discusses major concepts and themes. The next section provides a brief overview of some of the major entities in the housing finance system to lay the foundation for the ensuing discussion of legislative proposals. The housing finance system has two major components: a primary market and a secondary market . Lenders originate new loans in the primary market, and loans are bought and sold in the secondary market. The federal government is involved in both markets. The government insures certain mortgages originated by lenders in the primary market through different government agencies, with FHA as the largest provider of government mortgage insurance. FHA is an agency within HUD that provides mortgage insurance on loans that meet its requirements (including a minimum down payment requirement and an initial principal balance below a certain threshold) in exchange for fees, or premiums, paid by borrowers. If a borrower defaults on an FHA-insured mortgage, FHA will repay the lender the entire remaining principal amount it is owed. In the secondary market, Ginnie Mae—also a government agency in HUD—guarantees MBS composed of mortgages guaranteed by FHA and other government agencies. The combination of FHA and Ginnie Mae transfers the credit risk (the risk that some borrowers might default and not repay their mortgages) from the lender and investor to the government. Fannie Mae and Freddie Mac also operate in the secondary market. Until they were placed under government conservatorship in September 2008, Fannie Mae and Freddie Mac were stockholder-controlled companies with congressional charters that contain special privileges and certain special responsibilities to support affordable housing for low- and moderate-income households. The GSEs do not originate mortgages but instead have two main lines of business. First, through the GSEs' guarantee businesses, the GSEs purchase conforming mortgages—mortgages that meet certain eligibility criteria based on size and creditworthiness—and pool the mortgages into MBS. The MBS are sold to investors with the GSEs guaranteeing that investors will receive timely payment of principal and interest on their MBS even if a borrower with a mortgage that is part of the MBS becomes delinquent. The GSE guarantee transfers the credit risk from the investors to the GSEs. To compensate the GSEs for their guarantee, the GSEs receive a guarantee fee. In the second main line of business, the GSEs' portfolios, the GSEs hold mortgages and MBS (including GSE MBS, Ginnie Mae MBS, and MBS sold by other private entities) as investments. When individuals discuss "bringing private capital back into the mortgage market," they often are referring to having private capital absorb credit risk rather than the government doing so through Fannie Mae and Freddie Mac or programs such as FHA. Private investors still bear other risks when they purchase MBS guaranteed by the GSEs or the government, such as risks related to the interest rate, but do not bear credit risk. This section explains how the PATH Act and the Johnson-Crapo GSE bill would wind down the GSEs and would attempt to attract private capital back into the market. In addition, this section describes how the PATH Act and the Johnson-Crapo FHA bill would reform FHA. The PATH Act ( H.R. 2767 ) proposes to wind down Fannie Mae and Freddie Mac over several years. It would replace them with a National Mortgage Market Utility that would facilitate mortgage securitization but would not provide a government guarantee. The act would also eliminate or delay the implementation of certain existing regulations that some believe are inhibiting the recovery in the mortgage market. In addition, the PATH Act would reform FHA, making it an independent agency and taking steps intended to improve its finances, more narrowly target its market role, and increase the role of private capital. The phase out of Fannie Mae and Freddie Mac involves two stages, actions taken during the first five years before the GSEs' charters are repealed and actions subsequently taken. First five years after enactment . As mentioned previously, the GSEs each have two main lines of business—their guarantee businesses and their portfolios—and the PATH Act takes steps to wind down both businesses. For the guarantee businesses, the PATH Act proposes several steps to limit the GSEs' new business during the first five years after enactment. The GSEs would only be allowed to purchase or guarantee mortgages that meet the Qualified Mortgage (QM) standard. Mortgages would also need to be below the conforming loan limit; the limit in high-cost areas would decrease by $20,000 per year if the director of FHFA determines that market conditions allow it. The GSEs would be prohibited from purchasing a mortgage for a home located in an area that used eminent domain to acquire a mortgage in the previous 10 years. In addition, the GSEs would have to set their guarantee fees for the mortgages that they guarantee at the level that the FHFA director determines is comparable to what a privately capitalized financial institution would charge. The GSEs' affordable housing goals and contributions to two affordable house funds, the Housing Trust Fund and the Capital Magnet Fund, would be repealed. Fannie Mae and Freddie Mac would also be required to have at least 10% of their annual business involve risk-sharing transactions that transferred credit risk to private investors. For the GSEs' second line of business, each GSE's mortgage portfolio would be required to decrease by 15% annually down to $250 billion. As of the end of 2013, Freddie Mac had a mortgage portfolio of $461 billion and Fannie Mae had a mortgage portfolio of $490.7 billion. The PATH Act would codify provisions that are currently in support agreements between Fannie Mae and Freddie Mac and the Treasury. Five years after enactment. Five years after enactment, the GSEs' charters would be repealed, unless the FHFA director determined that market conditions warranted a temporary extension. After their charters are repealed, Fannie and Freddie would no longer have authority to conduct new business. FHFA, acting as receiver, would have the discretion to establish a receivership entity to assume the assets and liabilities of the GSEs after their charters are repealed. The federal government would explicitly guarantee the payment of certain outstanding liabilities. The PATH Act would not create a new entity to guarantee MBS composed of conventional (non-government insured) mortgages. MBS composed of mortgages insured and guaranteed by the government, such as through FHA and the Department of Veterans Affairs (VA), would still be eligible to be explicitly guaranteed by Ginnie Mae under the PATH Act. Market Utility . The PATH Act would create a charter for a non-government, not-for-profit National Mortgage Market Utility (Utility) that would facilitate mortgage securitization. After a selection process, FHFA would assign the Utility charter to the chosen applicant. The Utility would not provide a government guarantee on MBS or originate mortgages. The Utility would establish market standards and guidelines for the other participants in the securitization process. It would operate the common securitization platform currently being developed by the FHFA and GSEs. The common securitization platform would be a voluntary securitization tool that could be used by private-sector actors to facilitate the back-office functions of securitization, such as providing disclosures to investors and tracking the assignment of mortgage notes. The platform would potentially allow the mortgage market to benefit from economies of scale and from the efficiency generated by the standards that would be set through the platform. FHFA would regulate the Utility. A MBS securitized through the platform and composed of mortgages that meet the underwriting and disclosure requirements of the Utility would be deemed a qu alified s ecurity . The Utility would establish multiple categories of Qualified Securities based on the underlying credit risk of the mortgages that compose the Qualified Security. The different categories of Qualified Securities would allow investors to determine which MBS is commensurate with the level of risk they wish to assume. Tailoring risk to the preferences of investors could facilitate demand for Qualified Securities and potentially lead to lower rates for borrowers in the primary market. Small Lender Access. The Utility would be open-access, not charging fees that vary by the size of the participants. To facilitate the use of the platform by community banks and credit unions, the Federal Home Loan Banks would be authorized to function as loan aggregators to pool loans from small institutions that could then be securitized through the platform. Standards and Guidelines . The Utility would establish "rules of the road" for the securitization process. It would create standard securitization agreements to set the contractual terms between most of the major market participants (such as issuers, servicers, and investors). The Utility would also operate a National Mortgage Data Repository with publicly available mortgage data and mortgage-related documents. Covered Bonds . The PATH Act would direct financial regulators to implement regulations to create an oversight framework for covered bonds. Covered bonds are one method for financial institutions to raise funds from investors. They are rare in the United States, although variations of covered bonds have been used in Europe for centuries. A covered bond is a recourse debt obligation that is secured by a pool of assets, often mortgages. The holders of the bond are given additional protection in the event of bankruptcy or insolvency of the issuing lender. Covered bonds have some features, such as pooled mortgages, that resemble securitization, but the original lenders maintain a continuing interest in the performance of the loans. Although covered bonds are not a prohibited form of debt contract in the United States, some observers believe that legislation and agency rulemaking is required to facilitate the growth of a larger domestic covered bond market. Figure 2 is a simplified model of the PATH Act. It demonstrates one potential way in which the market involving the Utility could be organized if the PATH Act is implemented. The top row of boxes shows how the intermediation of funds from investors to households would take place and the creation of an MBS. The second row of boxes shows the flow of principal and interest payments from households to investors. FHFA would regulate the Utility. In recent years, increased default and foreclosure rates, as well as economic factors such as falling house prices, have contributed to increases in both the actual losses that FHA has incurred on insured loans and the anticipated losses that it expects to incur in the future. This increase in actual and expected losses has put pressure on FHA's insurance fund, and at the end of FY2013, FHA received $1.7 billion from Treasury to ensure that it has enough funds to pay for all of its expected future losses. Title II of the PATH Act includes many provisions intended to address FHA's financial condition by limiting the amount of risk it assumes, increasing the amount of capital that it is required to hold, and tightening certain mortgage standards. It also includes provisions to more narrowly target FHA's role in the mortgage market to certain types of homebuyers. In addition to making major changes to FHA's single-family insurance program, the PATH Act would also make some changes to other FHA insurance programs and, in some cases, mortgage programs for low-income households in rural areas that are administered by the U.S. Department of Agriculture (USDA). FHA Operations . FHA would become an independent agency outside of HUD, and FHFA would become the regulator for FHA and for the USDA's rural housing loan programs. Eligible Borrowers . In general, FHA would only be allowed to insure mortgages for first-time homebuyers and low- and moderate-income borrowers. The required downpayment would be increased for all except first-time homebuyers to 5% from the current level of 3.5%. During periods of market stress and in areas affected by disasters, FHA would be permitted to guarantee more types of mortgages, potentially allowing FHA to step in to insure more mortgages when mortgage credit is otherwise not easily available. Maximum Mortgage Amounts and Insurance Coverage . Under the PATH Act, the dollar limit on the original principal balance of a mortgage that FHA can insure would be decreased in certain areas. Furthermore, the percentage of the mortgage that FHA could insure would decrease to 50% of the original principal balance, from 100%, over five years. Premiums . The PATH Act would establish a minimum annual premium of 0.55%, and FHA would be required to set its premiums high enough to cover its administrative costs and salaries as well as the cost of insurance and the capital that FHA has to hold in reserve. FHA would be allowed to set premiums that vary based on the risk characteristics of the mortgage. Capital Requirements . FHA's financial reports would have to be prepared using private-sector accounting standards. The capital ratio—the amount of additional capital that FHA must hold in reserve to pay for any additional, unanticipated future losses, beyond what it holds to pay for expected losses—would be increased to 4% of its outstanding insurance obligations for mortgages insured after the end of a transition period. (Under current law, the required capital ratio is 2%.) If the capital ratio fell below certain thresholds, FHA would have to take certain steps, including submitting a capital restoration plan to FHFA and reducing the maximum loan-to-value ratio for new mortgages that it would insure while its capital ratio remained below the required level. Lender Oversight . Lenders could be required to reimburse FHA for defaulted mortgages that did not meet its standards in certain circumstances. Lenders would also need to agree to repurchase mortgages that default soon after the mortgage was originated. FHA would be required to publish a consolidated handbook, updated annually, with all of its requirements for lenders and servicers. Other FHA Programs . The PATH Act would require FHA to set affordability requirements to ensure that buildings with FHA-insured multifamily mortgages include units affordable to low- or moderate-income households. FHA would be required to set capital ratios for its other insurance funds. FHA would be required to set certain limits and standards related to its Section 242 hospital insurance program, and FHA's reverse mortgage insurance program (the Home Equity Conversion Mortgage, or HECM) would be eliminated. Other Provisions. After two years, 10% of new FHA single-family mortgage insurance, by dollar volume, would be required to be insured under risk-sharing agreements, whereby FHA would share the credit risk on the mortgage with other entities. FHA and USDA would be prohibited from backing mortgages in which seller concessions exceeded 3% and in areas that used eminent domain to obtain mortgages in the previous 10 years. The PATH Act would, among other things, modify recent financial reforms that some believe are preventing private institutions from providing mortgage credit. For example, implementation of certain Basel III bank regulation rules would be delayed so that regulators could study their effects on smaller institutions. Mortgages securitized through the platform would be exempt from certain Dodd-Frank Act provisions, such the Ability-to-Repay rule. In addition, the effective dates for some of the Dodd-Frank mortgage market rulemakings would be delayed by at least a year to allow institutions more time to comply, and Dodd-Frank's credit risk retention requirement would be repealed. The Johnson-Crapo GSE bill ( S. 1217 , as ordered to be reported by the Senate Banking Committee) would wind down Fannie Mae and Freddie Mac and would replace FHFA with a new entity to be called the Federal Mortgage Insurance Corporation (FMIC). The FMIC would be an independent agency charged with supporting the mortgage market and providing reinsurance on eligible MBS. These MBS would have an explicit government guarantee, and the FMIC would regulate aspects of the mortgage market related to these MBS. The proposal would also establish a new multifamily housing finance system and method of funding affordable housing initiatives. The Johnson-Crapo GSE bill has multiple key dates that serve as benchmarks for many of the actions that would be required. The date of enactment would be the date on which the act is enacted. The agency transfer date would be six months after enactment. On that date the FMIC would be established. The system certification date is the date on which the FMIC certifies that the FMIC and the newly developed housing finance system have met certain benchmarks. The certification would not be later than five years after enactment, though there may be extensions. Fannie Mae and Freddie Mac Wind Down . FHFA, in consultation with FMIC, would wind down Fannie Mae and Freddie Mac. The GSEs would develop resolution plans that would assist in their wind down. The Johnson-Crapo GSE bill lays out the different steps that would be taken to wind down the GSEs' portfolios and their guarantee businesses. For their portfolio business, each GSE would have to reduce its mortgage portfolio by 15% annually until a certain allowable amount determined by FMIC is reached. A similar reduction is currently required by the support agreements that Treasury entered into with Fannie Mae and Freddie Mac. During the wind down period and while the new system is being established, Fannie Mae and Freddie Mac would be allowed to continue their guarantee businesses. On the system certification date, however, the GSEs would stop conducting new business. A holding corporation, trusts, and subsidiaries may be established to facilitate the winding down of Fannie Mae's and Freddie Mac's outstanding debt obligations and assets. The federal government would guarantee the repayment of the GSEs' obligations. FHFA would manage the wind down to maximize the return to taxpayers while ensuring a well-functioning mortgage market. Once the GSEs' guarantees are extinguished, the charters of the GSEs would be revoked. Affordable Housing . The existing mandatory housing goals would be repealed upon enactment. As discussed below, affordable housing would be supported through contributions to the Housing Trust Fund, Capital Magnet Fund, and a new Market Access Fund from the proceeds of a fee on covered MBS. FHFA Transition . On the agency transfer date, FHFA would operate as a distinct entity within FMIC. FHFA would continue to exercise its regulatory and conservatorship powers over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. On the system certification date, the functions of FHFA would be transferred to the FMIC. FHFA staff and assets would also be transferred to the FMIC. Organization . The FMIC would be an independent government agency with its management vested in a board of directors with five members. The board would be headed by a chairperson, appointed by the President with the advice and consent of the Senate, who shall serve a five-year term. The four additional board members would also be appointed by the President, with the advice and consent of the Senate, to serve five-year terms. The initial appointments would be for shorter, staggered terms. No more than three members of the board may be of the same political party. The FMIC would be structured with several offices, including an Office of Underwriting, Office of Securitization, Office of Consumer and Market Access, Office of Multifamily Housing, Office of Federal Home Loan Bank Supervision, Office of Taxpayer Protection, and Office of the Inspector General. The FMIC may establish other offices as necessary to perform its functions. FMIC Certification . The system certification date is the date on which the FMIC certifies that the FMIC and the newly developed housing finance system have met certain benchmarks. The benchmarks include ensuring that the new system has a sufficient number of approved participants, verifying that the Securitization Platform and the multifamily market are functioning, and the Department of the Treasury confirming that agreements are in place for the taxpayer to be compensated for assisting the GSEs and the housing finance system. The certification would be not later than five years after enactment, though extensions would be possible. FMIC Guarantee . The FMIC would provide an explicit guarantee on MBS that meet its standards. To be eligible for an FMIC guarantee (for an MBS to be a covered security) , the MBS must (1) be collateralized by mortgages that meet its underwriting criteria, (2) the mortgages must be delivered to the Securitization Platform by an approved aggregator, and (3) private capital must be in a first-loss position. In unusual and exigent market conditions, MBS that do not meet the requirement for private capital may receive a guarantee for a limited time. Underwriting Criteria. To receive the FMIC guarantee, the covered security must be collateralized by eligible single-family mortgage loans , which are loans that would be below the conforming loan limits set by the bill and would satisfy the underwriting criteria established by the Ability-to-Repay and Qualified Mortgage (QM) rule. An eligible mortgage would also need to meet certain requirements related to downpayment (at least 3.5% for first-time homebuyers and, after a transition period, 5% for others), private mortgage insurance, and other conditions as determined by the FMIC. Securitization Platform. Mortgage loans would be securitized through the Securitization Platform. The Platform would be a utility owned and operated by its members with membership open to the various participants in the housing finance system. The Platform would perform many of the back-office functions of securitization, such as processing payments and distributing disclosures to investors. The Platform may build off of FHFA's and the GSEs' current efforts to develop a common securitization platform. The Platform would also develop standard securitization agreements to establish the contractual terms between most of the major market participants (such as aggregators, guarantors, servicers, and investors). The Platform may allow noncovered securities (MBS without the FMIC guarantee) to be securitized by the Platform. The Platform would be regulated by the FMIC. Private Capital. To be eligible for the FMIC guarantee, an MBS would require a risk-sharing mechanism in which private capital would be in a first-loss position. The FMIC could approve different risk-sharing mechanisms which can be divided into two general categories—capital markets execution and guarantor execution. Under the capital markets execution, investors would agree to bear losses of at least 10% of the MBS's value prior to the government guarantee being triggered. Under the guarantor execution, guarantors that are approved by the FMIC would pay investors any shortcoming in the amount that the investors are owed (such as due to delinquencies of the mortgages in the MBS) until the guarantor is insolvent, at which point the government guarantee would be triggered. The guarantor would have to hold 10% capital. The government guarantee is triggered through the capital markets option based on the performance of a particular security, but the guarantee for the guarantor option is triggered based on the performance of an entity, the approved guarantor. Mortgage Insurance Fund . The FMIC would cover the losses on guaranteed MBS that are in excess of the losses required to be borne by private capital. The FMIC would make payments to investors from the reserves held in a newly established Mortgage Insurance Fund (MIF). The MIF would be maintained and administered by the FMIC, and it would be financed primarily by MBS guarantee fees. The guarantee fees would be determined by the FMIC and set at levels necessary for the MIF to maintain its reserve balance. The MIF would be required to reach a reserve balance of 1.25% of the amount of securities insured within 5 years of the system certification and 2.50% within 10 years. Regulation. The FMIC would approve and regulate the major entities in the new system. Its powers and authorities would be modeled off of those available to the Federal Deposit Insurance Corporation (FDIC) in its regulation of banks and its management of the Deposit Insurance Fund. Among the entities that would be approved and regulated by the FMIC are guarantors, aggregators (entities that could purchase and pool mortgages in order to deliver them to the Platform for securitization), servicers, and private mortgage insurers. Small Lender Mutual. The FMIC would establish a Small Lender Mutual that would help mortgage originators gain access to the secondary market and the FMIC guarantee. The mutual would be owned and operated by its members, with membership open to insured depository institutions with less than $500 billion in total assets, non-depositories with a minimum net worth of $2.5 million and annual originations of less than $100 billion, and other institutions, such as Community Development Financial Institutions and certain non-profit lenders. FMIC could establish more than one mutual. Affordable Housing . The legislation would replace Fannie Mae's and Freddie Mac's affordable housing goals with an annual fee on the covered MBS that would be directed to three different funds. The fee, which would on average be 10 basis points of the total outstanding principal balance of covered MBS, would be structured to provide participants with the incentive to focus more of their business on underserved market segments (such as traditionally underserved areas, including rural and urban areas, manufactured housing, and low- and moderate-income creditworthy borrowers). Participants that did relatively more of their business with underserved market segments would be charged a lower fee than those participants who did less business with underserved market segments. FMIC would allocate 75% of the collected fees to HUD's Housing Trust Fund, 15% to Treasury's Capital Magnet Fund, and 10% to a newly created Market Access Fund. Under the Housing Trust Fund, HUD would provide formula grants to states to use primarily for rental housing activities that benefit very low- and extremely low-income households. Under the Capital Magnet Fund, Treasury would award competitive funding to community development financial institutions (CDFIs) or non-profit housing organizations. The funds would be used for rental or homeownership housing or related economic development activities that primarily benefit low-income households, with an emphasis on projects that will leverage other sources of funds. The new Market Access Fund would provide funds to support research and development or credit support for affordable homeownership and rental housing activities that benefit low- and moderate-income households and underserved or hard-to-serve populations. The Johnson-Crapo GSE bill would also provide for a set-aside of funds to be awarded competitively to tribes under the Housing Trust Fund. Multifamily Housing. The GSEs would transfer their multifamily businesses into subsidiaries of each company within one year of enactment and would continue to operate their primary multifamily programs. FMIC would manage the disposition (e.g., the sale or spinning off) of the multifamily businesses on or before the system certification date. FMIC would also approve and supervise multifamily guarantors, requiring them to maintain a minimum capital buffer of 10%. Guarantors could guarantee and issue multifamily MBS. Similar to the single-family program, the FMIC guarantee would require private capital in a first-loss position. FMIC would approve risk-sharing methods and would allow the GSEs' current multifamily programs (which already use risk sharing) to be grandfathered as approved risk-sharing mechanisms. Figure 3 is a simplified model of the Johnson-Crapo GSE bill. It demonstrates one potential way in which the single-family mortgage market involving the FMIC could be organized if the proposal is implemented. As in Figure 2 , the top row shows the flow of funds from investors to households in exchange for securities backed by mortgages. Once again, the second row shows the flow of principal and interest payments from households to investors. The major difference between the figures is the allocation of the credit risk. Figure 3 shows that the Johnson-Crapo GSE bill would allocate credit risk to a private market holder or approved guarantor for the first-loss private capital position and to the FMIC for losses in excess of the first-loss position. While S. 1217 generally does not include any FHA provisions, a separate Senate bill proposes to make a number of changes to FHA aimed at strengthening its financial position. That bill, commonly referred to as the Johnson-Crapo FHA bill ( S. 1376 ), was reported out of the Senate Banking Committee on December 19, 2013.Most of the changes included in the bill are aimed at ensuring that FHA's programs are financially sound, but do not focus on limiting FHA's market role or shifting risk to the private sector to the degree that the PATH Act does. For example, S. 1376 would not restrict FHA insurance to only first-time or low- and moderate-income homebuyers. It also would not make FHA an independent agency or reduce the percentage of the mortgage that FHA can insure. Eligible Borrowers . FHA would be required to evaluate and revise its underwriting standards for mortgages using certain criteria, similar to the criteria for qualified mortgages. Maximum Mortgage Amounts . GAO would be required to submit a study on the appropriate dollar limit on the maximum mortgage amount that FHA can insure. Premiums . The bill would require FHA to charge a minimum annual premium of 0.55% and increase the maximum premiums that FHA can charge. FHA would be required to re-evaluate its premiums annually to ensure that they are adequate to maintain the capital ratio. Capital Requirements . The capital ratio would be raised to 3% within 10 years. (Under current law, the required capital ratio is 2%.) If the capital ratio failed to meet certain thresholds, FHA would be required to take certain steps, including implementing premium surcharges for new borrowers and reporting to Congress on steps it was taking to restore the capital ratio. FHA would be required to undergo stress-testing based on the stress test model developed by the Federal Reserve for banks and report the results in its annual actuarial review. Congress would have to be notified within 48 hours if FHA used its authority for funding from Treasury for the single-family insurance fund. Lender Oversight . Lenders could be required to reimburse FHA for defaulted mortgages that did not meet its standards in certain circumstances. FHA would be authorized to terminate lenders' approval on a nationwide basis, as well as in specific areas. FHA would be required to publish a consolidated guide with all of its requirements for lenders and servicers. Other FHA Programs . The bill would require certain changes to FHA's reverse mortgage program, the Home Equity Conversion Mortgage (HECM) program, and would authorize FHA to make certain changes to the HECM program through administrative guidance documents for a period of time under certain conditions. Other Provisions . FHA would be allowed to transfer mortgage servicing rights to specialty servicers under certain circumstances. FHA would be required to finalize its rules on seller concessions. Table 1 compares non-FHA related provisions in the PATH Act and the Johnson-Crapo GSE bill. Table 2 compares the FHA reforms in the PATH Act and the Johnson-Crapo FHA bill. | The 113th Congress has seen several developments in the effort to reform the housing finance system. In the House, the Protecting American Taxpayers and Homeowners Act of 2013 (PATH Act; H.R. 2767) was ordered to be reported out of the House Financial Services Committee on July 24, 2013. The PATH Act proposes to wind down Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) over several years. In this context, wind down refers to dissolving Fannie Mae and Freddie Mac by removing their charters and placing certain assets and liabilities into a receivership entity. It would replace them with a National Mortgage Market Utility that would facilitate private market mortgage securitization but would not provide a government guarantee. The PATH Act would retain in a modified form the existing government guarantee programs, such as the Federal Housing Administration (FHA). The act would also eliminate or delay the implementation of certain existing regulations that some believe are impeding recovery in the mortgage market. In addition, the PATH Act proposes to reform FHA by, among other things, making it an independent agency and taking steps intended to improve its finances, better target its role in the mortgage market, and increase the amount of private capital in the market. In the Senate, the Housing Finance Reform and Taxpayer Protection Act (Johnson-Crapo GSE bill; S. 1217) was ordered to be reported with an amendment in the nature of a substitute by the Senate Committee on Banking, Housing, and Urban Affairs. The Johnson-Crapo GSE bill would wind down Fannie Mae and Freddie Mac and would replace the Federal Housing Finance Agency (FHFA) with a new Federal Mortgage Insurance Corporation (FMIC). The FMIC would be an independent agency charged with supporting the mortgage market and providing reinsurance on eligible mortgage-backed securities (MBS). These MBS would have an explicit government guarantee. The FMIC would only pay out on its guarantee after a significant amount of private capital absorbed the first losses. In addition, the FMIC would regulate aspects of the mortgage market related to its guaranteed MBS and would establish a new multifamily housing finance system. The Johnson-Crapo GSE bill generally does not include FHA-related provisions. However, a stand-alone FHA reform bill has been introduced in the Senate. The FHA Solvency Act of 2013 (S. 1376; commonly referred to as the Johnson-Crapo FHA bill), which would reform FHA, was reported out of the Senate Committee on Banking, Housing, and Urban Affairs on July 31, 2013. The Johnson-Crapo FHA bill proposes a number of changes to FHA aimed at ensuring that FHA's single-family programs are financially sound, including a number of provisions that have been sought by FHA. This report will briefly explain the different approaches to housing finance reform offered by these legislative proposals, focusing on efforts to replace Fannie Mae and Freddie Mac and reform FHA. The report does not describe every provision of the proposals but discusses major concepts and themes. |
T he Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code (Title 26 of the U.S. Code) that provides a tax credit to employers that hire workers with certain personal characteristics, including veterans, recipients of certain public benefits, or other specified populations. The WOTC is designed to incentivize the hiring of employees with certain characteristics by subsidizing a portion of the qualified worker's wage. If an employer has a choice between hiring two identical applicants, one of whom is eligible for the WOTC and one of whom is not, the employer may opt to hire the WOTC-eligible applicant because employing that worker will have a lower after-tax cost. The credit is structured to provide an advantage to workers from WOTC target groups seeking employment; it is not designed to stimulate the creation of new jobs. An eligible hire may be an additional employee of a firm or he or she may replace a separated employee. The WOTC section of the Internal Revenue Code specifies an expiration date in the definition of WOTC-eligible wages. The credit was most recently extended by the Protecting Americans from Tax Hikes Act of 2015 (Division Q of P.L. 114-113 ). Under current law, wages earned by eligible workers who begin work before December 31, 2019, are eligible for the WOTC. The amount of the WOTC is calculated as percentage of qualified wages paid to an eligible worker during the eligible employee's first year of employment. An employer may claim a credit equal to 40% of the eligible employee's qualified wages if the eligible worker works at least 400 hours during the first year of employment. If the eligible employee works fewer than 400 hours but at least 120 hours, the employer may claim a credit equal to 25% of the eligible employee's wages. If the eligible employee works fewer than 120 hours, an employer may not claim the WOTC. Statute defines the maximum amount of qualified wages that are WOTC-eligible for each eligible population, so the maximum credit would be equal to 40% of these statutory limits. For example, the maximum eligible wages for a qualified ex-felon is $6,000, so the maximum credit for an employer that hired such an individual would be 40% of $6,000 or $2,400. This section describes the populations eligible for the WOTC under its most recent authorization. For most target groups, the maximum wages that are eligible for WOTC credit are $6,000. Assuming the eligible employee works at least 400 hours and the employer claims the full 40% credit, the maximum credit for most eligible workers is $2,400. Some eligible populations have different levels of qualified wages. Populations with maximum wages that are higher or lower than $6,000 are noted in their descriptions. 1. Temporary Assistance to Needy Families (TANF) recipient (listed in the law as "qualified IV-A recipient,") which refers to the Title of the Social Security Act that authorizes TANF. A WOTC-eligible TANF recipient is an individual who is a member of a family receiving assistance under a IV-A program for any 9 of the 18 months prior to the worker's hire date. 2. Qualified veteran is a worker who served on active duty in the United States armed forces for at least 180 days, has been discharged for at least 60 days, and meets at least one of the additional criteria listed below: A veteran who is a member of a family receiving Supplemental Nutrition Assistance Program (SNAP) assistance for at least 3 of the past 12 months. A veteran with a service-connected disability for which he or she is entitled to compensation and who is within one year of discharge (maximum WOTC-eligible wages of $12,000). A veteran with a service-connected disability for which he or she is entitled to compensation and who has been unemployed for at least six months of the prior year (maximum WOTC-eligible wages of $24,000). A veteran with an aggregate period of unemployment of at least four weeks but less than six months during the prior one year. A veteran with an aggregate period of unemployment of at least six months during the prior year (maximum WOTC-eligible wages of $14,000). 3. Qualified ex-felon is an individual who has been convicted of a felony under state or federal law and has a hiring date that is within one year of either the individual's conviction or release from prison. 4. Designated Community Resident is an individual between the ages of 18 and 39 who has "a principal place of abode within an empowerment zone, enterprise community, renewal community, or rural renewal county." 5. Vocational Rehabilitation Referral is a person with a physical or mental disability who is receiving or has received services under a state vocational rehabilitation program, the Department of Veterans Affairs Vocational Rehabilitation and Employment program, or an employment network through the Social Security Ticket to Work program. 6. Summer Youth Employee is an individual age 16 or 17 who has a "principal place of abode within an empowerment zone, enterprise community, or renewal community" and is employed between May 1 and September 15 (maximum WOTC-eligible wages of $3,000). 7. Qualified SNAP recipient is between the ages of 18 and 39 and either (1) is a member of a family receiving SNAP benefits for the six-month period ending on the hiring date or (2) received benefits for at least three months of the five-month period ending on the hiring date, in the case of able-bodied adults without dependents (ABAWDs) who cease to be eligible for assistance under the work requirement at Section 6(o) of the Food and Nutrition Act of 2008. 8. Supplemental Security Income (SSI) recipient is an individual who has received SSI under Title XVI of the Social Security Act for any month ending within the 60-day period ending on the hiring date. 9. Long-T erm TANF Recipient (listed in the law as "long-term family assistance recipient") is a member of a family that has been receiving TANF benefits for the past 18 months or has exhausted TANF benefits in the past two years. Unlike other populations, an employer may claim the WOTC on behalf of a long-term family assistance recipient for two years. The maximum wages eligible for the WOTC for long-term family assistance recipients is $10,000 per year. During the second year of employment, the WOTC is equal to 50% of the eligible worker's wages. 10. Qualified Long-T erm Unemployment Recipient is an individual who has been unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law at some point during this period. WOTC is a nonrefundable credit. As such, an employer must have tax liability to claim the credit. Since the WOTC can be claimed in a tax year subsequent to the year of hire, it is possible that an employer that hires a WOTC-eligible worker, but does not have tax liability in the year in which the eligible worker was hired, would be able to have the WOTC applied to a subsequent tax year in which the employer has tax liability. Tax-exempt organizations that employ WOTC-eligible veterans may be eligible to claim a credit against the organization's payroll tax liability. This provision is limited to organizations that employ qualified veterans and does not apply to tax-exempt organizations that employ other WOTC-eligible populations. Individuals' eligibility for the WOTC is determined by state workforce agencies (SWAs). These state agencies also process WOTC certifications. The eligibility determination process can follow one of two paths: An eligible group member obtains a conditional certification (ETA Form 9062) from a participating state or local agency. The jobseeker then uses it to market himself or herself to an employer. The employer completes a pre-screening/certification request (IRS Form 8850) by the date a job offer is made and mails both the IRS and ETA forms to the state's WOTC coordinator within 28 days after the new hire starts working. An employer completes IRS Form 8850 by the date a job offer is made to an applicant believed to belong to the WOTC population. The employer also completes the individual characteristics information (ETA Form 9061). The IRS and ETA forms must be mailed to the state's WOTC coordinator within 28 days after the new hire starts working. States then verify that an individual is a member of a covered group and notify the employer that the application has been certified. States receive grants from DOL to support the administrative costs of processing WOTC certifications. Once a new hire is certified, the employer may claim WOTC as part of the General Business Credit. If an employer does not have tax liability in the tax year that the WOTC-eligible worker was hired, the credit from the WOTC—as part of the General Business Credit—can be carried back up to one year or carried forward up 20 years before expiring. As noted in each of the two scenarios above, the IRS Form 8850 must be submitted within 28 days after the eligible hire begins work. Definitive data on the usage and costs of the WOTC are not available. However, data from DOL on workers certified for the WOTC and data from the IRS on WOTC claims by certain entities can offer some insight into usage of the credit. DOL tracks the number of individuals who are certified as eligible for the WOTC, but, since not every certified worker meets the employment retention requirements, it is likely that the number of individuals on behalf of whom the WOTC is claimed is lower. The primary costs of WOTC to the government are foregone tax revenue. Estimates of the value of credits claimed are published each year. However, due to employers' ability to apply the WOTC to prior or subsequent tax years, these estimates may not fully reflect the level of WOTC-based hiring during the reference year. The U.S. Employment Service in the Employment and Training Administration collects figures on the number of certifications issued to employers. The number of certifications is likely more than the number of employees for whom employers claim credits because not all eligible hires fulfill the retention requirement. The government does not collect statistics on the number of individuals for whom the credits actually are claimed. It would be difficult to reconcile the number of certifications and the number of credits claimed in a given tax year because companies that receive a certification for an eligible individual hired late in one tax year may not claim a credit for them until a following tax year, when the retention requirement has been met. In addition, credits claimed for persons certified in one year may be applied against income tax liabilities in past or future tax years. Table 2 presents data on WOTC certifications from FY2015-FY2017. In FY2017, there were slightly more than 2.0 million WOTC certifications. SNAP recipients were the largest group by a substantial margin, accounting for more than 68% of the certifications. Veterans accounted for about 7% of workers certified. Most of the costs to the government from tax credits are in the form of revenue forgone rather than appropriated funds. Precise data on WOTC claims are not available from the IRS, but the Office of Management and Budget estimated that WOTC claims in FY2017 were about $1.3 billion, with corporations claiming about $1.0 billion and individuals (including employers that claim business income and expenses on their individual tax returns) claiming about $320 million. More granular data on the characteristics of employers that claimed the credit or the qualifying characteristics of workers on whose behalf credits were claimed are not available. WOTC is a temporary provision of the Internal Revenue Code. The WOTC's duration is limited by language in the law that specifies that wages paid to an eligible worker hired after a certain date are ineligible for the WOTC. Under current law, wages earned by workers hired after December 31, 2019, are not eligible for the WOTC. In general, there is no beginning date in the law regarding eligible hires. This construction means that simply extending the ending date in the law extends the program with retroactivity. The credit has lapsed a number of times before being retroactively reauthorized. In addition to extending the duration of the credit, reauthorization legislation has changed the eligible populations and maximum credit levels. In other instances, legislation has changed WOTC-eligible populations and credit levels without extending the duration of authorization. In addition to the WOTC, this legislative history also discusses the Welfare to Work (WtW) Tax Credit, which existed from 1997 to 2006. In 2007, the Welfare to Work Tax Credit was repealed and the credit's eligible population was incorporated into the WOTC population. 104 th Congress The WOTC was created by Section 1201 of the Small Business Job Protection Act of 1996 ( P.L. 104-188 ). It allowed for-profit employers to claim a tax credit against their federal income tax liabilities for hiring members of seven specifically designated groups from October 1, 1996, through September 30, 1997. 105 th Congress The Taxpayer Relief Act of 1997 ( P.L. 105-34 ) substantially revised the program by shortening the minimum employment requirement to 120 hours and creating a two-tier subsidy based on the length of retention. It also extended the credit for nine months from October 1, 1997, through June 30, 1998. P.L. 105-34 also created the Welfare to Work (WtW) tax credit, which offered incentives to employers that hired long-term recipients of Title IV-A benefits. As noted previously, this credit would eventually be incorporated into the "long-term family assistance recipients" credit under WOTC. WOTC lapsed for almost four months before being reauthorized for one year (through June 30, 1999) retroactive to its expiration date in the Omnibus Consolidated and Emergency Appropriations Act, 1999 ( P.L. 105-277 ). 106 th Congress The 106 th Congress reauthorized WOTC retroactive to its expiration date and extended the credit through December 31, 2001, in the Ticket to Work and Work Incentives Improvement Act of 1999 ( P.L. 106-170 ). This law also extended the WtW credit for the same period. The 106 th Congress later expanded the definition of the "high risk" and "summer youth" groups to include renewal communities (effective January 1, 2002) through passage of the Consolidated Appropriations Act, 2001 ( P.L. 106-554 ). 107 th Congress After about a two-month lapse, the Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ) reauthorized the WOTC. It extended the credit through December 31, 2003. New York Liberty Zone Employees The economic stimulus measure also amended the WOTC's eligible population to add "New York Liberty Zone business employees." Qualified businesses were defined as firms with 200 or fewer employees located in the vicinity of the World Trade Center as well as those that, due to property destruction or damage associated with the September 11 terrorist attack, had to relocate to other sections of New York City. While the other WOTC group members must be new hires in order for firms to claim a credit, New York Liberty Zone business employees were both existing and newly hired employees. The number of workers for whom firms that relocated elsewhere in New York City could claim the credit was limited to those on the employers' payrolls as of September 11, 2001; the cap did not apply to firms that remained in the zone or that moved into the zone. A qualified business could claim the WOTC for an eligible employee in 2002, 2003, or both years. The portion of the WOTC associated with the new target group was allowed against the alternative minimum tax. 108 th Congress The first WOTC-related law enacted by the 108 th Congress was P.L. 108-203 , the Social Security Protection Act of 2004. Among other provisions, the act modified the definition of the WOTC's vocational rehabilitation referral-eligible group in light of the Ticket to Work and Work Incentives Improvement Act of 1999. It effectively expanded the group to include disabled individuals with individualized work plans who are referred to employers not only by a state vocational rehabilitation agency (as was the case under prior law), but also by "employment networks" that were created by the Ticket to Work legislation. P.L. 108-203 did not extend the authorization for WOTC. Later in the 108 th Congress, President George W. Bush signed P.L. 108-311 , the Working Families Tax Relief Act of 2004, which extended unrevised versions of the WOTC and WtW credit through December 31, 2005. 109 th Congress The 109 th Congress made two substantial changes to the tax provisions. Some changes were temporary, others were permanent. Hurricane Disaster Relief Congress temporarily expanded the WOTC eligible-groups to include "a Hurricane Katrina employee" as part of its emergency response. P.L. 109-73 added to the WOTC-eligible groups persons whose principal place of abode on August 28, 2005, was in the core disaster area and who, beginning on such date and to August 28, 2007, is hired for a position principally located in the core disaster area; and beginning on such date and to December 31, 2005, is hired for a position regardless of its location. The WOTC's rule denying its application to wages of employees who had worked for the same employer at any prior time (except for those on the employer's payroll on August 28, 2005) is waived, as is the usual certification process. Modifying the WOTC and Incorporating the WtW Credit into the WOTC The WOTC and WtW credit expired after December 31, 2005. The credits remained lapsed for nearly a full year. In December 2006, P.L. 109-432 (the Tax Relief and Health Care Act of 2006) reauthorized the WOTC for two years, extending its expiration date to December 31, 2007. P.L. 109-432 also scheduled the consolidation of the WtW into the WOTC. Changes to the WOTC credit became effective for persons hired after December 31, 2006. They are as follows: WOTC-eligibility for ex-felons was expanded by eliminating the requirement that they are members of economically disadvantaged families; WOTC-eligibility of food stamp recipients was expanded from 18- to 24-year-olds to include 25- to 39-year-olds; employers can file the required paperwork with their state's WOTC coordinator within 28 (rather than 21) days of an eligible-hire starting to work for them; and the WtW credit was repealed as a separate tax provision, with its eligible-group of long-term family assistance recipients uniquely handled under the WOTC effective January 1, 2007. 110 th Congress Expansion of Certain Eligible Groups and Extension to August 2011 In May 2007, the President signed H.R. 2206 (the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Act of 2007, P.L. 110-28 ) into law. P.L. 110-28 extended the WOTC for three-and-one-half years through August 31, 2011, raises the age limit for "designated community residents" to less than 40 years old, and clarifies the definition of vocational rehabilitation referrals. The act also adds "rural renewal county" to the places of residence for designated community residents. The law also adopts a revised definition of disabled veterans. "Hurricane Katrina Employees" In the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 ( P.L. 110-343 ), Congress extended the WOTC's expiration from August 28, 2007, to August 28, 2009, for firms who hire "Hurricane Katrina employees" to work in the disaster area. 111 th Congress Temporary Expansion for Unemployed Veterans and Disconnected Youth The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) temporarily expanded the credit to cover unemployed veterans and disconnected youth who begin working for an employer during 2009 or 2010. Unemployed veterans are persons discharged or released from active duty in the Armed Forces within five years of their hiring date and having received unemployment compensation for not less than four weeks during the one-year period ending on the hiring date. Disconnected youth are 16- to 24-year-olds who are not regularly attending school during the six-month period preceding the hiring date, not regularly employed within the same time frame, and "not readily employable by reason of lacking a sufficient number of basic skills." The eligibility of disconnected youth expired after December 31, 2010. Veterans' eligibility for the WOTC would be modified and extended through the VOW to Hire Heroes Act (discussed in the next section). Interaction with Payroll Tax Forgiveness The Hiring Incentives to Restore Employment Act (HIRE Act; P.L. 111-147 ) provided payroll tax forgiveness to employers who hired certain unemployed individuals in 2010. Employers claiming the payroll tax forgiveness could not claim the WOTC for those wages associated with payroll tax forgiveness. Individuals hired after December 31, 2010, were not eligible for payroll tax forgiveness under the HIRE Act. Extension to December 31, 2011 The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) extended the WOTC through December 31, 2011. 112 th Congress Expansion and Extension of Qualified Veterans Group P.L. 112-56 , the VOW to Hire Heroes Act, expanded the qualified veterans group covered by WOTC and changed the amount of first-year wages that can be claimed for the credit, such that for veterans who are members of a family receiving SNAP benefits for at least three months in the year prior to being hired, the maximum wages for the credit would be $6,000; for veterans who have been unemployed for an aggregate of at least four weeks, but less than six months, in the year prior to being hired, the maximum wages for the credit would be $6,000; for veterans eligible for disability compensation from the VA and within one year of discharge or release from active military duty when hired, the maximum wages for the credit would be $12,000; for veterans who have been unemployed for an aggregate of at least six months in the year prior to being hired, the maximum wages for the credit would be $14,000; and for veterans who are eligible for disability compensation from the VA and have been unemployed for an aggregate of six months or more in the year prior to being hired, the maximum wages for the credit would be $24,000. P.L. 112-56 made the WOTC refundable for certain tax-exempt employers. For these employers, the refundable credit would be the lesser of the calculated WOTC for hiring veterans who qualify for the WOTC based on unemployment or the payroll taxes paid by the tax-exempt employer. P.L. 112-56 extended the WOTC for qualified veterans to U.S. possessions with a tax system that mirrors the U.S. tax system, with the Secretary of the Treasury paying to the possession the amount lost to the possession in taxes because of the expansion of the WOTC for qualified veterans. P.L. 112-56 also extended the expiration date of WOTC for veterans to December 31, 2012. This law did not extend authorization of the credit for non-veterans. Extension to December 31, 2013 The WOTC for non-veterans lapsed after December 31, 2011, and the WOTC for veterans lapsed after December 31, 2012. Enacted on January 2, 2013, the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended the WOTC for all eligible populations through December 31, 2013. 113 th Congress The Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) retroactively extended the WOTC to cover all eligible employees who began work prior to December 31, 2014. 114 th Congress The Protecting Americans from Tax Hikes Act of 2015 (Division Q of P.L. 114-113 ) expanded the WOTC to include long-term unemployment recipients (i.e., individuals who have been unemployed for at least 27 consecutive weeks and received unemployment compensation under state or federal law at some point during that period) who begin work on or after December 31, 2015. The act extended the WOTC for all eligible populations through December 31, 2019. | The Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code that allows employers that hire individuals with certain personal characteristics to claim a tax credit equal to a portion of the wages paid to those individuals. WOTC-eligible populations include recipients of certain public benefits (such as the Supplemental Nutrition Assistance Program or Temporary Assistance to Needy Families), qualified veterans, ex-felons, and other specified populations. In 2015, the WOTC was extended through 2019 as part of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of P.L. 114-113). The amount of the WOTC is calculated as a percentage of qualified wages paid to an eligible worker during the worker's first year of employment, up to a statutory maximum. An employer may claim a credit equal to 40% of an eligible employee's qualified wages if the qualified employee worked at least 400 hours during the first year of employment, up to a statutory maximum. If the employee worked fewer than 400 hours but more than 120 hours, the employer may claim a credit equal to 25% of the employee's qualified wages. If the employee worked fewer than 120 hours, an employer may not claim the WOTC. The WOTC is a nonrefundable tax credit, so an employer must have had tax liability to claim it. Statute defines the maximum amount of qualified wages that were WOTC-eligible, so the maximum credit is equal to 40% of these statutory limits. The limit of wages that are WOTC-eligible varies by the characteristics of the worker. The most common wage ceiling is $6,000 (for a maximum credit of $2,400), though some subpopulations are eligible for a higher or lower maximum. To claim the WOTC, an employer must have the employee certified as eligible by the appropriate state workforce agency. To do this, the employer submits a form to the state agency within 28 days of hiring the WOTC-eligible worker. The state agency determines that the individual meets the requirements and certifies the application. The employer may claim the credit as part of the General Business Credit. These credits can be carried back one tax year or carried forward up to 20 tax years. Definitive data on WOTC claims by employers are not available. Data on the number of individuals certified by state workforce agencies are available, but these data likely include some individuals who were certified as eligible for the WOTC but did not subsequently work the minimum number of hours necessary for the employer to be eligible for the credit. In FY2017, the most recent year for which data are available, approximately 2 million workers were certified as eligible for the WOTC. |
German Chancellor Angela Merkel took office in November 2005 and was elected to a second term in September 2009. Since reaching a low point in the lead-up to the Iraq war in 2003, diplomatic relations between the United States and Germany have improved substantially and the bilateral relationship remains strong. Merkel has distinguished herself as an advocate for strong U.S.-European relations and as a respected leader within Europe and internationally. Despite continuing areas of divergence, successive U.S. administrations and many Members of Congress have welcomed German leadership in Europe and have voiced expectations for increased German-U.S. cooperation on the international stage. Merkel is seeking to establish Germany as a U.S. partner on the forefront of multilateral efforts to address global security threats. She has made a concerted effort to improve the tone of U.S.-German diplomacy, emphasizing shared values and the need for broad U.S.-German and U.S-European cooperation in the face of common security challenges. Both of Merkel's governments have sought to increase transatlantic cooperation in areas ranging from economic and trade relations, climate change policy, counterterrorism, and non-proliferation policy, to peacekeeping, reconstruction and stabilization in Afghanistan, the Middle East, Africa, and the Balkans. Although U.S. and German officials agree that cooperation has increased, some fundamental differences remain. During the Administration of former President George W. Bush disagreement tended to stem from what many Germans perceived as a U.S. indifference to multilateral diplomacy and standards of international law and what some in the United States considered a German, and broader European, inability or unwillingness to take the necessary steps to counter emerging threats. Widespread belief that U.S. policy in Iraq has failed and even exacerbated global security threats appears to have fueled persistently negative German public opinion of U.S. foreign policy and corresponding skepticism of the exercise of military power. That said, strong popular support for President Obama in Germany suggests that many Germans expect the United States to distance itself from the policy agenda of Obama's unpopular predecessor. Observers caution, however, that policy differences will remain, and that Berlin could continue to react skeptically to U.S. foreign policy actions it perceives as unilateral and lacking international legitimacy. Chancellor Merkel heads a center-right coalition government of her Christian Democratic/Christian Social Union (CDU/CSU) and the free-market oriented Free Democratic Party (FDP). The CDU/CSU, which won 34% of the vote in September 2009 elections, holds 10 of 15 cabinet positions and as such, exerts the most influence in the current government. FDP leader Guido Westerwelle is vice chancellor and minister of foreign affairs. FDP members also oversee the economics, justice, and health ministries. Most observers expect Merkel to have more success advancing her policy priorities in coalition with the FDP than she had during her first term in office. From 2005 to 2009, Merkel led a so-called "grand coalition" government together with the CDU/CSU's long-time rival, the center-left Social Democratic Party (SPD). This was only the second time in post-war history the traditionally opposing parties had ruled together, and they often struggled to reconcile their competing policy agendas. The top priority of Merkel's CDU/CSU-FDP government is to revitalize a German economy that in 2009 suffered its deepest recession in more than 50 years. Germany's export-driven economy is estimated to have contracted by 5% of GDP in 2009 and unemployment, at 8% in 2009, is expected to grow to over 9% in 2010. Observers believe the economy will grow at just above 1% of GDP in 2010 and 2011, but point to concerns about a budget deficit that is expected to rise from 3.2% of GDP in 2009 to 5.6% of GDP in 2010. Germany has adopted a legally binding deficit ceiling set to take effect in 2016. Under the law, the federal deficit will not be allowed to exceed 0.35% of GDP and individual states will be constitutionally barred from running deficits after 2020. Finance Minister Wolfgang Schäuble has said that the government will begin implementing deficit reduction measures in 2011. However, analysts question whether the government will be able to successfully cut public spending and at the same time implement tax-cuts advocated by the FDP and promised in the CDU/CSU-FDP's governing platform. The issue is considered likely to be a source of tension within the governing coalition in the coming years. Additional tensions between the governing parties could center on the FDP's calls for deeper structural reforms to the German economy, including cuts in spending on social welfare programs. Merkel and others in her party could prove reluctant to curb such programs at a time of low economic growth and high unemployment. On foreign policy, Merkel and Westerwelle appear poised to pursue a unified platform consistent with that of the previous government. Both place a high value on maintaining strong U.S.-German relations and seem united on major foreign and security policies such as the Iranian nuclear program and relations with Russia. That said, Westerwelle was reportedly reluctant to support the government's January 2010 decision to deploy up to 850 additional soldiers to Afghanistan. He is said to favor devoting more resources to civilian reconstruction and development efforts in Afghanistan rather than to military efforts. Westerwelle has also attracted attention and some criticism in the United States by calling for the removal of U.S. nuclear weapons from German soil. Although many U.S. and German officials are thought to agree in principle with Westerwelle's proposal, some analysts have taken aim at Westerwelle's decision to draw public attention to a sensitive security matter that they believe could best be handled quietly. Much of the criticism in Germany of U.S. foreign policy during the George W. Bush Administration was grounded in perceived U.S. disregard for multilateral diplomacy and standards of international law—both fundamental tenets of German foreign policy. Since the end of the Second World War, German foreign policy has been driven by a strong commitment to multilateral institutions and a deep-rooted skepticism of military power. In the war's aftermath, the leaders of the newly established Federal Republic of Germany (West Germany) embraced integration into multilateral structures as a crucial step toward fulfilling two of the country's primary interests: to reconcile with wartime enemies; and to gain acceptance as a legitimate actor on the international stage. To this end, foreign policy was identified almost exclusively with the Cold War aims of NATO and the European integration project, and a related quest for German unification. German unification in 1990 and the end of the Cold War represented monumental shifts in the geopolitical realities that had defined German foreign policy. Germany was once again Europe's largest country, and the Soviet threat, which had served to unite West Germany with its pro-western neighbors and the United States, was no longer. In the face of these radical changes, and conscious of Germany's newly found weight within Europe and lingering European and German anxiety toward a larger and potentially more powerful Germany, German leaders reaffirmed their commitment to the multilateral process and aversion to military force. The EU, NATO, and the U.N. remain the central forums for Berlin's foreign, security, and defense policy. Despite the deployment of approximately 7,000 German troops in internationally sanctioned peacekeeping, reconstruction, and stabilization missions worldwide, German armed forces operate under what many consider stringent constraints designed to avoid combat situations. Since the end of the Cold War, German leaders have been increasingly challenged to reconcile their commitment to continuity in foreign policy with a desire to pursue the more proactive global role many argue is necessary both to maintain Germany's credibility as an ally within a network of redefined multilateral institutions, and to address the foreign and security policy challenges of the post-Cold War, and post-September 11, 2001, era. As one scholar notes, "the tensions, even contradictions, between [Germany's] traditional 'grand strategy'—or foreign policy role concept as a 'civilian power'—and a Germany, a Europe, a world of international relations so radically different from what they had been before 1990 have become increasingly apparent." These tensions are especially apparent in an evolving domestic debate over German national interests. During the Cold War, West German leaders were reluctant to formulate or pursue national interests that could be perceived as undermining a fundamental commitment to the multilateral framework as embodied by the Atlantic Alliance, European Community, and United Nations. West Germany avoided assuming a leading role within these institutions, preferring a low international profile, and seeking to establish a reputation as an "honest broker" with limited interests beyond supporting the multilateral process itself. West German governments did pursue distinct foreign policy goals, chief among them a quest for German unification, but sought to frame these objectives as part of the broader East-West Cold War struggle, rather than as unilateral German interests. Since unification, German governments have continued to exercise a multilateralist foreign policy. To this end, they have sought to reform and strengthen the EU, NATO, and the United Nations in an effort to improve multilateral responses to emerging security challenges and threats. Through these institutions, Germany pursues a "networked" foreign and security policy focused on intra- and inter-state conflict prevention and settlement, crisis intervention and stabilization, the struggle against international terrorism, and mitigating the proliferation of weapons of mass destruction (WMD). These goals are to be pursued in strict accordance with international law, and with respect for human rights. German politicians and the German public generally express strong opposition to international action that is not sanctioned by a United Nations mandate, or that appears to violate human rights standards and/or international law. German law forbids unilateral deployment of German troops, and requires parliamentary approval for all troop deployments. Although German leaders have traditionally treated energy considerations as distinct from foreign and security policy, energy security goals are playing an increasingly important role in German foreign policy, particularly toward Russia and within the European Union. The EU and NATO are the focal points of German foreign and security policy. Since unification, Germany has asserted itself as a driving force behind the EU's enlargement eastward, deeper European integration, increased European foreign policy coordination, and the development of a European Security and Defense Policy (ESDP). As Germany's role within the European Union evolves, its foreign policy is marked by a desire to balance its support for a stronger, more capable Europe, with a traditional allegiance to NATO as the foundation for European security. Chancellor Merkel argues that a more cohesive European foreign, security, and defense policy apparatus will in fact enable Germany and Europe to be more effective transatlantic partners to the United States. Germany consistently supports policies aimed at advancing EU-NATO cooperation. Berlin's dual commitment to the EU and NATO suggests that it is unlikely to advocate what might be perceived as too strong or independent a role for either organization in the foreseeable future, instead seeking what could be called a middle path of cooperation between the two institutions. Since joining the United Nations as a full member in 1973, Germany has supported its development as a cornerstone of a German foreign policy grounded in a commitment to international legitimacy. Today, Germany contributes just under 9% of the regular U.N. budget, making it the third-largest financial contributor to the U.N. after the United States and Japan. For Germany, the U.N. offers a vital framework to determine and implement international law, and a necessary mechanism through which to sanction international peacekeeping and peacemaking efforts, and efforts to reduce world hunger and poverty, and increase sustainable development. German governments since the end of the Cold War have supported reform efforts aimed at improving the U.N.'s ability to provide timely and robust peacekeeping missions, avert humanitarian disasters, combat terrorist threats, and protect human rights. Many of these efforts have been resisted by some U.N. members, and the consequentially slow pace of U.N. reform has provoked much criticism, including from leaders in the United States. However, Germany continues to view the U.N. as the only organization capable of providing the international legitimacy it seeks in the conduct of its foreign policy. An early indication of Germany's post-Cold War aspirations to assume greater global responsibilities has been its quest for permanent representation on the United Nations Security Council. Former Chancellor Helmut Kohl first articulated Germany's desire for a permanent U.N. Security Council seat in 1992, and received the backing of the Clinton Administration. Kohl's successor, Gerhard Schröder, intensified calls for a permanent German seat, but failed to gain international support. In what some consider an indication of the Merkel government's decision to soften its tone on the international stage, German officials have ceased publicly calling for a permanent German seat. Nonetheless, German government documents state that "Germany remains prepared to accept greater responsibility, also by assuming a permanent seat on the Security Council," and September 2007 press reports indicated that Merkel asked former President Bush to support a German bid for permanent Security Council representation. As global security threats have evolved, particularly since the terrorist attacks against the United States on September 11, 2001, German leaders have pursued a more proactive foreign policy. As recently as the early 1990s, German forces were understood to be constitutionally barred from operating outside of NATO territory, and the German foreign policy establishment was cautiously beginning to chart a post-Cold War course for the country. Today, approximately 7,000 German troops are deployed worldwide (largely in Afghanistan and the Balkans), and Germany plays a leading role in diplomatic initiatives from the Balkans to the Middle East. However, what some consider too rapid a shift in German security and defense policy has led to a growing debate over German national interests and the most appropriate means to realize them. German politicians have tended to justify increasing troop deployments and a more assertive foreign and security policy by appealing to a long-standing desire both to be considered a credible global partner, and maintain alliance solidarity. Some argue, however, that a foreign policy built largely on the need to assume a "fair share" of the multilateral burden, and on notions of international legitimacy and credibility, has obscured a lack of domestic consensus on more precisely defined national interests. This has become more apparent as German troops are deployed in riskier missions with less clear limits and mandates, such as in Afghanistan or Lebanon. Increasingly, Germans are questioning whether stated goals of alliance solidarity and credibility are worth the risks associated with military deployment; or, indeed, whether such deployments run counter to other German interests such as a commitment to pacifism. In response, calls for "exit strategies" and a more comprehensive accounting of the goals of German foreign policy have grown. Some analysts and politicians—primarily in conservative political circles—argue that German leaders should be more willing to justify diplomatic and military engagement as satisfying national interests beyond those defined in the multilateral sphere. Others are skeptical, emphasizing what they see as a continued post-World War II obligation to surrender a degree of German sovereignty to such multilateral institutions, and to avoid any action seen as satisfying unilaterally determined German interests. The evolving discussion is likely to increasingly influence German policy within the European Union, the Atlantic Alliance, and the United Nations. Germany's post-World War II and Cold War commitment to the European integration project was grounded in a desire to reconcile with former enemies and spur economic and political development. Since the end of the Cold War, German leaders have used the EU as the primary forum through which to forge a more proactive role for Germany on the international stage. German foreign policy in the early- to mid-1990s was almost singly focused on fostering deeper European integration and EU enlargement to the east. This focus, strongly supported by former President George H.W. Bush, was widely understood as based in a desire to quell fear of a resurgent Germany, and to replicate the benefits of West Germany's post-World War II integration in central and eastern Europe. Europe's inability and/or unwillingness to intervene to stem conflicts in the Balkans in the early- to mid-1990s fueled calls within Germany and other European countries for a collective European foreign, security, and defense policy. To some analysts, Merkel's predecessor, Gerhard Schröder, embodied a growing German desire to pursue German interests within the EU more assertively. Merkel has continued this trend, also demonstrating a willingness to forge a more proactive role for Germany within Europe. This growing assertiveness has at times put Germany at odds with other EU member states, causing some to question Germany's long-standing commitment to European unity. As is the case in several other EU member states, German EU policy under Merkel reflects a much tempered enthusiasm for EU enlargement and skepticism of several aspects of European market integration. On the other hand, Germany advocates deeper European integration in areas ranging from climate change policy to police and judicial cooperation, and has assumed an increasingly significant role in Europe's Common Foreign and Security Policy (CFSP) and Common Security and Defense Policy (CSDP). Germany was a strong proponent of the EU's Lisbon Reform Treaty adopted in December 2009, and Merkel used Germany's EU presidency in the first half of 2007 to forge agreement on the outlines of a new reform treaty aimed at enabling a larger EU to operate more effectively. Finally, some analysts point to personal differences between Merkel and her French counterpart, Nicolas Sarkozy, and to what some perceive as their more pragmatic approaches to EU affairs as evidence of a weakening of the Franco-German partnership long considered the engine of European integration. Germany was an early and strong supporter of the EU's eastern enlargement after the Cold War. This support was based largely on the belief that European integration offered an unparalleled mechanism to spread democratic governance and associated values to Germany's immediate neighbors. While analysts agree that the EU's eastward enlargement satisfied pressing German interests by bringing stability and democracy to its new eastern borders, the benefits of further enlargement are not so clear to many Germans. An ongoing debate on the EU's "absorption capacity" highlights possible German concern both about its potentially decreasing decision- and policy-making power within the Union, and growing public pressure to better define Europe's borders and to reform EU institutions. Calls for curbing further EU enlargement, particularly to Turkey, are especially strong within Merkel's CDU/CSU political group. Merkel and others in her party have been careful not to explicitly rule out future EU expansion, particularly to the Western Balkans. However, Merkel has advocated more stringent requirements for new membership, and has advanced proposals for alternatives to full EU membership, especially for Turkey, which she argues could help bring some of the desired political and economic stability to non-EU member states within the European "neighborhood." Germany's position on Turkey's EU accession process highlights the broader domestic debate on enlargement. According to a 2009 survey, 16% of Germans see Turkish accession to the Union as "a good thing." Despite the Schröder government's support of a 2005 EU decision to officially open accession negotiations with Turkey, and despite strong U.S. support for Turkish membership, Merkel and other CDU/CSU members are said to oppose Turkey's entry to the EU. Merkel does not explicitly voice such opposition; but she is viewed as at best skeptical, and has advocated imposing relatively vigilant benchmarks and timetables for Turkey's accession process. Merkel and others in her party have also proposed offering Turkey a "privileged partnership" with the EU as an alternative to full membership. Despite a persistently skeptical public, the opposition SPD supports Turkey's efforts to accede to the EU, and continues to view further EU enlargement favorably. German leaders have supported and increasingly sought to influence the development of the Union's evolving Common Foreign and Security Policy (CFSP). In some areas, for example Middle East policy, Germany's growing role has been welcomed both within Europe and by the United States. In others, such as relations with Russia, Germany's position has elucidated and even inflamed disagreements within the Union. Although it continues to emphasize the importance of EU-wide consensus on foreign policy issues, Berlin has exhibited what some consider a growing willingness to pursue independently defined foreign policy interests both within and outside the EU framework, even at the expense of European or transatlantic unity. Germany's pursuit of close bilateral relations with Russia has prompted some analysts to question Berlin's commitment to fostering European unity in foreign and security policy matters. Close German-Russian relations have their modern roots in the 1960s and 1970s when German leaders increased diplomatic and economic engagement with the Soviet Union and other Eastern Bloc countries in an effort to improve relations with and conditions in East Germany. Since the end of the Cold War, Germany has consistently sought to ensure that Russia not feel threatened by EU and NATO enlargement. Germany continues to prioritize relations with Russia. Today, Germany is Russia's largest trading partner, and relies on Russia for close to 40% of its natural gas and 30% of its crude oil needs. Some argue that Germany's dependence on Russian energy resources and its pursuit of bilateral agreements to secure future energy supplies has threatened broader European energy security and undermined the EU's ability to reach consensus on energy matters. The EU's newer member states in central and eastern Europe have been especially critical. Polish, Lithuanian, and other leaders take particular aim at a German-Russian gas pipeline agreement negotiated by former Chancellor Schröder, and point to Russia's subsequent manipulation of gas and oil supplies flowing to Europe in early 2006, 2007, and 2009 as evidence of Russia's ability to use its energy wealth to divide Europe. Merkel and Foreign Minister Westerwelle have made a concerted effort to improve ties with Germany's eastern neighbors, seeking, among other things, to reassure them that Germany's close bilateral relations with Russia should not be viewed as a threat to European unity or security. While most have welcomed Merkel's efforts, German-Polish relations have been marked by disagreement on a variety of issues, including Germany's close ties to Russia. Merkel advocates a "strategic partnership" with Russia—both for Germany and the EU—based on mutual trust and cooperation. Negotiating a new EU-Russia Partnership and Cooperation Agreement was one of Germany's primary goals during its EU presidency in early 2007. However, Merkel allowed negotiations to collapse in May 2007 when faced with strong Polish opposition, and apparent Russian intransigence. Some observers and eastern European leaders took this as an important affirmation of Merkel's commitment to European unity in foreign policy. As noted earlier, Merkel is seen by some as taking a harder line on Russia than her predecessor Schröder, a position attributed at least in part to her East German background. Nonetheless, divisions within Germany's governing coalition over how to engage Russia, and the strong historical, economic, and energy ties between the two countries lead analysts to suggest that Germany is likely to continue to seek what could become an increasingly tenuous middle path between Russia and some of the EU's newer member states. German leaders on both sides of the governing coalition continue to affirm their commitment to a strong CFSP. Germany has played a leading role in forging a common EU approach to a range of international issues, including the question of Kosovo's future status, the Israeli-Palestinian conflict, the Iranian nuclear program, and policy in Africa and central Asia. In advocating common EU positions on these and other issues, Germany emphasizes the importance of EU-wide consensus, at times demonstrating a willingness to alter national goals for the sake of European unity. However, Germany's pursuit of bilateral energy agreements with Russia signals what could be considered both growing assertiveness within Europe in certain areas, and frustration with what many consider a cumbersome EU foreign policy-making apparatus. Germany has become a strong supporter of a Common Security and Defense Policy (CSDP, formerly known as European Security and Defense Policy, or ESDP) for the European Union as a means for EU member states to pool defense resources and work collectively to counter emerging security threats. German and European backing for CSDP arose during the mid-1990s as Europeans proved unable and/or unwilling to respond militarily to conflicts in the Balkans. German support has grown since the terrorist attacks of September 11, 2001, and is increasingly driven by an emphasis on boosting civilian crisis management and police training capacity. Germany contributes military and civilian personnel to CSDP missions in Bosnia, Kosovo, the coast of Somalia, and Afghanistan, four of 13 civilian crisis management, police, and military operations currently overseen by the EU. Germany has also committed troop support for four of the EU's rapid-response Battlegroups, each made up of roughly 1,500 soldiers ready for deployment within 10 days of an EU decision to launch operations. Merkel is particularly careful to cast CSDP as a complement to, not substitute for, NATO. To this end, Germany has advocated formal agreements between NATO and the EU aimed at preventing the duplication of NATO structures, such as the so-called "Berlin Plus" agreement, which allows the EU to use NATO assets and capabilities for EU-led operations in which, "the alliance as a whole is not engaged." A historically strong Franco-German partnership has widely been considered the driving force behind European integration. As two of the EU's largest and most prosperous member states, Germany and France continue to work closely to advance joint interests within the EU. However, the EU's eastward expansion over recent years has both diminished collective Franco-German decision-making power within the Union and compelled Merkel to shift diplomatic focus to managing relations with Germany's eastern neighbors. In directing German EU policy eastward, Merkel reportedly hopes to improve Germany's relations with newer member states. Many analysts believe that Schröder's and former French President Jacques Chirac's pursuit of stronger relations with Russia, and their criticism of those EU member states that supported the 2003 U.S.-led invasion of Iraq, fueled harmful divisions between what former Secretary of Defense Donald Rumsfeld once famously dubbed "old" and "new" Europe. Merkel and French President Sarkozy espouse what many consider a highly pragmatic approach to EU policy. As German policy within the EU has become more focused on its eastern borders, France has sought to invigorate EU policy in the Mediterranean. While both appear eager to implement economic reforms aimed at increasing Europe's global competitiveness, each has also displayed a willingness to protect national interests and industries, especially in the energy sector. Merkel and others in her government have expressed particular concern about Sarkozy's reported desire to increase political governance of EU economic policy, and of his plans to introduce domestic tax cuts, which would likely prevent France from meeting EU-wide deficit-reduction targets. Merkel and Sarkozy's efforts to forge a common European response to the global financial crisis and the related economic downturn have had mixed results. While both continue to pursue tailored national responses to the crisis, they have united to advocate enhanced international regulation of global financial markets. Analysts and European diplomats cite these policy differences as evidence of the decreasing influence a Franco-German partnership will have within an EU of 27 or more member states. Others note that Merkel and Sarkozy's more pragmatic approach to the Union and their emphasis on increasing the EU's economic competitiveness, and fostering a more outward-looking EU could present an opportunity for improved relations with the United Kingdom (U.K), and its leader [author name scrubbed]. Brown, Merkel, and Sarkozy are often touted as a new generation of European leaders with the potential to reinvigorate the EU politically and economically. However, while they appear to share an enthusiasm for a more dynamic Union, differences on specific policy issues, including enlargement, economic liberalization, and constitutional reform could ensure that long-standing divisions between Germany and France and the traditionally more Euroskeptic U.K. persist. Perhaps the most profound change in German foreign and security policy since the end of the Cold War is Germany's deployment of troops outside NATO territory for the first time since World War II. Since a 1994 Constitutional Court ruling enabled German leaders to deploy troops abroad, Germany has participated in a number of U.N.- and NATO-sanctioned combat, peacekeeping, reconstruction and stabilization missions, and today, approximately 7,000 German soldiers are deployed in missions ranging from NATO's stabilization force in Afghanistan (ISAF) to the U.N. Mission in Lebanon (UNIFIL). However, Germans are increasingly questioning the grounds for what many believe has been too rapid a shift in German defense policy. One German security policy expert categorizes the evolving defense policy debate as evidence of "a widening gap between Germany's institutional commitments and official defense posture, and the country's readiness to deal with the practical military consequences of these developments." Some observers point out that while German politicians have consistently voiced support for more robust collective European and NATO defense capabilities, budget allocations in the foreign and defense policy sectors have decreased by about 40% in real terms since their peak in the late 1980s. In the early 1990s, public opposition and constitutional constraints prevented Germany from offering more than financial support to multilateral combat and peacekeeping efforts in the Persian Gulf and in the Balkans. Germany's inability to deploy troops to missions supported by many of its leaders led to the landmark 1994 Constitutional Court ruling, which determined that German troops could be deployed abroad, but only under a U.N. mandate and with the prior approval of the German parliament. This paved the way for Germany's participation in its first combat mission since the Second World War—NATO's 1999 air campaign to prevent ethnic cleansing in Kosovo. Considerable domestic opposition to German participation in the Kosovo mission was based largely on the contention that Germany's history obligated it to refrain from all military intervention. In response, then German Foreign Minister Joschka Fischer, a member of the traditionally pacifist Green Party, successfully argued that German history, in fact, obligated Germany to intervene—militarily, when necessary—to stop atrocities similar to those perpetrated by Germany during the Second World War. Fischer's argument set the precedent for Germany's growing participation in so-called humanitarian interventions, mostly in the form of U.N. and NATO peacekeeping and reconstruction and stabilization missions, worldwide. Today, Germany's global threat assessments mirror those of many of its EU and NATO partners, including the United States. The government identifies terrorism, proliferation of weapons of mass destruction (WMD), regional conflicts and failed states, transnational crime, energy security, migration, and epidemics and pandemics as the primary security threats facing Germany and its EU and NATO allies. However, Germany's approach to countering these threats has at times been perceived to be at odds with U.S. policy. Germany highlights the importance of a multilateral approach within the confines of a strengthened system of international law. Germany's 2006 White Paper on security policy emphasizes the importance of non-military means to combat threats to security, arguing for a strong civilian role in all aspects of defense policy. While Germany views terrorism as a primary threat, it has never referred to a war on terrorism, and underscores the need to address root causes of terrorism through development and other policies. The government does not completely rule out military engagement to combat terrorism, but does downplay this option. Germany's 2006 White Paper on security policy asserts that "the transatlantic alliance remains the bedrock of common security for Germany and Europe. It is the backbone of the North Atlantic Alliance, which in turn is the cornerstone of German security and defense policy." Along with the United States, Germany was one of the first proponents of NATO expansion as an initial step in the Alliance's post-Cold War transformation. Since then, Germany has backed efforts to transform the Alliance to respond to post-Cold War and post-September 11, 2001, global security threats and engage in "out-of-area" missions. German policy within NATO and its relations with its NATO allies are influenced by several factors which have caused, and may continue to cause, tension within the Alliance. One factor concerns U.S. leadership within NATO, and the degree to which the United States, Germany, and other European allies continue to share a strategic and operational vision for the Alliance. A second factor concerns Germany's ability to undertake the security and defense policy reforms many, particularly in the United States, believe are necessary for Germany to meet its commitments to an evolving alliance that is expected to increasingly engage in "out-of-area" missions. Approximately 4,300 German troops are deployed to NATO's International Security Assistance Force (ISAF) in Afghanistan, and about 1,800 soldiers serve in NATO missions in Kosovo and the Mediterranean Sea. German participation in ISAF—NATO's largest and most significant mission—has sparked considerable domestic debate over national defense policy, and has fueled tension between Germany and some of its NATO allies. German forces in Afghanistan are engaged almost exclusively in stability operations in the northern part of the country. Germany is the lead nation for Regional Command North (RC-N), commands a forward support base in Mazar-E-Sharif, and leads two PRTs, one in Kunduz and one in Feyzabad. Since 2007, six German Tornado aircraft have been used for country-wide surveillance operations. In February 2010, the German parliament approved plans to send up to 850 additional troops to northern Afghanistan (the current parliamentary mandate governing Germany's engagement in Afghanistan authorizes a maximum troop deployment of 5,350). Despite having the third-largest troop contingent in Afghanistan, Germany has faced pointed criticism, particularly from the United States, for "national caveats" which prevent its soldiers from being deployed to Afghanistan's more dangerous southern region. German forces are authorized to engage in combat operations as part of their defense of the northern sector but they have reportedly been reluctant to conduct combined combat operations with their Afghan partners. The German response is generally twofold. First, German officials claim that strong public opposition to military engagement and to U.S. policies in Afghanistan leave legislators no other choice but to impose operational caveats on their forces. Second, German officials increasingly claim that NATO is overly focused on military action and must devote more resources to civilian reconstruction. To this end, German officials have welcomed the Obama's Administration's renewed focus on Afghanistan and are particularly encouraged by the Administration's regional approach—especially its emphasis on Pakistan and its apparent willingness to engage Iran in discussions of the mission—and by its emphasis on improving civilian capacity- and institution-building efforts, and economic development in Afghanistan. On the other hand, there is some concern in Germany that significant U.S. troop increases and a continued reluctance in many allied countries to increase troop contributions to ISAF could lead to an "Americanization" of the mission that may limit allied influence in decision-making (for more information on German engagement in Afghanistan, see Appendix A ). Some in Germany argue that U.S. policy in Afghanistan indicates a broader U.S. reluctance to view NATO as a credible collective security mechanism. In particular, critics cite the U.S. decision to lead an initial "coalition of the willing" in Afghanistan in 2001—despite the invocation of NATO's Article 5 collective defense clause—as evidence that the United States prefers to use NATO as a tool box through which to realize independently defined U.S. interests, rather than as a legitimate multilateral forum to define interests collectively. Some analysts and U.S. officials counter that the United States has essentially been forced to rely on "coalitions of the willing" because many of its NATO allies, including Germany, lack the military capacity to justify NATO- rather than U.S.-led missions. Germany has backed NATO efforts to reassess the Alliance's collective defense strategy and to develop the capacity to more effectively respond to emerging threats. In signing on to the Alliance's 1999 Defense Capabilities Initiative (DCI) and 2002 Prague Capabilities Commitment (PCC), Germany committed to focus national defense procurement practices on specifically defined areas, including strategic air and sea lift. Most agree that meeting these commitments will require Germany and other allies to increase overall defense spending, modernize procurement priorities and procedures, and reduce personnel costs. However, German defense spending has declined steadily since 1991, and by most accounts, Germany has been slow to realign its spending priorities to reflect its NATO commitments. NATO's agreed-upon defense spending target for Alliance members is 2% of GDP. While the NATO average is about 2.6%, German defense spending in 2008 represented about 1.3% of GDP. The changing security environment of the post-Cold War and post-September 11, 2001, era has fueled calls for military modernization and structural defense reform. As a condition of the 1990 "Two plus Four Treaty" between the post-World War II occupying powers (France, Great Britain, the Soviet Union, and the United States) and West and East Germany, which restored Germany's full sovereignty over security matters, Germany agreed to reduce its total troop numbers from 500,000 to under 370,000. Since then, Germany has sought to transform its defense forces in order to meet NATO and ESDP targets—specifically, to be able to contribute to the NATO Response Force (NRF) and EU Battlegroups. To meet these goals, Germany aims to reform its force structure to include 35,000 troops for high intensity, short duration crisis intervention operations; 70,000 for longer duration crisis stabilization operations; and support forces of 147,500. According to the 2006 White Paper on security policy, such a restructuring could enable Germany to expand its current deployment capabilities to simultaneously deploy 14,000 troops in two larger scale or five smaller scale operations. As mentioned above, about 7,400 troops are currently deployed worldwide. Observers generally commend Germany's stated intention to transform its military to meet EU, NATO and U.N. commitments, but point to substantial gaps between stated goals and actions taken. Other than to say "there is no room for further reductions in spending," Germany's 2006 White Paper does not address funding mechanisms. German government officials have long appeared skeptical about the prospects for meaningful increases in defense spending. Some express confidence, however, that a realignment of spending priorities and increased EU-wide cooperation could bring the country closer to realizing its defense priorities. In addition to stagnant defense spending, many security policy experts, including members of a 2000 high-level commission on Bundeswehr reform, argue that Germany's continued adherence to mandatory military service, or conscription, represents a significant impediment to meaningful reform. These critics call for a voluntary, fully professional force, arguing that the constraints placed on conscripts—they can only be deployed abroad on a volunteer basis—lead to significant operational deficiencies in the armed services. While conscription is suited for defense of national territory, they argue, it impedes Germany's ability to meet its peacekeeping and stabilization obligations abroad by wasting scarce financial resources to fulfill outdated security goals. In 2000, the government reduced the number of conscripts from 130,000 to about 70,000. However, support for conscription remains strong among members of the CDU. Strong CDU support, based largely in a historically rooted anxiety about the dangerous potential of a professional army like Hitler's Wehrmacht , indicates that reforms are unlikely during the remainder of Merkel's term. However, the FPD has joined some in Germany's opposition parties in calling for at least a partial end to conscription. For some, the end of the Cold War, Germany's growing assertiveness within the European Union and corresponding enthusiasm for European integration, and more recently, German opposition to the 2003 U.S.-led war with Iraq, all symbolize increasing divergence in U.S.-German relations. However, the countries continue to cooperate in pursuit of common foreign and security policy goals, and share robust bilateral investment and trade relations. Under Merkel's leadership, Germany seeks to bolster U.S.-German and U.S.-EU trade and investment ties, and works closely with the United States on counterterrorism policy, and on a range of foreign policy issues. U.S. Administration officials and many Members of Congress have welcomed the Merkel government's commitment to a foreign and security policy anchored in NATO and the transatlantic relationship, and have expressed confidence in Merkel's ability to improve U.S.-German and U.S.-European cooperation on the world stage. U.S.-German bilateral relations remain strong, anchored not only by deep economic ties, but by a shared commitment to democratic values. Germany, the European Union, and the United States share similar global security threat assessments, and cooperate closely to mitigate these threats, whether in the struggle against international terrorism, through NATO efforts to combat the Taliban and strengthen the Afghan government, or in pursuit of a two-state solution to the Israeli-Palestinian conflict. Looking forward, several overarching features of Germany's evolving foreign and security policy stand to shape U.S.-German relations. These include Germany's commitment to international institutions, international law, and the multilateral framework; its deep-rooted aversion to the exercise of military force; and a potentially widening gap between the foreign policy ambitions of some in Germany's political class and the German public. In addition, ongoing domestic debate over approaches to German national interests and what many consider too rapid a shift in defense policy could increasingly influence German foreign and security policy decisions. German politicians have questioned, and at times openly opposed, aspects of U.S. foreign and security policy they view as lacking multilateral legitimacy, and/or as being overly dependent on the exercise of military force. On Middle East policy, for example, Merkel urged former President George W. Bush to diplomatically engage the leaders of Syria and Iran in order to initiate a region-wide effort to address the Israeli-Palestinian dispute and the future status of Iraq. Germany's strong commitment to a unified international front in dealing with Iran suggests it is more willing to accept compromises in exchange for Security Council unanimity than to support unilateral measures in the face of Chinese or Russian opposition. As U.S., German, and European leaders consider increased cooperation to stem global security threats and to promote stability, democracy, and human rights in regions from Africa to central Asia, Germany will likely continue to uphold its commitment to the multilateral process. Germany has called on U.S. leaders to enhance U.S. multilateral engagement and has consistently urged U.S. Administrations to join the International Criminal Court and U.N.-sanctioned climate change treaties such as the Kyoto Protocol. German officials appear encouraged by the Obama Administration's apparent willingness to boost U.S. multilateral engagement and to reconsider the U.S. position on some multilateral treaties and agreements. Recent developments suggest that German leaders will remain both reluctant and hard-pressed to justify increased German military engagement abroad to a persistently skeptical public, even within a NATO or EU framework. Germany's 2006 White Paper on national security indicates that Germany could increasingly emphasize the importance of civilian components to multilateral peacekeeping, stabilization and reconstruction missions, and that it will work within NATO and the EU to bolster such capacities. At the same time, trends in German defense spending, and the relatively slow pace of German defense reform highlight what many consider a notable discrepancy between articulated foreign policy goals and action taken to realize these goals. Germany's ongoing debate on military participation in Afghanistan has exposed a lack of domestic consensus on the goals and limits of German foreign and security policy. Specifically, Germans appear wary of linking reconstruction and development efforts with combat operations. Until now, Merkel and the Bundestag have argued that German participation in Afghanistan be focused on reconstruction and stabilization efforts. However, as the distinction between development work and combat operations becomes increasingly unclear, especially under unstable security conditions, Germans have begun to re-examine the nature and effect of German military engagement both in Afghanistan and elsewhere. Ensuing calls for a reassessment of the grounds for and rules of military engagement stand to further shape Germany's ability to partner with its allies in multilateral missions worldwide. Germany appears poised to continue to seek a "middle path" between NATO and the EU, promoting the development of an independent European foreign and defense policy as a complement, rather than counterweight to NATO. Successive U.S. Administrations have supported ESDP as a means to enhance European defense capability and interoperability, but Washington has also insisted that EU defense policy be tied to NATO. To this end, U.S. leaders have welcomed Merkel's renewed emphasis on NATO-EU links. While Germany remains committed to NATO as the pillar for European security, some Germans have questioned the U.S. commitment to NATO, and a perceived U.S. preference to pursue independently defined national interests within the Alliance rather than to define and pursue the collective interests of the Alliance. Domestic political considerations and German public opinion could continue to play a key role in shaping U.S.-German relations. President Obama's popularity in Germany suggests that many Germans view the new U.S. Administration's foreign policy as a welcome change from the perceived unilateralism of the unpopular George W. Bush Administration. However, some observers caution that public expectations of the new President have been unreasonably high and note that policy differences between the two countries remain, particularly in areas where public opposition is high. For example, in the face of the global economic slowdown, German leaders on both sides of the political spectrum resisted calls from the Obama Administration to stimulate economic growth through larger domestic spending measures. In the foreign policy domain, while German officials have welcomed the Obama Administration's strategic review of Afghanistan/Pakistan policy, they have essentially ruled out sending more than 500 additional combat troops or relaxing constraints on those troops currently serving in Afghanistan. Appendix A. Selected Issues in U.S.-German Relations—Current Status Economic Ties Germany is the world's fifth-largest economy and the largest in Europe, accounting for about one-fifth of the European Union's (EU) GDP. Germany is also the largest European trade and investment partner and the second largest overall of the United States. Total two-way trade in goods between the countries totaled $152 billion in 2008. U.S. exports to Germany in 2008 were worth about $54.5 billion, consisting primarily of aircraft, and electrical and telecommunications equipment. German exports to the United States—primarily motor vehicles, machinery, chemicals, and heavy electrical equipment—totaled about $97.5 billion in 2008. The United States is the number-one destination for German foreign direct investment (FDI); 11.5% of all U.S. FDI is in Germany. U.S. firms operating in Germany employ approximately 800,000 Germans, and an estimated 670,000 Americans work for German firms in the United States. Like the United States, Germany is experiencing a relatively sharp decline in economic growth. Germany's export-based economy contracted 5% in 2009, and unemployment has been slowly but steadily rising since the end of 2008. However, although U.S.-German economic and trade ties remain strong, the global financial crisis and ensuing economic downturn have exposed U.S.-German differences on the cause of and the appropriate response to the crisis. U.S. officials and some observers have argued that Germany was late in recognizing the degree to which the German economy would be affected by the global financial crisis, and that it has not moved aggressively enough to spur domestic economic growth since acknowledging the domestic effects of the crisis. German officials counter that they have taken substantial action to stimulate their economy—measures which they value at upwards of $100 billion for 2009 and 2010, including the effect of so-called "automatic stabilizers" guaranteed by Germany's social welfare programs. Moreover, they have argued that such domestic spending measures will do little to address the root of the problem, which they tend to view as inadequate regulation of global financial markets. Counterterrorism Cooperation Most observers consider U.S.-German cooperation in the fight against terrorism to be close and effective. Since discovering that three of the hijackers involved in the September 11, 2001, attacks on the United States lived and plotted in Germany, the German government has worked closely with U.S. and EU authorities to share intelligence. Germany has identified radical Islamic terrorism as a primary threat to its national security, and has passed a number of laws aimed at limiting the ability of terrorists to live and raise money in Germany. In June 2007, Germany's then-Interior Minister (and current Finance Minister) Wolfgang Schäuble (CDU) proposed a series of domestic counterterrorism initiatives including for increased computer surveillance, and domestic military deployment in the event of a terrorist attack. Schäuble's proposals were not adopted and sparked considerable debate in Germany, where personal privacy and individual civil liberties are strictly guarded, and where domestic military deployment is barred by the constitution. In a March 2010 victory for opponents of Schäuble's and other subsequent proposals, Germany's highest court ruled that a 2008 data-retention law arising from an EU directive was unconstitutional. The law would have required telecommunications companies to retain all citizens' telephone and internet data for six months. The court ruled on personal privacy grounds that all such data be deleted. Also in March 2010, three German citizens and a Turkish resident in Germany were convicted of plotting what German investigators say could have been one of the deadliest attacks in European postwar history. According to German and U.S. intelligence officials, the suspected terrorists planned to target Ramstein Airbase and other U.S. military and diplomatic locations. German authorities are reported to have collaborated closely with U.S. intelligence agencies in foiling the plot, with then-Homeland Security Secretary Michael Chertoff saying that intelligence cooperation between the two countries is "the closest it's ever been." Discovery of the September 2007 terrorist plot elevated concern in Germany about the possibility of future attacks, with some predicting greater support for antiterrorism measures as proposed by Merkel and Schäuble. At the same time, others saw the planned attack as designed to raise pressure for a pullout of German troops from Afghanistan, and expected calls for an end to German engagement in that country to increase. German officials are encouraged by the Obama Administration's reported shift away from the designation "Global War on Terror." Germany has never considered its counterterrorism policies part of a war effort and refer rather to a "struggle against international terrorism." German officials stress the importance of multilateral cooperation and adherence to international law in combating terrorism. Like the United States, Germany advocates a comprehensive U.N. anti-terrorism convention. Germany has welcomed President Obama's decision to close the U.S. prison for terrorist suspects at Guantanamo Bay, Cuba, which it views as violating rights guaranteed to "prisoners of war" under the Geneva Conventions. However, a reported May 2009 request from the Obama Administration asking Germany to house nine detainees—reportedly all Uighurs originally from central and western China—scheduled to be released from Guantanamo Bay caused concern within the German government. According to press reports, some German officials were reluctant to accept the detainees for fear of inciting a diplomatic dispute with the Chinese government, while others feared that the individuals could pose security risks. Some German officials have also suggested that while they support the Obama Administration's decision, continued U.S. reluctance to house detainees on U.S. soil could make it more difficult for the Merkel government to justify doing so to the German public. The Middle East Germany, along with other European countries, believes the Israeli-Palestinian conflict lies at the root of many of the challenges in the Middle East. Merkel has promoted continuity in a German Middle East policy based on a commitment to protect Israel's right to exist; support for a two-state solution to the Israeli-Palestinian conflict; a commitment to a single EU-wide framework for peace; and a belief that U.S. engagement in the region is essential. Germany has been active in international negotiations aimed at curbing Iran's nuclear ambitions and, despite continuing to rule out a German troop deployment to Iraq, Berlin has provided funded some Iraqi reconstruction efforts and participated in efforts to train Iraqi security forces. Relations with Israel and the Israeli-Palestinian Conflict Germany, along with the United States is widely considered one of Israel's closest allies. Germany is Israel's second-largest trading partner, and long-standing defense and scientific cooperation, people-to-people exchanges and cultural ties between the countries continue to grow. While distinguishing itself as a strong supporter of Israel within the EU, Germany has also maintained the trust of Palestinians and other groups in the region traditionally opposed to Israeli objectives. Germany has been one of the largest country donors to the Palestinian Authority (PA), and in June 2008, hosted an international conference to raise funds to bolster PA President Mahmoud Abbas' emergency government in the West Bank. At the request of the Israeli government, German intelligence officers used their contacts with Lebanese-based militia Hezbollah to negotiate a prisoner exchange between Hezbollah and Israel in July 2008. Like other EU member states, Germany views a sustainable, two-state solution to the Israeli-Palestinian conflict as key to ensuring Israel's long-term security, and to fostering durable stability in the Middle East. German officials have urged the Obama Administration to play a leading role in negotiations for a peace agreement. Germany remains firm in its support for EU and U.S. efforts to isolate Hamas since its victory in 2006 parliamentary elections and subsequent 2007 takeover of the Gaza strip. However, some experts argue that U.S.-EU efforts to isolate Hamas have not worked, and some in Germany and Europe view engagement as a better way to try to moderate the group and generate progress in the peace process. Iran As a member of the so-called EU-3 (France, Germany and the United Kingdom), Germany has been at the forefront of EU and U.N. efforts to prevent Iran from developing nuclear weapons and continues to seek international consensus on more stringent economic sanctions against Iran. Of the EU-3, Germany has reportedly been the most reluctant to endorse autonomous EU sanctions against Iran without an accompanying U.N. Security Council resolution, and has consequently emphasized the importance of winning Chinese and Russian support for stricter sanctions. However, recent reports suggest that officials in Berlin could be warming to the idea of more stringent EU sanctions against Tehran, including a possible ban on gasoline exports to the country. Since her September reelection, Merkel and Foreign Minister Westerwelle have each made strong public statements criticizing the Iranian regime and advocating increased sanctions. The Merkel government remains opposed to a military response to the situation. German and European officials have welcomed the prospect of full U.S. participation in ongoing nuclear talks with Iran being led by the EU. European leaders also appear united in their support for bilateral talks between the United States and Tehran. At the same time, they emphasize that U.S. engagement with Iran should be closely coordinated within the existing multilateral framework consisting of the EU3, China, Russia, and the United States (the so-called P5+1). Germany has been a strong critic of the Ahmadinejad government and issued one of the earliest and most vocal condemnations of the Iranian government's actions following presidential elections in June. However, Berlin continues to face pressure from the United States and others to limit civilian commercial ties with Iran. Along with Italy and China, Germany remains one of Iran's most important trading partners. Two-way trade between Germany and Iran grew by 20% from 2007 to 2008. On the other hand, observers report that German exports to Iran were down 17% through July of this year. Germany's two largest banks, Deutsche Bank and Commerzbank AG, have withdrawn from the Iranian market, and officials in Berlin report that new export credit guarantees to companies doing business in Iran have dropped by more than half since 2005. In what observers cite as additional evidence of increased pressure on the German business community, the Merkel government has reportedly launched an investigation into engineering giant Siemens for a possible violation of export control laws. In December 2009, authorities at the German port of Hamburg seized a shipment of turbo compressors that investigators believe could potentially aide Iran's nuclear program. The delivery was reportedly part of a larger shipment being sent from a Siemens branch in Sweden. While some interpret weakening German-Iranian economic ties as a sign that Berlin is intent on increasing economic pressure on Tehran, others argue that German-Iranian trade remains robust and that politicians in Berlin are unlikely to seek further cuts in commercial ties. They view German officials' emphasis on unanimity with, for example, Russia and China, as evidence that Berlin is unwilling to take bolder action against Iran. Afghanistan Germany is the third-largest troop contributor to ISAF and the third-largest donor of bilateral aid for reconstruction and development. However, perhaps more than any other ally, Germany has been criticized for a perceived reluctance to engage in combat and for limiting its military operations to northern Afghanistan. U.S. and NATO officials consistently praise Germany's contributions to the mission, but continue to call on its leaders to grant more flexibility to its deployed forces. Although Germany has resisted sending combat troops to Afghanistan's southern regions, it announced in January its intentions to significantly enhance its training of Afghan National Security Forces in northern Afghanistan and to double resources for civilian reconstruction efforts as part of a "development offensive" in the region. German Chancellor Angela Merkel faces persistently low public support for the Afghan mission. In what appears at least in part a reaction to public opposition, the German government says that its "aim over the next four years is to create the conditions necessary to begin a phase-by-phase reduction in its military presence," in Afghanistan. To this end, Germany's strategy in Afghanistan will increasingly focus on training the ANSF and on supporting civilian reconstruction and development priorities identified by the Afghan government and. At a January 2010 international conference on Afghanistan in London, Germany announced the aforementioned "development offensive" and plans to send an additional 500 to 850 troops to Afghanistan in the coming year. It also committed €50 million (about $70 million) to the newly established Reintegration Fund to support Afghan government efforts to reintegrate insurgents into Afghan society. Like other allies, German officials have said they could begin to reduce Germany's troop presence by late 2011 and hope to see the Afghan government take full responsibility for security by 2014. Germany has about 4,300 troops deployed in ISAF engaged almost exclusively in stability operations in the northern part of the country. Germany is the lead nation for Regional Command North (RC-N), commands a forward support base in Mazar-E-Sharif, and leads two PRTs, one in Kunduz and one in Feyzabad. Since July 2008, Germany has also staffed RC-N's 200-man Quick Reaction Force, intended to provide reinforcement in emergency combat situations. German officials report that the country provides almost 50% of ISAF's fixed wing air transport as well as other country-wide air support. As part of plans announced at the January 2010 London Conference, German officials say they will refocus Germany's military deployment to support the training of the Afghan National Army's 209 th corps, with a goal of establishing three ANA brigades. Germany's Quick Reaction Force will be disbanded and the 200 soldiers serving in it joined by an additional 500 military trainers to focus on the training mission. These forces will supplement eight German Operational Mentor and Liaison Teams (OMLTs) currently training ANA units. In 2009, Berlin contributed €50 million (about $70 million) to the Afghan National Army Trust Fund. German forces are authorized to engage in combat operations as part of their defense of the northern sector and German commanders have demonstrated an increasing willingness to engage in offensive operations. However, they continue to face criticism from some NATO and allied government officials who allege that German troops and civilians rarely venture beyond the perimeter of their PRTs and Forward Operating bases due to concern that they might arouse suspicion or come into contact with armed elements. A NATO airstrike ordered by a German officer in September 2009 that resulted in the death of 142 people, most civilians, caused controversy in Germany and has led to heightened public scrutiny of the role of the German military in Afghanistan. In addition to enhancing training of the Afghan National Army, Germany is seeking to boost its police training efforts. About 120 German police advisors currently staff four German-financed police training centers, which can provide basic and some advanced training to about 5,000 Afghan police officers annually. Germany plans to increase the number of trainers in this bilateral program to 200 by mid-2010. In addition, German trainers participate in the Focused District Development Programme (FDD), through which Police Mentoring Teams of up to 10 civil and military police personnel train and accompany Afghan units in the field. About 60 German police officials—mostly retirees—also take part in the EU police-training mission (EUPOL) of 225 that is expected to eventually include up to 450 trainers. However, the EU mission, initially approved in May 2007, has reportedly suffered from personnel problems and a lack of EU-NATO coordination. Prior to the EU mission, Germany shared responsibility for police training with the United States. Some criticized German training efforts, carried out by about 50 police trainers in Kabul, for having too narrow an impact and for being overly bureaucratic. As mentioned above, Germany emphasizes the need to enhance civilian reconstruction efforts in Afghanistan and has said it will double development resources as part of a "development offensive" in northern Afghanistan. Beginning in 2010, Germany plans to almost double annual resources for reconstruction from €220 (about $304 million) to €430 million (about $593 million) through 2013. Germany seeks to fund a mix of long-term development projects as well as short-term, "quick-impact" measures that can provide immediate and tangible benefits to the local population. Goals for the coming three years include: job creation and income enhancement through ongoing rural development programs; infrastructure improvements including construction of an additional 435 miles (700 km) of roads; improved access to energy and drinking water; and teacher training. These efforts will be focused in the northern provinces of Kunduz, Takhar, Badakhshan, Baghlan, and Balkh. Appendix B. Key Dates | German Chancellor Angela Merkel began her first term in office in November 2005 and was elected to a second term in September 2009. Most observers agree that under her leadership, relations between the United States and Germany have improved markedly since reaching a low point in the lead-up to the Iraq war in 2003. U.S. officials and many Members of Congress view Germany as a key U.S. ally, have welcomed German leadership in Europe, and voiced expectations for increased U.S.-German cooperation on the international stage. German unification in 1990 and the end of the Cold War represented monumental shifts in the geopolitical realities that had defined German foreign policy. Germany was once again Europe's largest country, and the Soviet threat, which had served to unite West Germany with its pro-western neighbors and the United States, was no longer. Since the early 1990s, German leaders have been challenged to exercise a foreign policy grounded in a long-standing commitment to multilateralism and an aversion to military force while simultaneously seeking to assume the more proactive global role many argue is necessary to confront emerging security threats. Until 1994, Germany was constitutionally barred from deploying its armed forces abroad. Today, approximately 7,000 German troops are deployed in peacekeeping, stabilization, and reconstruction missions worldwide. However, as Germany's foreign and security policy continues to evolve, some experts perceive a widening gap between the global ambitions of Germany's political class, and a consistently skeptical German public. Since the end of the Cold War, Germany's relations with the United States have been shaped by several key factors. These include Germany's growing support for a stronger, more capable European Union, and its continued allegiance to NATO as the primary guarantor of European security; Germany's ability and willingness to undertake the defense reforms many argue are necessary for it to meet its commitments within NATO and a burgeoning European Security and Defense Policy; and German popular opinion, especially the influence on German leaders of strong public opposition to U.S. foreign policies during the George W. Bush Administration. President Obama's popularity in Germany suggests that many Germans expected the Obama Administration to distance itself from the perceived unilateralism of the Bush Administration. However, some observers caution that public expectations of President Obama may have been unreasonably high and note that policy differences between the two countries remain. For example, in the face of the global economic slowdown, German leaders on both sides of the political spectrum resisted calls from the Obama Administration to stimulate economic growth through larger domestic spending measures and have urged the Administration to pursue more stringent reforms of the U.S. and international financial sector. In the foreign policy domain, while German officials have welcomed the Obama Administration's strategic review of Afghanistan/Pakistan policy, they have been reluctant to significantly increase the number of combat troops serving in Afghanistan. |
The right to make motions to recommit in the contemporary House of Representatives is the prerogative of the minority party. The motion is in order in the House, but not in the Committee of the Whole (formally, Committee of the Whole House on the State of the Union). A motion to recommit must be offered after the previous question is ordered on a measure, but before the vote on final passage takes place. When a measure is called up under a "special rule" that orders the previous question in advance through final passage, the rule expressly protects the right to move to recommit. In practice, a recommittal motion typically is offered after engrossment and third reading of the measure. Only one valid motion can be offered, and it can take one of two forms: a simple (or "straight") motion, or a motion with instructions . Both forms have equal privilege on the House floor, but differ in how they affect the underlying measure. This report discusses the two forms of recommittal motion, relevant rules of the House, the minority's prerogative to offer the motion, and procedures for disposing of motions to recommit. The report emphasizes motions to recommit bills and conference reports because they represent the overwhelming majority of all recommittal motions each Congress. Data on motions to recommit made from the 101 st Congress through the 109 th Congress are presented in tables throughout the report. Motions that were offered and then ruled out of order are not counted in these data. The appendix provides information about the recommittal motions that the House adopted between 1989 and 2006. In general, motions to recommit can be offered during initial House floor consideration of bills and most resolutions, and sometimes conference reports as well. The motion is out of order, however, when measures are called up under the "suspension of the rules" procedure. Table 1 below shows data on the different types of measures that to which motions to recommit were offered from the 101 st Congress through the 109 th Congress. The largest number of recommittal motions were offered to bills and conference reports, respectively. While the remainder of this report concentrates on motions to recommit bills and conference reports , there are some restrictions on moving to recommit other types of measures: Simple resolutions: It is not in order to move to recommit a resolution on the order of business (usually called a "rule" or "special rule") reported by the House Rules Committee. Concurrent resolutions: Section 305(a) of the Congressional Budget and Impoundment Control Act of 1974, as amended, forbids motions to recommit from being offered to concurrent budget resolutions or conference reports on them. Joint resolutions: The House sometimes acts on joint resolutions to disapprove or approve of specific executive actions under the terms of special expedited or "fast-track" procedures that may prohibit the offering of recommittal motions to those resolutions. Both forms of the motion to recommit —simple and with instructions—propose to send a bill (or other measure) back to a House committee, typically the committee that originally reported the measure (the "reporting committee"). A simple motion to recommit a bill gives the minority a final opportunity to reject that measure. The motion proposes only to return the bill to the committee that had reported it. When the House adopts a simple recommittal motion, the underlying bill goes back to committee and is considered to have been rejected by the House. The simple motion gives the House an indirect way to "kill" a bill instead of voting directly on its final passage. By contrast, a motion to recommit with instructions provides the minority a last chance to amend a bill. A recommittal motion in this form proposes to send the bill back to committee and also to instruct the committee as to what additional action on the bill it should take. Most often, these instructions direct the committee contain an additional amendment to the bill. Thus, the mover of a recommittal motion with instructions seeks not to "kill" the underlying bill, but to change it to conform more fully with his or her policy views. These policy views are generally those advocated by the minority party. Most recommittal motions with instructions order the committee to report the bill back to the House "forthwith" with an amendment. These "amendatory instructions" contain the text of the proposed amendment. In this form, a recommittal motion gives the committee no discretion and no time in which to act. The committee must return the bill to the House with the amendment immediately. Consequently, when the House adopts a recommittal motion with amendatory instructions , the underlying bill is not actually sent back to committee. Instead, the chairman of the committee specified in the motion takes the floor and, on behalf of the committee, immediately reports the measure back to the House with the amendment set forth in the instructions. At this point, the bill is before the House once again, and the amendment contained in the instructions is the pending question for the House to decide. So the House proceeds to vote on the amendment. If the amendment is adopted, the House then votes on whether to pass the bill as it now has been amended. (See the " Recommittal of a Bill: A Case Study " section for an illustration of these procedures in practice.) Table 2 below presents data on motions to recommit bills from the 101 st Congress through the 109 th Congress. The overwhelming majority (88%) of the motions offered contained instructions, as did all the motions that the House adopted . Motions to recommit bills with amendatory instructions cannot propose an amendment that would not have been in order if it had been offered directly as an amendment to the bill. For instance, amendatory instructions must be germane to the underlying measure. To cite one example from the 103 rd Congress, a motion to recommit H.R. 3221 (Iraq Claims Act) with amendatory instructions was ruled out of order because the amendment contained in the instructions was not germane to the underlying bill. The chair explained that the instructions proposed adding language that would change immigration law, a subject that was not addressed in the underlying bill. Amendatory instructions also cannot propose to strike out an amendment that the House already has adopted; this is consistent with the principle that an amendment cannot be amended after having been adopted. By the same token, the instructions cannot propose to amend a portion of the bill that the House already has amended in its entirety; this reflects the principle that it is not in order to propose to amend only amended text. The amendment in a recommittal motion can, however, propose (and often has proposed) an amendment that was earlier rejected by the Committee of the Whole or the House. When the House adopts an amendment in the nature of a substitute reported by the Committee of the Whole (i.e., a completely new version of the bill), this action could preclude a recommittal motion from including amendatory instructions because any amendment would propose to reamend some portion of the bill that the House already has amended. For this reason, whenever a special rule anticipates that the House will consider an amendment in the nature of a substitute, the special rule almost always provides explicitly for a motion to recommit "with or without instructions." If the House considers a bill under a special rule, amendatory instructions in the recommittal motion must conform with any other relevant provisions of that resolution. For example, if the special rule prohibits amendments to Title II of the bill in both the Committee of the Whole and the House, it would be out of order to move to recommit the bill with instructions to amend Title II. Amendatory instructions also must abide by certain rule-making provisions of law, such as certain provisions in the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 , 88 Stat. 297-339, as amended). When the underlying measure is a general appropriations bill , a motion to recommit with amendatory instructions must comply with other applicable House rules. Most important, the instructions cannot violate House Rule XXI, clause 2 which prohibits amendments to general appropriations bills from containing legislative language or making unauthorized appropriations. While most instructions are amendatory, some recommittal motions contain non-amendatory instructions, such as directing a committee to hold a hearing or to conduct a study. If the House recommits a bill with non-amendatory instructions, the measure is returned to the designated committee for action as specified in the instructions. The committee's work is confined to the scope of the instructions. In the 104 th Congress, Representative Edward Markey moved to recommit H.R. 1555 (Communications Act of 1995) with amendatory instructions directing the Committee on Commerce to report the bill back to the House "forthwith" with an amendment. The House adopted this recommittal motion by a vote of 224-199. The amendatory instructions in Representative Markey's motion proposed adding a new section to H.R. 1555 . This new section required, among other things, that television sets manufactured in or imported to the United States be equipped with a program-blocking technology called the "v-chip" (formally, the "violence chip"). Earlier, Representative Markey had offered this identical section as an amendment in the Committee of the Whole. The Committee of the Whole, however, adopted a substitute for the Markey amendment. The substitute amendment, offered by Representative Tom Coburn proposed a policy alternative that did not include the "v-chip" requirement. The Committee of the Whole then adopted the Markey amendment as amended by the Coburn substitute. As a result, there was no direct vote during the amending process in Committee of the Whole on the "v-chip" mandate proposed in the original Markey amendment (i.e., the amendment as offered by Representative Markey, not the version as amended by the Coburn substitute). Representative Markey secured this "up-or-down" vote in the House by offering a motion to recommit H.R. 1555 to the Committee on Commerce with instructions that the bill be reported back forthwith with an amendment containing the text of the original Markey amendment. After the House adopted this motion to recommit, Chairman Bliley reported the bill back to the House on behalf of the Commerce Committee with the amendment contained in the motion's instructions. The House then approved the amendment. Finally, the House then passed H.R. 1555 , which at that point contained both the text of the Coburn substitute as well as the text of the original Markey amendment. This example illustrates how the minority party can use the motion to recommit with instructions to secure a House vote on its policy alternative. It also shows the effect of a rules change made at the beginning of the 104 th Congress (and discussed in detail later in this report) that guarantees the minority's right to offer a motion to recommit with instructions to a bill or joint resolution. Before this rules change, the special rule governing a bill such as H.R. 1555 could have prohibited or limited the instructions that could be contained in a motion to recommit. The following excerpts from the Congressional Record of August 4, 1995, show the parliamentary language used, and the procedural steps that occurred, during and immediately after the House's consideration of Representative Markey's motion to recommit with instructions: THE SPEAKER pro tempore. Under the rule, the previous question is ordered. Under the order of the House of the legislative day of August 3, 1995, the amendment reported from the Committee of the Whole is adopted. No separate vote is in order. The question is on the engrossment and third reading of the bill. The bill was ordered to be engrossed and read a third time, and was read the third time. Mr. MARKEY. Mr Speaker, I offer a motion to recommit with instructions. The SPEAKER pro tempore. Is the gentleman opposed to the bill? Mr. MARKEY. I am opposed to the bill Mr. Speaker. The SPEAKER pro tempore. The Clerk will report the motion to recommit. [After the Clerk reported the motion, Representative Markey was recognized for five minutes of debate. A Member opposed to the motion was then recognized for the same amount of time. At the conclusion of debate, the previous question on the recommittal motion was ordered. After putting the motion to a voice vote, the Speaker pro tempore announced that the noes appeared to have it, so Representative Markey demanded a record vote. The House then adopted the motion to recommit, 224 to 199, after which the Speaker pro tempore recognized Representative Bliley, chairman of the Committee on Commerce.] Mr. BLILEY. Mr. Speaker, pursuant to the instructions of the House, I report the bill, H.R. 1555 , back to the House with an amendment. The SPEAKER PRO TEMPORE. The Clerk will report the amendment. [The Clerk began reading the amendment (i.e., the amendment proposed in Representative Markey's motion to recommit with instructions). At Representative Bliley's request, and without objection, the amendment was considered as read and printed in the Congressional Record .] The SPEAKER PRO TEMPORE. The question is on the amendment. The amendment was agreed to. [Third reading and engrossment of the bill then took place, followed by a record vote on the bill's final passage. H.R. 1555 , amended as a result of the motion to recommit with instructions, was passed, 305-117.] Motions to recommit conference reports also can be either simple motions or motions containing instructions. However, motions to recommit conference reports do not have the same purpose or effect as motions to recommit measures during their initial House floor consideration. A simple motion to recommit a conference report proposes only to send the report back to conference for further negotiation; adopting this motion does not necessarily "kill" the bill. A motion to recommit a conference report with instructions also seeks to return a report to conference for further negotiation, but it also proposes to instruct the House conferees (also referred to as "managers") as to what they should try to achieve during these negotiations. Most commonly, the instructions enjoin the House conferees to insist on the House position on a certain issue or to disagree to a certain Senate position. The instructions are advisory in nature; they are not binding on the House conferees. A Representative cannot make a point of order against a conference report on the ground that it is inconsistent with instructions that the House had given to its conferees. Also, the instructions must stay within the scope of differences between the House and Senate positions in the conference. For example, in the 102 nd Congress, a motion to recommit the conference report on S. 3 (campaign finance reform legislation) was ruled out of order because its instructions directed the House conferees to include in the conference report three provisions that went beyond the scope of the differences between the House and Senate versions of the bill. A new recommittal motion then was proposed with instructions that remained within the scope of differences. This second motion was defeated. Instructions in motions to recommit conference reports never direct conferees to report back to the House "forthwith," as motions to recommit bills with amendatory instructions almost always do. The reason lies in the fact that the House cannot instruct a committee comprising Representatives as well as Senators. A conference report can come to the House floor only after a majority of the House conferees and a majority of the Senate conferees have signed it and the accompanying joint explanatory statement. When the House adopts a motion to recommit a conference report (simple or with instructions), the House conferees "carry the original papers back to conference" and the "same conferees remain appointed." If a new conference report is later filed, it receives a new number and can be subjected to another motion to recommit. A motion to recommit a conference report is in order on the House floor only if the Senate has not acted on the report. Once the Senate acts on a conference report, the Senate conferees are discharged so there is no conference committee to which the report can be recommitted. At this point, the House can vote only to accept or reject the conference report. Also, a motion to recommit a conference report can be offered only after the previous question has been ordered on the report. In some cases, the House has recommitted a conference report by unanimous consent. Table 3 provides data on motions to recommit conference reports from the 101 st Congress through the 109 th Congress. The overwhelming majority (85%) of motions offered to recommit conference reports contained instructions. The House adopted only one simple motion to recommit a conference report during the 17-year period. There were instructions included in all the other recommittal motions that the House adopted. In the 104 th Congress, the House recommitted with instructions the first two conference reports on H.R. 1977 (the interior appropriations bill for FY1996). The House later approved the third conference report on this bill . The first motion to recommit instructed the House conferees to insist on the House position on Senate amendment 158. This amendment ended a one-year freeze on the transfer of federal lands to mining companies. The House-passed version of H.R. 1977 extended this one-year freeze for an additional year. When the House agreed to the Senate's request for a conference on H.R. 1977 , it instructed the House conferees by voice vote to insist on the House's "pro-freeze" position. However, the House managers, however, did not uphold the House position in conference; the first conference report on the bill ( H.Rept. 104-259 ) came to the House floor with the Senate language intact. Representative Sidney Yates, ranking minority member of the Interior Appropriations subcommittee, moved to recommit the conference report with the instructions mentioned above. The motion was adopted, 277 to147, with the support of 91 majority Members, including the bill's majority floor manager. One month later, the conferees approved a second conference report on H.R. 1977 ( H.Rept. 104-300 ). While this report included the House's "pro-freeze" position, it added the condition that this freeze would end if Congress approved legislation revising the Mining Law of 1872. (This mining legislation was in the conference report on the budget reconciliation bill that was scheduled to receive House floor consideration in several days.) When the new conference report on H.R. 1977 came to the House floor, Representative Yates moved to recommit the report with instructions. These instructions directed the House conferees to insist not only on the House position on Senate amendment 158 (i.e., with no conditions) but also on Senate amendment 108. This second Senate amendment allowed the Forest Service to sell more timber land in the Tongass National Forest. The House adopted the motion to recommit, 230 to199, with the support of 48 majority Members. The conference committee reconvened for a third time and filed a new conference report ( H.Rept. 104-402 ) nearly one month later. This third conference report extended the one-year freeze without conditions and contained a compromise on the Tongass National Forest issue. In explaining the third conference report, Representative Ralph Regula (majority floor manager for the report) told the House: "[t]he important thing I want to emphasize...is that we responded to the motion to recommit." After the previous question was ordered on the conference report, Representative Yates once again moved to recommit the report with instructions. This time, he proposed instructions that the House conferees insist on the House position regarding the Tongass National Forest. The House rejected this motion, 187-241, and then adopted the conference report, 244-181. These examples of recommitting a conference report in the House illustrates how motions to recommit with instructions can affect conference committee negotiations. The House recommitted the first two conference reports on H.R. 1977 for the same reason—the conference's rejection of the House position on Senate amendment 178. In doing so, the House sent the message that its adoption of the conference report required conference approval of the House position on that Senate amendment. While the instructions in the successful recommittal motions applied only to House conferees, they influenced the work of the conference committee as a whole. Motions to recommit are governed by both Rule XIX, clause 2, and Rule XIII, clause 6(c)(2). Rule XIX, clause 2(a), provides that "[a]fter the previous question has been ordered on the passage or adoption of a measure, or pending a motion to that end, it shall be in order to move that the House recommit (or commit, as the case may be, the measure, with or without instructions, to a standing or select committee. For such a motion to recommit, the Speaker shall give preference in recognition to a Member, Delegate, or Resident Commissioner who is opposed to the measure." (Paragraphs (b) and (c) of the same clause govern debate on motions to recommit; see the discussion of " Debate on the Motion ".) Rule XIII, clause 6(c)(2), as amended in 1995, states that the Committee on Rules shall not "report a rule or order which would prevent the motion to recommit a bill or joint resolution from being made as provided in clause 2(b) of rule XIX, including a motion to recommit with instructions to report back an amendment otherwise in order, if offered by the Minority Leader or a designee, except with respect to a Senate bill or resolution for which the text of a House-passed measure has been substituted." The next section of this report discusses the changes made to this rule at the start of the 104 th Congress. In modern House practice, offering the motion to recommit is the prerogative of a member of the minority party. This has not always been the case, however. Before 1909, the recommittal motion was typically reserved for a Representative "friendly" to a measure (typically the majority floor manager) "for the purpose of giving one more chance to perfect it, as perchance there might be some error that the House desired to correct." In 1909, the House amended what is now Rule XIX, clause 2(a), to add the language directing the Speaker to give preferential recognition for offering the motion to recommit "to a Member, Delegate, or Resident Commissioner who is opposed to the measure." By 1932, House precedents interpreting this rule firmly established that preferential recognition should be given to a minority party Member opposed to the underlying measure. From 1934 to the start of the 104 th Congress, however, separate precedents held that the minority was only guaranteed the right to offer a simple motion to recommit. These precedents interpreted clause 6 of Rule XIII as allowing the Rules Committee to report a special rule that prevented or limited the inclusion of instructions in a motion to recommit a bill or joint resolution. Because there were no recorded votes in the Committee of the Whole until 1971, a recommittal motion with amendatory instructions provided the only certain means for the minority to obtain a recorded House vote on its policy alternative. Before 1971, a special rule restricting amendatory instructions took away this minority tool for obtaining recorded votes, or limited the minority's ability to use that tool as it saw fit. In the late 1980s and early 1990s, the Rules Committee increasingly issued special rules that limited the offering of floor amendments in the Committee of the Whole (so-called "restrictive rules"). In some of these situations, the Republican minority's only opportunity to propose an amendment was through offering a motion to recommit with amendatory instructions. When a restrictive special rule also prohibited instructions in the recommittal motion, the minority sometimes was effectively blocked from offering its most important amendments. During the 101 st through the 103 rd Congresses, the Republican minority began to challenge the House precedents allowing the Rules Committee to report special rules that only permitted a simple motion to recommit. Each challenge, however, resulted in the earlier precedents being sustained. When the Republican party took control of the House in the 104 th Congress, the House amended its rules to preclude the Rules Committee from reporting a special rule that prevents or limits the minority from offering a recommittal motion with instructions to a bill or joint resolution. This rules change added the following new language to the last sentence of Rule XIII, clause 6(c)(2), concerning motions to recommit bills and joint resolutions: ... including a motion to recommit with instructions to report back an amendment otherwise in order, if offered by the Minority Leader or a designee, except with respect to a Senate bill or resolution for which the text of a House-passed measure has been substituted With the addition of this language, the House's rules explicitly recognize the minority's prerogative to offer a motion to recommit, with or without instructions, to bills and joint resolutions . To summarize the situation in today's House, the following principles govern preferential recognition for offering recommittal motions: The Speaker first looks to the Minority Leader or his designee. Thereafter, under House precedents, the Speaker gives preferential recognition "to minority members of the committee reporting the bill in their order of seniority on the committee, then to other members of the minority, and finally to majority members opposed to the bill." The Speaker gives preferential recognition to a Member who is opposed to the underlying measure. When a Member seeks recognition to offer a recommittal motion, the Speaker asks: "Is the gentlewoman (gentleman) opposed to the measure?" Once the Representative answers affirmatively, the Speaker neither examines "the degree of that Member's opposition" nor does he distinguish between opposition "to the bill in its present form" and a more fundamental opposition. Debate is not allowed on a simple motion to recommit, except by unanimous consent. For motions to recommit with instructions , House Rule XIX, clause 2(b), allows ten minutes of debate if the motion is offered to a bill or joint resolution (no debate is permitted on recommittal motions with instructions that are offered to other types of measures). Under clause 2(c) of the same rule, the ten minutes of debate can be extended to one hour upon the demand of the majority floor manager. When this demand is anticipated, the special rule governing the measure's floor consideration may specify that the recommittal motion with instructions shall be debatable for one hour. Debate time, whether ten minutes or one hour, is equally divided between the mover of the motion and a Member opposed to the motion (usually the majority floor manager). The chair rules on whether a motion to recommit is in order only in response to a point of order that the motion violates a House rule or precedent or a provision of a rule-making statute or a special rule. A Member may make or reserve such a point of order immediately after the recommittal motion is read (or after the reading has been dispensed with by unanimous consent). In situations where debate on the recommittal motion is permitted, the point of order must also be made before debate on the motion begins. In nearly all situations, the chair decides whether to sustain or to overrule the point of order (an exception is discussed below). If the chair overrules the point of order, the House proceeds to consider the recommittal motion. If the point of order is sustained, a new motion to recommit can be offered if it is offered in a timely fashion. The same principles also apply to points of order raised against amendments to motions to recommit (as discussed in the next section). A special procedure is used for points of order raised under the Unfunded Mandates Reform Act of 1995 ( P.L. 104-4 , 109 Stat. 48). The chair does not rule on these points of order. Instead, the House votes on whether to consider the matter against which a point of order has been made. This vote takes place after twenty minutes of debate that is equally divided between the Member making the point of order and an opponent. The first unfunded mandates point of order was raised against a motion to recommit with instructions offered to H.R. 3136 (Contract With America Advancement Act) in the 104 th Congress. This point of order claimed the motion's instructions contained an unfunded governmental mandate. The House voted not to consider the recommittal motion. A valid motion to recommit with instructions was subsequently offered and defeated. Members do not often offer amendments to recommittal motions, either to add or to amend instructions. Such an amendment is in order only before the House votes to order the previous question on the motion. This generally leaves only three opportunities for offering an amendment, none of which arises frequently. First, for debatable recommittal motions only, an amendment is in order once debate is completed (if the previous question has not been ordered on the motion). The mover of the recommittal motion controls the floor at this time, and only that Member can offer an amendment or yield to another Representative to do so. A Member seeking to amend a motion to recommit would, therefore, have to ask the motion's mover to yield for an amendment. While the Member offering the motion has little incentive to yield for that purpose, it has happened on occasion. Second, for both debatable and non-debatable motions to recommit, an amendment can be offered if the Member who offered the motion does not move the previous question. This is an unlikely scenario, however. The previous question motion has precedence over the motion to amend. This means that if the previous question on the recommittal motion is not moved and a Member seeks to offer an amendment to the motion, the motion's sponsor could still move the previous question and prevent House consideration of the amendment. Last, for both debatable and non-debatable motions to recommit, an amendment can be offered if the previous question on the recommittal motion is defeated. The previous question on the recommittal motion is typically ordered without objection and without a formal vote taking place. However, a Member trying to offer an amendment could demand the yeas and nays on the motion to order the previous question. If the House rejects that motion, House precedents provide that "a Member who in the Speaker's determination led the opposition to the previous question on the motion to recommit, such as the chairman of the committee reporting the bill, is entitled to offer an amendment to the motion regardless of party affiliation." In addition, the Member proposing the amendment "would not necessarily have to qualify as being opposed to the bill." Debate is not permitted on an amendment to a recommittal motion, regardless of whether the underlying motion was debatable. The amendment's supporters may explain it and urge its adoption before they actually offer the amendment—for example, during whatever time may be available for debating the recommittal motion itself. Especially because the House normally must vote against ordering the previous question on the motion before any amendment to it can be offered, the amendment's proponents typically make their case in favor of the amendment in the process of urging Members to vote against the previous question. An amendment to a recommittal motion must be germane to the underlying measure, not necessarily to the instructions contained in the recommittal motion itself. A point of order against the amendment is timely if raised immediately after the amendment is read (or after the reading has been dispensed with by unanimous consent). If the chair sustains the point of order, another amendment to the motion can be offered unless the House then votes to order the previous question. A simple motion to recommit a bill or joint resolution can be amended to change the committee(s) specified in the motion, or to add instructions to the motion. When the underlying measure is a conference report, the simple motion can be amended to insert instructions to the House conferees. A recommittal motion with instructions, whether offered to a bill or a conference report, can be amended to delete the instructions (thereby making the recommittal motion a simple one), or to change the instructions in part or in whole. A substitute amendment striking out all the instructions and substituting new instructions "cannot be ruled out as interfering with the right of the minority to move recommitment," even if it is a majority party Member who offers the substitute. The House must approve an amendment to a recommittal motion by a simple majority vote. First, the House normally votes to order the previous question on the motion and the amendment that has been offered to it. After the previous question is ordered, the House first votes on the amendment. If that amendment is approved, the House then votes on adopting the recommittal motion, as amended. Adopting a recommittal motion requires only a simple majority vote of the House. When a motion to recommit is defeated , another one cannot be offered; only one valid motion to recommit is in order. Table 4 below provides data on all the motions to recommit that Members offered from the 101 st Congress through the 109 th Congress. The data include both motions to recommit measures before initial House passage and motions to recommit conference reports. In each successive Congress except for the last one, the number of offered motions increased but the adoption rate did not. The Appendix provides information about the 39 motions to recommit that the House adopted (bill number, title, date adopted, vote results, description of instructions, and unique aspects of the motion's disposition). | Recommittal motions can take one of two forms: a simple (or "straight") motion to recommit or a motion to recommit with instructions. Bills and conference reports can be recommitted, but the motion to recommit does not have the same effect on measures at both stages of the legislative process. A simple motion to recommit a bill gives the minority party a final opportunity to "kill" a measure before the House votes on whether to pass it. When the House adopts a simple motion, the underlying bill goes back to committee and is considered to have been rejected by the House. A simple motion to recommit a conference report proposes to return the report to conference, but does not necessarily "kill" the bill in question. A motion to recommit a bill with instructions provides the minority a last chance to amend a bill before the House votes on its passage. When the House recommits a bill with instructions, the measure goes back to committee, but typically with binding directions that the committee report the bill back to the House instantaneously with an amendment that is included in the instructions. The recommittal of a conference report with instructions returns the report to conference with non-binding directions to the House conferees only (e.g., to insist on disagreeing to a specific Senate amendment). Most motions to recommit bills and conference reports contain instructions. The motion to recommit is in order in the House, but not in the Committee of the Whole. The motion must be offered after the previous question has been ordered, but before the vote on passing a bill or agreeing to a conference report. Debate is allowed only on motions to recommit with instructions that are offered to bills and joint resolutions. Debate is not permitted on simple motions or on any motions to recommit conference reports, except by unanimous consent. The House must approve the motion by a simple majority vote. From the 101st Congress through the 109th Congress, the House adopted 7.6% of all motions to recommit. In modern House practice, the right to offer the motion to recommit is the prerogative of a minority party Representative who is opposed to the underlying measure. Until the 104th Congress, however, House precedents only guaranteed the minority's right to offer a simple motion to recommit. The House Rules Committee was allowed to report "special rules" that limited or prohibited instructions in motions to recommit. Since the beginning of the 104th Congress, the Rules Committee has been prohibited from reporting any special rules that restrict or preclude instructions in motions to recommit offered to bills and joint resolutions, provided the motion is "offered by the minority leader or his designee." This report will be updated at the end of each Congress. |
Federal education legislation continues to emphasize the role of assessment in elementary and secondary schools. Perhaps most prominently, the Elementary and Secondary Education Act (ESEA), as amended by the Every Student Succeeds Act (ESSA; P.L. 114-95 ), requires the use of test-based educational accountability systems in states and specifies the requirements for the assessments that states must incorporate into state-designed educational accountability system. These requirements are applicable to states that receive funding under Title I-A of the ESEA, which authorizes aid to local educational agencies (LEAs) for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending elementary and secondary schools with relatively high concentrations of students from low-income families. All states currently accept Title I-A funds. For FY2017, the program was funded at $15.5 billion. More specifically, to receive Title I-A funds, states must agree to assess all students annually in grades 3 through 8 and once in high school in the areas of reading and mathematics. Students are also required to be assessed in science at least once within each of three specified grade spans (grades 3-5, 6-9, and 10-12). The results of these assessments are used as part of a state-designed educational accountability system that determines which schools will be identified for support and improvement based on their performance. The results are also used to make information about the academic performance of students in schools and school systems available to parents and other community stakeholders. These requirements have been implemented within a crowded landscape of state, local, and classroom uses of educational assessments, ranging from small-scale classroom assessments to high school exit exams. The emphasis on educational assessment within federal education policies, which has coincided with expanded assessment use in many states and localities, has led to considerable debate about the amount of time being spent taking tests and preparing for tests in schools, the fit between various types of assessments and intended uses, and optimal ways to increase the usefulness of assessments. As student assessments continue to be used for accountability purposes under the ESEA as well as in many other capacities related to federal programs (e.g., for identifying students eligible to receive extra services supported through federal programs), this report provides Congress with a general overview of assessments and related issues. It discusses different types of educational assessments and uses of assessment in support of the aims of federal policies. As congressional audiences sometimes seek clarification on how the assessments required under federal programs fit into the broader landscape of educational assessments, the report situates the types of assessment undertaken in conjunction with federal programs within the broader context of assessments used for varied purposes within schools. The report explains basic concepts related to assessment in accessible language, and it identifies commonly discussed considerations related to the use of assessments. The report provides background information that can be helpful to readers as they consider the uses of educational assessment in conjunction with policies and programs. This report accompanies CRS Report R45049, Educational Assessment and the Elementary and Secondary Education Act , by [author name scrubbed], which provides a more detailed examination of the assessment requirements under the ESEA. This report begins by briefly discussing the current types of assessments used in elementary and secondary education. It then provides a framework for understanding various types of assessments that are administered in elementary and secondary schools. It broadly discusses several purposes of educational assessment and describes the concept of balanced assessment systems. The report also provides a description of technical considerations in assessments, including validity, reliability, and fairness, and discusses how to use these technical considerations to draw appropriate conclusions based on assessment results. This report does not comprehensively or exclusively discuss specific assessments required by federal legislation. The information herein can be applied broadly to all assessments used in elementary and secondary schools, including those required by federal legislation. Examples from federal legislation, such as the ESEA and the Individuals with Disabilities Education Act (IDEA; P.L. 108-446 ), are used to highlight assessment concepts. The examples provided are not exhaustive but rather serve to demonstrate the application of assessment concepts to actual assessments administered in schools. Students in elementary and secondary education participate in a wide range of assessments, from small-scale classroom assessments to large-scale international assessments. Some assessments are required, and some are voluntary. Some assessment results are reported on an individual level, and some are reported at a group level. Some assessments have high-stakes consequences, and some do not. The most common type of assessment used in educational settings is achievement testing. Although educational assessment involves more than testing, this report uses "assessment" and "test" interchangeably. Among the assessments discussed, state assessments required by the ESEA receive considerable attention in this report. These assessments are administered annually in reading and mathematics to all students in grades 3 through 8 and once in high school. In addition, science assessments are administered once in each of three grade spans (grades 3-5, 6-9, and 10-12). The results of reading and mathematics assessments are used as indicators in the state accountability systems required by Title I-A. Results are aggregated and reported for various groups of students. Though they are not required to do so by federal law, states may require students to pass exit exams to graduate from high school. A state "exit exam" typically refers to one or more tests in different subject areas, such as English, mathematics, science, and social studies. Exit exams can take several forms, including minimum competency exams, comprehensive exams, end-of course exams, or some combination of the three. Students may also participate in national assessments. The National Assessment of Educational Progress (NAEP) is a series of assessments that have been used since 1969. The NAEP tests are administered to students in grades 4, 8, and 12. They cover a variety of content areas, including reading, mathematics, science, writing, geography, history, civics, social studies, and the arts. The NAEP is a voluntary assessment for students; however, states that receive funding under Title I-A of the ESEA are required to participate in the reading and mathematics assessment for grades 4 and 8. A sample of students in each state is selected to participate in the NAEP. Some students are selected to participate in international assessments. There are currently three international assessments that are periodically administered: (1) the Programme for International Student Achievement (PISA), (2) the Progress in International Reading Literacy Study (PIRLS), and (3) the Trends in International Mathematics and Science Study (TIMSS). Participation in international assessments is voluntary, and the countries that choose to participate can vary from one administration to the next. As with the NAEP, a sample of students from a participating country is selected to take the assessment. Certain students also take assessments to qualify for special services. States are required by the federal government to provide special services to students with disabilities and English learners (ELs). To receive special services, a student must be found eligible for services based on a variety of assessments. States are required to designate the specific assessments that determine eligibility. In addition, states are required to assess ELs in English language proficiency, which includes the domains of listening, speaking, reading, and writing. On the surface, it may be difficult to understand why students participate in so many assessments. Each assessment has a specific purpose and reports a specific kind of score. Teaching and learning can benefit from educational assessment, but there is a balance between the time spent on educational assessment and the time spent on teaching and learning. Determining the number and type of assessments to administer in elementary and secondary education is important, and the information in this report is intended to help policymakers as they contribute to these decisions. Educational assessment is a complex task involving gathering and analyzing data to support decision-making about students and the evaluation of academic programs and policies. There are many ways to classify assessments in frameworks. The framework offered below is meant to provide a context for the remainder of the report and present an easily accessible vocabulary for discussing assessments. This framework addresses the various purposes of assessment, the concept of balanced assessment systems, and the scoring of assessments. After outlining a general assessment framework, this report discusses technical considerations in assessment and how to draw appropriate conclusions based on assessment results. A glossary containing definitions of commonly used assessment and measurement terms is provided at the end of this report. The glossary provides additional technical information that may not be addressed within the text of the report. Educational assessments are designed with a specific purpose in mind, and the results should be used for the intended purpose. Although it is possible that a test was designed for multiple purposes and results could be interpreted and used in multiple ways, it is often the case that test results are used for multiple purposes when the test itself was designed for only one. This "over-purposing" of tests is an issue of concern in education and can undermine test validity. In the sections below, four general purposes of assessment are discussed: instructional, diagnostic (identification), predictive, and evaluative. Instructional assessments are used to modify and adapt instruction to meet students' needs. These assessments can be informal or formal and usually take place within the context of a classroom. Informal instructional assessments can include teacher questioning strategies or reviewing classroom work. A more formal instructional assessment could be a written pretest in which a teacher uses the results to analyze what the students already know before determining what to teach. Another common type of instructional assessment is progress monitoring. Progress monitoring consists of short assessments throughout an academic unit that can assess whether students are learning the content that is being taught. The results of progress monitoring can help teachers determine if they need to repeat a certain concept, change the pace of their instruction, or comprehensively change their lesson plans. Commercially available standardized tests are often not appropriate to use as instructional assessments. It may be difficult for teachers to access assessments that are closely aligned with the content they are teaching. Even when a commercially available assessment is well aligned with classroom instruction, teachers may not receive results in a timely manner so that they can adapt instruction. Diagnostic assessments are used to determine a student's academic, cognitive, or behavioral strengths and weaknesses. These assessments provide a comprehensive picture of a student's overall functioning and go beyond exclusively focusing on academic achievement. Some diagnostic assessments are used to identify students as being eligible for additional school services like special education or English language services. Diagnostic assessments to identify students for additional school services can include tests of cognitive functioning, behavior, social competence, language ability, and academic achievement. The IDEA requires diagnostic assessments for the purpose of determining whether a student is a "child with a disability" who is eligible to receive special education and related services. States develop criteria to determine eligibility for special education and select assessments that are consistent with the criteria for all areas of suspected disability. For example, if it is suspected that a student has an "intellectual disability," a state may administer a test of cognitive functioning, such as the Wechsler Intelligence Scale for Children (WISC). If it is suspected that the same student may have a speech-language impairment, a state may require hearing and vision screenings, followed by a comprehensive evaluation. If it is suspected that a student has "serious emotional disturbance," a state may administer a series of rating scales and questionnaires, such as the Behavioral and Emotional Rating Scale or the Scales for Assessing Emotional Disturbance. Assessments for special education eligibility may also involve more informal measures such as parent interviews and classroom observations. Title I-A of the ESEA requires diagnostic assessments for the purpose of determining whether a student has limited English proficiency. States must ensure that local educational agencies (LEAs) annually assess ELs to determine their level of English language proficiency. The assessment must be aligned to state English language proficiency standards within the domains of speaking, listening, reading, and writing. Most states currently participate in the WIDA consortium, which serves linguistically diverse students. The consortium provides for the development and administration of ACCESS 2.0, which is currently the most commonly used test of English proficiency. Predictive assessments are used to determine the likelihood that a student or school will meet a particular predetermined goal. One common type of predictive assessment used by schools and districts is a benchmark (or interim) assessment, which is designed primarily to determine which students are on-track for meeting end-of-year achievement goals. Students who are not on-track to meet these goals can be offered more intensive instruction or special services to increase the likelihood that they will meet their goals. Similarly, entire schools or districts that are not on-track can undertake larger, programmatic changes to improve the likelihood of achieving the end goals. Some states are now using a common assessment that is aligned with the Common Core State Standards (CCSS) to meet federal assessment requirements under the ESEA. There are two common assessments currently in place: the Partnership for Assessment of Readiness for College and Career (PARCC) and the Smarter Balanced Assessment Consortium (SBAC). Both PARCC and SBAC administer interim assessments that are intended to be predictive of end-of-year performance. Evaluative assessments are used to determine the outcome of a particular curriculum, program, or policy. Results from evaluative assessments are often compared to a predetermined goal or objective. These assessments, unlike instructional, diagnostic, or predictive assessments, are not necessarily designed to provide actionable information on students, schools, or LEAs. For example, if a teacher gives an evaluative assessment at the end of a science unit, the purpose is to determine what a student learned rather than to plan instruction, diagnose strengths and weaknesses, or predict future achievement. Assessments in state accountability systems are typically conducted for an evaluative purpose. These assessments are administered to determine the outcome of a particular policy objective (e.g., determining the percentage of students who are proficient in reading). For example, under the ESEA, states must conduct annual assessments in reading and mathematics for all students in grades 3 through 8 and once in high school. Results from these assessments are then used in the state accountability system to differentiate schools based, in part, on student performance. Some states currently use common assessments (PARCC and SBAC) to meet these federal requirements; other states have opted to use state-specific assessments. The assessment indicators required by the accountability system in the ESEA are based primarily on the result of evaluative assessments. Because these indicators are often reported following the end of an academic year, it would be difficult to use them for instructional or predictive purposes. It would be unlikely to use the results of these assessments to guide instruction for individual students. One assessment cannot serve all the purposes discussed above. A balanced assessment system is necessary to cover all the purposes of educational assessment. A balanced assessment system would likely include assessments for each aforementioned purpose. Federal requirements under the ESEA call for evaluative assessments to be used in the accountability system. States and LEAs, however, conduct additional assessments to serve other purposes in creating a more balanced assessment system. The addition of instructional, diagnostic, and predictive assessments at the state and local levels may contribute to the perception that there are "too many assessments." And while assessments may occasionally intrude on instructional time, some of these are conducted to guide and improve instruction (i.e., instructional and diagnostic assessments). One type of balanced assessment system uses a combination of formative and summative assessments. This type can be seen as overlapping with the purposes of assessment discussed above. That is, the purposes of assessment are embedded within "formative" and "summative" assessments. Generally speaking, formative assessments are those that are used during the learning process in order to improve instruction, and summative assessments are those that are used at the end of the learning process to "sum up" what students have learned. In reality, the line between a formative assessment and a summative assessment is less clear. Depending on how the results of an assessment are used, it is possible that one assessment could be designed to serve both formative and summative functions. The distinction, therefore, between formative and summative assessments often is the manner in which the results are used. If an assessment has been designed so that results can inform future decision-making processes in curriculum, instruction, or policy, the assessment is being used in a formative manner (i.e., for instructional, diagnostic, and predictive purposes). If an assessment has been designed to evaluate the effects or the outcome of curricula, instruction, or policy, the assessment is being used in a summative manner (i.e., for diagnostic or evaluative purposes). For example, a teacher may give a pretest to determine what students know prior to deciding what and how to teach. The results of the pretest may be used to plan instruction; therefore, the pretest is a formative assessment. When the teacher has finished teaching a certain concept or topic, however, the same test could be administered as a posttest. The results of the posttest may be used as the student's grade; therefore, the posttest is a summative assessment. In a balanced assessment system, a state must consider its and the LEAs' needs for various types of information and choose formative and summative assessments consistent with those needs. While this topic has received a lot of attention in recent years, there is no universal agreement on what constitutes a formative assessment. Teachers, administrators, policymakers, and test publishers use the term "formative assessment" to cover a broad range of assessments, from small-scale, classroom-based assessments that track the learning of individual students to large-scale interim assessments that track the progress of a whole school or district to determine if students will meet certain policy goals. The confusion over exactly what a formative assessment is has led some in the testing industry to avoid the term altogether and others to offer alternative names for certain types of formative assessment. In this section, various types of assessments that have been described as formative will be discussed, including classroom-based and interim assessments. Formative assessments are often used in the classroom. They can be as informal as teacher questioning strategies and observations or as formal as standardized examinations. Teachers use formative assessments for both instructional and predictive purposes. The results of formative assessment can be used to determine holes in a student's knowledge and to adjust instruction accordingly. Teachers may adjust their instruction by changing the pace of instruction, changing the method of delivery, or repeating previously taught content. After these adjustments, teachers may administer another assessment to determine if students are learning as expected. The process of administering assessments, providing feedback to the student, adjusting instruction, and re-administering assessments is what makes the assessment formative. To supplement classroom-based formative assessments, test publishers began promoting commercial formative assessment products in the form of interim assessments. Some testing experts believe that referring to interim assessments as "formative" is inaccurate because the results are not likely to generate information in a manner timely enough to guide instruction. Others believe that these assessments can be used in a formative way to determine how school or LEA practices need to change to meet policy goals. The latter position considers the use of interim assessments as formative assessment at the school or LEA level as opposed to the classroom level. Instead of adjusting teaching practices to increase student learning, this type of formative assessment would require adjusting school or district practices to increase student achievement across the board. Interim assessments can track the progress of students, schools, and LEAs toward meeting predetermined policy goals. For example, as discussed above, PARCC and SBAC provide interim assessments as part of their state assessment systems for reading and mathematics. The results of the interim assessments can be used in a formative way to adjust school or district policies and practices that affect student achievement. While both classroom-based assessments and interim assessments can be considered formative, they are not interchangeable. In classroom-based formative assessment, results are often immediate and instructionally relevant, allowing teachers to adjust instruction. On the other hand, this type of formative assessment may not provide any information on whether a student or school is on-track to be proficient on a future summative assessment. In the case of interim assessments, the content and timing of the assessment is usually determined by the state, not the teacher, making it a less flexible classroom tool. In addition, interim assessments are less likely to be used to guide classroom instruction because the results of the assessments may not be reported quickly enough to be useful to a classroom teacher. Interim assessments can, however, be used to predict whether a school or district is likely to meet predetermined goals on a later summative assessment and to identify areas requiring additional support. Summative assessments are tests given at the end of a lesson, course, or school year to determine what has been learned. Summative assessments are used for diagnostic or evaluative purposes. Most test results that are reported by the school, LEA, state, or media are based on summative assessments. State assessments required by the ESEA, the NAEP, international assessments, and state exit exams are all summative assessments. Some forms of summative assessment are considered high-stakes assessments because they have rewards and consequences attached to performance. For example, some states require students to pass high-stakes high school exit exams or end-of-course exams to graduate. Under the ESEA, states must use assessments in reading and mathematics to differentiate schools based, in part, on student performance in their accountability systems. Not all summative assessments have high-stakes school or district consequences attached to the results. An end-of-unit mathematics test, for example, is a summative assessment used to determine a student's grade, but there are no school- or LEA-level consequences attached. On a larger scale, NAEP and international assessments are used to provide an overall picture of national and international achievement, but there are no major consequences associated with the results. Test scores are reported in a variety of ways. Sometimes scores may compare an individual to a group of peers in the form of standard scores or percentiles. Other times, scores may indicate a student is "proficient" or has "met expectations" in a certain subject. Misinterpreting test scores or misunderstanding a reported score can lead to inaccurate conclusions regarding the academic performance of students, schools, districts, and states, so it is essential to understand what the reported score actually means. The following sections describe common methods of score reporting in educational assessment, including using scores from norm-referenced tests (NRTs), scores from criterion-referenced tests (CRTs), scaled scores, and performance standards. A brief discussion of the advantages and disadvantages of each type of score is provided. An NRT is a standardized test in which results compare the performance of an individual student to the performance of a large group of students. NRTs are sometimes referred to as scores of "relative standing." NRTs compare individual scores to a normative sample, which is a group of students with known demographic characteristics (e.g., age, gender, ethnicity, or grade in school). Comparisons are made using two statistical properties of the normative sample: the mean and the standard deviation. NRTs produce raw scores that are transformed into standard scores using calculations involving the mean and standard deviation. The standard score is used to report how a student performed relative to peers. Standard scores are often reported as percentiles because they are relatively easy for parents and educators to interpret, but there are many other types of standard scores that may be reported. Commercially available cognitive and achievement tests are often norm-referenced. For example, the SAT, the Graduate Record Examination (GRE), and the WISC are norm-referenced tests. Language proficiency tests used to identify students who are ELs, such as ACCESS 2.0, are also NRTs. Generally speaking, any test that can report results as a percentile is norm-referenced because it is comparing an individual score against a normative sample. NRTs are particularly useful due to their ease of administration and scoring. Commercially available NRTs usually require no further development or validation procedures, so they are relatively cost-effective and time-efficient. NRTs can often be administered to large groups of students at the same time and are useful for making comparisons across schools, districts, or states. On the other hand, NRTs have been criticized for several reasons. Some fault NRTs for measuring only superficial learning through multiple choice and short-answer formats instead of measuring higher-level skills such as problem solving, reasoning, critical thinking, and comprehension. Others have criticized NRTs for lacking instructional utility because they sample a wide range of general skills within a content area, but NRTs are rarely linked to the standards or curriculum. In addition, results from NRTs can be difficult for educators to interpret because there is no designation of what score denotes mastery or proficiency. A CRT compares the performance of an individual to a predetermined standard or criterion. Like NRTs, CRTs are often standardized. They do not, however, report scores of "relative standing" against a normative sample. CRTs report scores of "absolute standing" against a predetermined criterion. CRTs are designed to determine the extent to which a student has mastered specific curriculum and content skills. "Mastery" of curriculum and content skills is usually determined through a collaborative process involving policymakers, educators, and measurement professionals. Different levels of mastery are set through a combination of measurement techniques and professional judgment. Mastery can be defined in many ways. In the classroom, it may be defined as answering 80% of the items on an assessment correctly. Alternatively, it may be defined as meeting some level of proficiency within a content area based on an observation of the student performing the skills. Unlike NRTs, CRTs are not necessarily designed to differentiate between students or compare an individual student to a normative group. CRT results may be reported as grades, grade equivalents, pass/fail, number correct, percentage correct, scaled scores, or performance standards. They may be measured by multiple choice formats, short-answer formats, rating scales, checklists, rubrics, or performance-based assessments. CRTs are flexible and can be designed to meet various educational needs. The major advantage of CRTs is that they are versatile tests that can be used for a variety of purposes. While many CRTs, like state assessments, are summative tests used for evaluative purposes, other CRTs can be used for instructional, diagnostic, or predictive purposes. They can be directly linked to the standards and curriculum, and the results from CRTs can be used for planning, modifying, and adapting instruction. Additionally, like commercially available NRTs, commercially available CRTs are relatively cost-effective and time-efficient. A disadvantage of CRTs is that they do not typically facilitate good comparisons across schools, LEAs, and states. When using CRTs, there is no normative sample; therefore, there is no common metric for comparisons. It is possible to design CRTs so that comparisons can be made. However, to facilitate good comparisons, it would be necessary to have (1) consistent standards across schools, LEAs, and states; and (2) consistent definitions of "mastery" across schools, districts, and states. In elementary and secondary education, one way that test designers create a common metric for comparisons with CRTs is by using scaled scores and performance standards. Scaled scores and performance standards are two different ways of representing the same assessment result. A scaled score is a single score that exists along a scale ranging from limited mastery of a content area to complete mastery of it. A performance standard is a description of whether a certain level of mastery is achieved based on the grade level of the student. These types of scores are discussed in more detail below. Scaled Scores. State assessments used for accountability often report a scaled score. A scaled score is a standardized score that exists on a common scale that can be used to make annual and longitudinal comparisons across students and subgroups of students. "Scaling" is conducted by adjusting a raw score based on the differences in form difficulty from a "reference form." Just as an NRT score can be compared to a "normative group" of students, a scaled score can be compared to the "reference form." In the case of scaled scores, students and subgroups of students can be compared to each other directly even though there is no "normative group." A scaled score is usually a three- or four-digit score that exists across a scale with cut points determining various levels of mastery. Sometimes, the scaled score is accompanied by a grade level. For each grade level, there is a range of scaled scores that corresponds to students achieving mastery of a specific content area. Scaled scores are particularly useful if they are "vertically scaled." A vertically scaled score can be compared across time and can be used to measure growth of students and student subgroups. A vertically scaled assessment is independent of grade level; however, the descriptors attached to the scaled score (e.g., basic, proficient, advanced) change according to the grade level. For example, consider a group of third grade students and a group of fifth grade students that both scored 300 on a reading assessment. The two groups are comparable in terms of their reading ability; however, a scaled score of 300 may represent that the third-grade students "met expectations" but the fifth-grade students "did not meet expectations." Performance Standards. A performance standard is another way to report results from a CRT. Performance standards are also sometimes referred to as achievement levels. A performance standard is a generally agreed upon definition of a certain level of performance in a content area that is expressed in terms of a cut score. The predetermined cut score denotes a level of mastery or level of proficiency within a content area. An assessment system that uses performance standards typically establishes several cut scores that denote varying levels of mastery. For example, NAEP uses a system of performance standards with three achievement levels: basic, proficient, and advanced. Similarly, common assessments use performance standards to determine whether students met expectations. SBAC uses a four-level system (Level 1 through Level 4), which corresponds to "novice, developing, proficient, and advanced." PARCC uses a five-level system (Level 1 through Level 5), which corresponds to "did not yet meet expectations, partially met expectations, approached expectations, met expectations, and exceeded expectations." Performance standards can be aligned with state content standards and curricula, and results can be used for planning, modifying, and adapting instruction. The main difference between reporting a score as a scaled score or a performance standard is the label itself, which can attach meaning to a score and provide an appropriate context. A CRT may report that a student scored 242 on a scale of 500, but the score of 242 may be meaningless to most educators and parents unless there is some context surrounding it. Performance standards provide the context. If the cut score to meet expectations was predetermined to be 240, a score of 242 would be above the cut score, and therefore the student would be considered to have "met expectations" in the content area. Although they can provide a meaningful context for assessment results, performance standards are criticized for being imprecise and for their inability to adequately measure student growth. While there are rigorous methods of determining cut scores that denote various levels of mastery, there is rarely any meaningful difference between the abilities of a student who scores just below the cut score and a student who scores just above the cut score. Consider the example above in which a score of 240 is the cut score for "met expectations . " One student may score 238 and not be considered to have met expectations, while another student may score 242 and be considered to have met expectations. In reality, the cut score of the performance standard may be making an inappropriate distinction between two students who have similar abilities. Another criticism of performance standards is that they are insensitive to student growth. Suppose the cut score for the "exceeded expectations" level is 300. A student in the previous example could move from a score of 242 to 299 within one year, making considerable progress; however, a score of 242 and a score of 299 are both considered to be within the same performance standard of "met expectations." This section will discuss technical considerations such as validity, reliability, and fairness. It is generally the responsibility of the test developer to investigate the technical characteristics of an assessment and report any relevant statistical information to test users. Usually, this information is reported in testing manuals that accompany the assessment. It is the responsibility of the test user to administer the test as intended and use the reported information concerning validity, reliability, and fairness to interpret test results appropriately. Learning how to evaluate the validity, reliability, and fairness of an assessment allows test users to make appropriate inferences (i.e., conclusions drawn from the result of a test). Inferences may be either appropriate or inappropriate based on a number of technical and contextual factors. Following a discussion of the concepts of validity, reliability, and fairness, this report will conclude with a discussion of how to avoid making inappropriate inferences from educational assessments. It will also highlight some of the issues to consider when making inferences from high-stakes assessments versus low-stakes assessments. Validity is arguably the most important concept to understand when evaluating educational assessments. When making instructional or policy decisions on the basis of an assessment, the question is often asked, "Is the test valid?" Validity, however, is not a property of the test itself; it is the degree to which a certain inference from a test is appropriate and meaningful. The appropriate question to be asked is, therefore, "Is the inference being drawn from the test result valid?" The distinction between these questions may seem unimportant, but consider the following situation. Teachers, administrators, or policymakers often would like to support multiple conclusions from the same assessment. Some of these conclusions, or inferences, may be valid and others may not. For example, the SAT, a college entrance examination intended to measure critical thinking skills that are needed for success in college, is taken by many high school students. Suppose a group of high school seniors in School A scored well on the SAT and a group of high school seniors in School B scored poorly. One potentially valid inference from this result is that seniors from School A are more likely to succeed in college. However, there are many possible inferences that may be less valid. For example, one could infer that School A had a better academic curriculum than School B, or that School A had better teachers than School B. Neither of these inferences may be valid because the SAT was designed for the purpose of predicting the likelihood of success in college and not for the purposes of evaluating teachers or curriculum. The validity of an inference, therefore, is tied inextricably to the purpose for which the test was created. When an assessment is created or a new use is proposed for an existing assessment, a process of validation is seen as necessary. Validation involves collecting evidence to support the use and interpretation of test scores based on the test construct. In testing, a construct is the concept or characteristic that a test is designed to measure. The process of validation includes, at a minimum, investigating the construct underrepresentation and construct irrelevance of the assessment instrument. Construct underrepresentation refers to the degree to which an assessment fails to capture important aspects of the construct. For example, if the construct of an assessment is addition and subtraction skills, the entire construct would include addition, addition with carrying, subtraction, subtraction with borrowing, two-digit addition, two-digit addition with carrying, and so forth. If the assessment does not measure all the skills within a defined construct, it may be susceptible to construct underrepresentation, and the inference based on an assessment score may not reflect the student's actual knowledge of the construct. Similarly, construct irrelevance can threaten the validity of an inference. Construct irrelevance refers to the degree to which test scores are affected by the content of an assessment that is not part of the intended construct. Again, if the construct of an assessment is addition and subtraction skills, any test items that contain multiplication or division would create construct irrelevance, and the inference based on the assessment score may not reflect the student's actual knowledge of the construct. Construct underrepresentation is investigated by answering the question, "Does the assessment adequately cover the full range of skills in the construct?" Construct irrelevance is investigated by answering the question, "Are any skills within the assessment outside of the realm of the construct?" These two questions are investigated using statistical procedures that examine properties of the assessment itself and how the properties of the assessment interact with characteristics of individuals taking the test. One important consideration is to determine if the degree of construct underrepresentation or construct irrelevance differentially affects the performance of various subgroups of the population. If, for example, there was a moderate degree of construct irrelevance (e.g., multiplication questions on an assessment designed to measure addition and subtraction skills), students from higher socioeconomic subgroups may be more likely to score well on a test than students from lower socioeconomic subgroups, even if both subgroups have equal knowledge of the construct itself. Students from higher socioeconomic subgroups are more likely to have learned the irrelevant material, given that they generally have more access to early education and enrichment opportunities. The construct irrelevance, therefore, may lead to an invalid inference that students from higher socioeconomic subgroups outperform students from lower socioeconomic subgroups on a given construct. There are many other types of evidence that may be collected during validation. For example, test developers might compare student scores on the assessment in question with existing measures of the same construct. Or, test developers might investigate how well the assessment in question predicts a later outcome of interest, such as pass rates on a high-stakes exam, high school graduation rates, or job attainment. Validation is not a set of scripted procedures but rather a thoughtful investigation of the construct and proposed uses of assessments. Reliability refers to the consistency of measurement when the testing procedure is repeated on a population of individuals or groups. It describes the precision with which assessment results are reported and is a measure of certainty that the results are accurate. The concept of reliability presumes that each student has a true score for any given assessment. The true score is the hypothetical average score resulting from multiple administrations of an assessment; it is the true representation of what the student knows and can do. For any given assessment, however, the score that is reported is not a student's true score; it is a student's observed score. The hypothetical difference between the true score and the observed score is measurement error. Measurement error includes student factors, such as general health, attention span, and motivation. It can also include environmental factors, such as the comfort or familiarity of the assessment location. Reliability and measurement error are inversely related: the lower the measurement error, the higher the reliability. As reliability increases, the likelihood that a student's observed score and true score are reasonably equivalent is increased. Reliability can be reported in multiple ways. The most common expressions of reliability in educational assessment are the reliability coefficient, range of uncertainty, and consistency of classification. The reliability coefficient is a number that ranges from 0 to 1. It is useful because it is independent of the scale of the assessment and can be compared across multiple assessments. A reliability coefficient of 0 implies that a score is due completely to measurement error; a reliability coefficient of 1 implies that a score is completely consistent and free of measurement error. There is no rule of thumb for deciding how high a reliability coefficient should be; however, most commercially available assessments report reliability coefficients above 0.8, and many have reliability coefficients above 0.9. The most common types of reliability coefficients used in educational assessment are alternate-form coefficients, test-retest coefficients, inter-scorer agreement coefficients, and internal consistency coefficients. Alternate-form coefficients measure the degree to which the scores derived from alternate forms of the same assessment are consistent. For example, the SAT has multiple forms that are administered each year. A high alternate-form reliability coefficient provides some certainty that a student's score on one form of the SAT would be reasonably equivalent to the student's score on another form of it. Test-retest coefficients measure the stability of an individual student's score over time. If a reading assessment was administered to a student today and re-administered in two weeks, one would expect that the student would have comparable scores across the two administrations. A high test-retest reliability coefficient provides a measure of certainty that a student's score today would be similar to the student's score in the near future. Inter-scorer agreement coefficients measure the degree to which two independent scorers agree when assessing a student's performance. A high inter-scorer agreement coefficient provides a measure of certainty that a student's score would not be greatly affected by the individual scoring the assessment. Internal consistency coefficients are slightly more complicated. They are a measure of the correlation of items within the same assessment. If items within an assessment are related, a student should perform consistently well or consistently poorly on the related items. For example, a mathematics assessment may test multiplication and division skills. Suppose a student is proficient with multiplication but has not yet mastered division. Within the mathematics assessment, the student should score consistently well on the multiplication items and consistently poorly on the division items. A high internal consistency coefficient provides a measure of certainty that related items within the assessment are in fact measuring the same construct. The decisions regarding the type of reliability coefficients to investigate and report depend on the purpose and format of the assessment. For example, many assessments do not use alternate forms, so there would be no need to report an alternate-form coefficient. As another example, consider a test that was designed to measure student growth over a short period of time. In this case, it may not make sense to report a test-retest reliability coefficient because one does not expect any stability or consistency in the student's score over time. Test developers also typically consider the format of the test. In tests with multiple-choice or fill-in-the-blank formats, inter-scorer agreement may not be of great concern because the scoring is relatively objective. However, in tests with constructed responses, such as essay tests or performance assessments, it may be important to investigate inter-scorer agreement because the scoring has an element of subjectivity. As stated above, reliability describes the precision with which assessment results are reported and is a measure of certainty that the results are accurate. Results can often be reported with greater confidence if the observed score is reported along with a range of uncertainty. In educational assessment, the range of uncertainty is usually referred to as a confidence interval. A confidence interval estimates the likelihood that a student's true score falls within a range of scores. The size of the confidence interval, or the size of the range, depends on how certain one needs to be that the true score falls within the range of uncertainty. A confidence interval is calculated by using an estimated true score, the standard error of measurement (SEM), and the desired level of confidence. The confidence interval is reported as a range of scores with a lower limit and an upper limit. In education, it is common to see 90%, 95%, or 99% confidence intervals. The following example illustrates how the size of the confidence interval (i.e., the range of scores) can change as the degree of confidence changes. If the estimated true score of a student is assumed to be 100 and the SEM is assumed to be 10: A 90% confidence interval would be 84 to 116 (a range of 32). In this case, about 90% of the time the student's true score will be contained within the interval from 84 to 116. There is about a 5% chance that the student's true score is lower than 84 and about a 5% chance that the student's true score is higher than 116. A 95% confidence interval would be 80 to 120 (a range of 40). In this case, about 95% of the time the student's true score will be contained within the interval from 80 to 120. There is about a 2.5% chance that the student's true score is lower than 80 and about a 2.5% chance that the student's true score is higher than 120. A 99% confidence interval would be 74 to 126 (a range of 52). In this case, about 99% of the time the student's true score will be contained within the interval from 74 to 126. There is about a 0.5% chance that the student's true score is lower than 74 and about a 0.5% chance that a student's true score is higher than 126. The illustration above demonstrates that the range of scores in a confidence interval increases as the desired level of confidence increases. A 90% confidence interval ranges from 84 to 116 (a range of 32) while a 99% confidence interval ranges from 74 to 126 (a range of 52). Consistency of classification is a type of reliability that is rarely reported but can be important to investigate, especially when high-stakes decisions are made with the results of educational assessments. When assessments are used to place students and schools into discrete categories based on performance (e.g., proficient vs. not proficient; pass/fail; Level 1 through Level 4; met expectations vs. partially met expectations), the consistency of classification is of interest. If students with similar abilities are not consistently classified into the same performance standard category, there may be a problem with the reliability of the assessment. Although students may move in and out of performance standard categories over time, students who achieve similarly should be consistently classified into the same performance standard category at any given time. Within school settings, consistency of classification is particularly important when using performance standards to place students in achievement levels based on state assessments. For example, if the classification of students into achievement levels for accountability purposes is not consistent over short periods of time, the accountability system may become highly variable and unreliable. Another example of the importance of consistency of classification is the use of state exit exams to award high school diplomas (i.e., pass/fail). Without consistency in classification, the system that awards diplomas to high school seniors may be unreliable. Consistency of classification has not been well studied in these instances, but statistical modeling demonstrates that it is possible to have considerable fluctuations in classification depending on the reliability of the assessment and the predetermined cut score used to categorize students. Consistency of classification is also relevant for decisions that determine eligibility for services, such as the classification of students with disabilities. Students who are suspected to have a disability are assessed using a wide range of diagnostic assessments. Results of these assessments are interpreted based on state definitions of IDEA disability categories, and students receive special education services if they are determined to be eligible. Over time, while it is possible that students become "declassified" and ineligible for special education services due to their improvement in academic skills or due to a change in the definition of "disability," it may be that the rate of "declassification" is also affected by the reliability of assessments used to determine their initial eligibility and the cut scores that are used in state definitions of disability. Fairness is a term that has no technical meaning in testing procedures, but it is an issue that often arises in educational assessment and education policy generally. Educational assessments are administered to diverse populations, and fairness presumes that all members of each population are treated equally. The notion of fairness as "equal treatment" has taken several forms: (1) fairness as a lack of bias, (2) fairness as equitable treatment in the testing process, (3) fairness as equality in outcomes of testing, and (4) fairness as opportunity to learn. Bias is a common criticism in educational assessment; however, it is not well documented or well understood. Test bias exists if there are systematic differences in observed scores based on subgroup membership when there is no difference in the true scores between subgroups. For example, bias can arise when cultural or linguistic factors influence test scores of individuals within a subgroup despite the individuals' inherent abilities. Or, bias can arise when a disability precludes a student from demonstrating his or her ability. Bias is a controversial topic and difficult to address in educational assessment. There is no professional consensus on how to mitigate bias in testing. There are statistical procedures, such as differential item functioning, that may be able to detect bias in specific test items; however, such techniques cannot directly address the bias in the interpretation of assessment results. Test bias, if present, undermines the validity of the inferences based on assessment results. A simple difference in scores between two subgroups does not necessarily imply bias. If a group of advantaged students performs higher on a reading assessment than a group of disadvantaged students, the test may or may not be biased. If the advantaged and disadvantaged students have the same reading ability (true score), and the advantaged students still score higher on the reading assessment (observed score), bias may be present. If, however, the advantaged students have higher reading ability and higher scores on the reading assessment, the test may not be biased. Fairness as equitable treatment in the testing process is less controversial and more straightforward than the issue of bias. There is professional consensus that all students should be afforded equity in the testing process. Equity includes ensuring that all students are given a comparable opportunity to demonstrate their knowledge of the construct being tested. It also requires that all students are given appropriate testing conditions, such as a comfortable testing environment, equal time to respond, and, where appropriate, accommodations for students with disabilities and ELs. Equitable treatment affords each student equal opportunity to prepare for a test. This aspect of equitable treatment may be the most difficult to monitor and enforce. In some schools or LEAs, it is common practice to familiarize students with sample test questions or provide examples of actual test questions from previous assessments. In other LEAs, this type of test preparation may not be routine. Furthermore, some students receive test preparation services outside of the classroom from private companies, such as Kaplan, Inc. or Sylvan Learning. The amount of test preparation and the appropriateness of this preparation is not consistent across classrooms, schools, and LEAs and can undermine the validity of inferences drawn from assessments. There is no professional consensus that fairness should ensure equality in the outcomes of testing. Nonetheless, when results are used for high-stakes decisions, such as the use of state exit exams for high school graduation, the issue of "equality in outcomes" can arise. The question of fairness arises when these tests are used to exclude a subgroup of students from a desired result or certification, like earning a high school diploma. For example, if a subgroup of advantaged students is more likely to pass a state exit exam than a subgroup of disadvantaged students, the advantaged students are more likely to graduate from high school, receive a diploma, pursue higher education, and obtain a job. The disadvantaged students are less likely to graduate from high school, which further disadvantages them in their pursuit of higher education or job attainment. "Equality in outcomes" is more likely to be a concern with high-stakes assessments, such as state assessments and state exit exams, than with low-stakes assessments, such as NAEP and international assessments. Fairness as opportunity to learn is particularly relevant to educational assessment. Many educational assessments, particularly state assessments used in accountability systems, are aligned with state standards and designed to measure what students know as a result of formal instruction. All students within a state are assessed against the same content and performance standards for accountability. Thus, the question arises: if all students have not had an equal opportunity to learn, is it "fair" to assess all students against the same standard? If low scores are the result of a lack of opportunity to learn the tested material, it might be seen as a systemic failure rather than a characteristic of a particular individual, school, or LEA. The difficulty with affording all students equal opportunity to learn is defining "opportunity to learn." Is exposure to the same curriculum enough to give students the opportunity to learn? Even if all students are exposed to the same curriculum, does the overall school environment influence a student's opportunity to learn? If students are exposed to the same curriculum within the same school environment, does the quality of the classroom teacher influence a student's opportunity to learn? Test users have a responsibility to examine the validity, reliability, and fairness of an assessment to make appropriate inferences about student achievement. There is no checklist that will help determine if an inference is appropriate. Instead, test users are to conduct a thoughtful analysis of the assessment in terms of the construct; purpose; type of scores it reports; and evidence concerning its validity, reliability, and fairness; as well as the context in which the assessment results will be used. If these issues are not carefully considered, inappropriate inferences can lead to a variety of unintended consequences. The sections that follow provide some guidance in the form of sample questions that can be used to consider the appropriateness of inferences about test scores. These guidelines are not intended to be an exhaustive list of considerations but rather a starting point for examining the appropriateness of conclusions drawn from assessments. Sample questions about the construct include the following: What is the content area being assessed (e.g., reading, mathematics)? What is the specific construct that is being measured within the content area (e.g., mathematics computation, mathematical problem solving, measurement, geometry)? Does the construct measure general knowledge within a content area, or is it specifically aligned with the curriculum? Understanding the construct of an assessment can have important implications when comparing the results of two tests. Consider, for example, two of the international assessments mentioned earlier, PISA and TIMSS. Both assessments measure mathematics achievement, but they measure different mathematical constructs. PISA was designed to measure general "mathematical literacy," whereas TIMSS is curriculum-based and was designed to measure what students have learned in school. Students in a particular country may perform well on PISA and poorly on TIMSS, or vice versa. Because the tests measure different mathematical constructs, the assessments are likely sensitive to how mathematics is taught within the country. Thus, if the score for the United States was above the international average on a TIMSS assessment and below the international average for a subsequent PISA assessment, it would not be appropriate to infer that mathematics achievement in the United States is declining, because TIMSS and PISA measure different constructs. Sample questions about the purpose include the following: What was the intended purpose of the assessment when it was designed (e.g., instructional, predictive, diagnostic, evaluative)? How will teachers, administrators, and policymakers use the results (e.g., formative assessment vs. summative assessment)? Understanding the original purpose of the assessment can help test users determine how the results may be interpreted and how the scores may be used. For example, a state assessment that was designed for evaluative purposes may not lend itself to using scores to modify and adapt instruction for individual students. Most state assessments are primarily summative assessments, and it is difficult to use them in a formative manner because the results may not be reported in a timely fashion to the teachers and the items may not be sensitive to classroom instruction. Alternatively, an interim assessment that was designed for predictive purposes may report results in a more timely manner and allow teachers to target their instruction to students who scored poorly. Interim assessments are often aligned with state summative assessments; however, scores on interim assessments are best not considered definitive indicators of what state assessment scores will be. For example, some summative assessments do not have associated interim assessments. LEAs may choose to use an interim assessment that measures the same construct as a summative assessment (e.g., reading comprehension); however, the measure may not be well-aligned with the summative assessment. If students score poorly on the interim assessment, it is not necessarily indicative that they will score poorly on the summative assessment. There may also be difficulties with the timing of an interim assessment. Classroom instruction has different pacing, depending on the school, teacher, and abilities of the students. If an LEA sets the timeline for the interim assessment, it is possible that some schools or teachers would have not yet covered the content on the interim assessment. Students would likely score poorly on the interim assessment, but if the content is covered and learned later in the year, the students may score well on the summative assessment. Sample questions about scores include the following: Does the score reported compare a student's performance to the performance of others (e.g., NRT)? Does the score reported compare a student's performance to a criterion or standard (e.g., CRT, scaled score, performance standard)? Does the score determine whether a student is "proficient" or has "met expectations" within a certain content area (e.g., performance standards)? Does the score show growth or progress that a student made within a content area (e.g., vertically scaled score)? Misinterpreting scores is perhaps the most common way to make an inappropriate inference. To avoid this, a test user would fully investigate the scale of the assessment and the way in which scores are reported. If scores are reported from NRTs, a student's score can be interpreted relative to the normative sample, which is a group of the student's peers. NRTs cannot, however, determine whether a student met a predetermined criterion or whether a student is proficient within a particular content area. If scores are reported from CRTs, either in the form of scaled scores or performance standards, a student's score can be interpreted relative to a predetermined standard or criterion. When using scaled scores from CRTs, it is possible to make meaningful comparisons between students and subgroups of students. If vertically scaled scores are available, it is possible to measure student growth and make meaningful inferences about how much a student has learned over time. Making appropriate inferences from performance standards can be particularly difficult. Because of the use of performance standards in state assessments, it is important for test users to understand what they do and do not report. Performance standards are used primarily because they can be easily aligned with the state content standards and provide some meaningful description of what students know. Performance standards are hard to interpret, however. Students are classified into categories based on their performance on an assessment, but all students within the same category did not score equally well. Furthermore, scores from performance standards do not lend themselves to measuring a student's growth. A student can score at the lower end of the "met expectations" category, make considerable progress over the next year, and still be in the "met expectations" category at the end of the year. Alternatively, a student could score at the high end of the "did not meet expectations" category, make minimal progress over the next year, and move up into the "met expectations" category. Because of these qualities of performance standards, test users should be cautious about equating the performance of students within the same category, and about making assumptions concerning growth based on movement through the categories. Sample questions about technical quality include the following: Did the test developers provide statistical information on the validity and reliability of the instrument? What kind of validity and reliability evidence was collected? Does that evidence seem to match the purpose of the assessment? Have the test developers reported reliability evidence separately for all the subgroups of interest? Was the issue of fairness and bias addressed, either through thoughtful reasoning or statistical procedures? Commercially available assessments are typically accompanied by a user's manual that reports validity and reliability evidence. Smaller, locally developed assessments do not always have an accompanying manual, but test developers typically have validity and reliability evidence available upon request. It is a fairly simple process to determine whether evidence has been provided, but a much more difficult task to evaluate the quality of the evidence. A thorough discussion of how to evaluate the technical quality of an assessment is beyond the scope of this report. In light of the current uses of assessments in schools, however, some issues are noteworthy: Because schools are required to report state assessment results for various subgroups (i.e., students with disabilities and ELs), it is important that validity and reliability be investigated for each subgroup for which data will be disaggregated. Doing so will reduce the likelihood of bias in the assessment against a particular subgroup. The type of reliability evidence provided should be specific to the assessment. For example, an assessment with constructed responses, such as essay tests or performance assessments, will have a degree of subjectivity in scoring. In this case, it is important to have strong evidence of inter-scorer reliability. In other cases, such as when the assessment format consists of multiple choice or fill-in-the-blank items, inter-scorer reliability may be of lesser importance. A test like the SAT that relies on several alternate forms should report alternate-form reliability. Without a high degree of alternate-form reliability, some students will take an easier version of an assessment and others will take a more difficult version. Unequal forms of the same assessment will introduce bias in the testing process. Students taking the easier version may have scores that are positively biased and students taking the harder version may have scores that are negatively biased. No assessment is technically perfect. All inferences based on an observed score will be susceptible to measurement error, and some may be susceptible to bias. Sample questions about the context include the following: Is it a high-stakes or a low-stakes assessment? Who will be held accountable (e.g., students, teachers, schools, states)? Is the validity and reliability evidence strong enough to make high-stakes decisions? Are there confounding factors that may have influenced performance on the assessment? What other information could be collected to make a better inference? The context in which an assessment takes place may have implications for how critical a test user must be when making an inference from a test score. In a low-stakes assessment, such as a classroom-level formative assessment that will be used for instructional purposes, conducting an exhaustive review of the reliability and validity evidence may not be worthwhile. These assessments are usually short, conducted to help teachers adapt their instruction, and have no major consequences if the inference is not completely accurate. On the other hand, for a high-stakes assessment like a state exit exam for graduation, it is important to examine the validity and reliability evidence of the assessment to ensure that the inference is defensible. Consider the consequences of a state exit exam with poor evidence of validity due to a high degree of construct irrelevance. Students would be tested on content outside of the construct and may perform poorly, which may prevent them from earning a high school diploma. Or, consider a state exit exam with poor evidence of reliability due to a high degree of measurement error. Students who are likely to score near the cut score of the assessment may pass or fail largely due to measurement error. Sometimes when inferences for a high-stakes decision are being made, certain protections are placed on the testing process or the test result. For example, some states allow students to take a state exit exam for high school graduation multiple times to lower the probability that measurement error is preventing them from passing. Or, in some cases, a state will consider collecting additional data (such as a portfolio of student work) to determine whether a student has met the requirements for receiving a high school diploma. For other high-stakes decisions, such as differentiating the performance of public schools within state accountability systems, states use the results from state assessments plus other indicators (e.g., attendance rates, graduation rates, and school climate measures). When making a high-stakes decision, using multiple measures of achievement can lead to a more valid inference. While all measures should have adequate technical quality, the use of multiple measures provides protection against making an invalid inference based on one measure that may not have the strongest evidence to support its validity and reliability. If multiple measures are used, it is less likely that one measure disproportionately influences the overall result. Students in elementary and secondary education participate in a wide range of educational assessments. Assessments are an important tool at many levels—from making instructional decisions in the classroom to making policy decisions for a nation. When used correctly, educational assessments contribute to the iterative process of teaching and learning and guide education policy decisions. Currently, a primary focus of educational assessment is tracking student academic achievement and growth in schools. Assessment is a critical component of accountability systems such as those required under Title I-A of the ESEA. At times, the results of these assessments are used to make high-stakes decisions that affect students, teachers, LEAs, and states. It is therefore important to understand the purpose of educational assessments and to give consideration to the appropriateness of inferences based on assessment results. | Federal education legislation continues to emphasize the role of assessment in elementary and secondary schools. Perhaps most prominently, the Elementary and Secondary Education Act (ESEA), as amended by the Every Student Succeeds Act (ESSA; P.L. 114-95), requires the use of test-based educational accountability systems in states and specifies the requirements for the assessments that states must incorporate into state-designed educational accountability systems. These requirements are applicable to states that receive funding under Title I-A of the ESEA. More specifically, to receive Title I-A funds, states must agree to assess all students annually in grades 3 through 8 and once in high school in the areas of reading and mathematics. Students are also required to be assessed in science at least once within each of three specified grade spans (grades 3-5, 6-9, and 10-12). The results of these assessments are used as part of a state-designed educational accountability system that determines which schools will be identified for support and improvement based on their performance. The results are also used to make information about the academic performance of students in schools and school systems available to parents and other community stakeholders. As student assessments continue to be used for accountability purposes under the ESEA as well as in many other capacities related to federal programs (e.g., for identifying students eligible to receive extra services supported through federal programs), this report provides Congress with a general overview of assessments and related issues. It discusses different types of educational assessments and uses of assessment in support of the aims of federal policies. The report aims to explain basic concepts related to assessment in accessible language, and it identifies commonly discussed considerations related to the use of assessments. The report provides background information that can be helpful to readers as they consider the uses of educational assessment in conjunction with policies and programs. This report accompanies CRS Report R45049, Educational Assessment and the Elementary and Secondary Education Act, by [author name scrubbed], which provides a more detailed examination of the assessment requirements under the ESEA. The following topics are addressed in this report: Purposes of Assessment: Assessments are developed and administered for different purposes: instructional, diagnostic, predictive, and evaluative. Increasingly, states are attempting to use assessments for these purposes within a balanced assessment system. A balanced assessment system often incorporates various assessment types, such as formative and summative assessments. Formative assessments are used to monitor progress toward a goal and summative assessments are used to evaluate the extent to which a goal has been achieved. Types of Tests: Educational assessments can be either norm-referenced tests (NRTs) or criterion-referenced tests (CRTs). An NRT is a standardized test that compares the performance of an individual student to the performance of a large group of students. A CRT compares the performance of an individual student to a predetermined standard or criterion. The majority of tests used in schools are CRTs. The results of CRTs, such as state assessments required by Title I-A of the ESEA, are usually reported as scaled scores or performance standards. A scaled score is a standardized score that exists along a common scale that can be used to make comparisons across students, across subgroups of students, and over time. A performance standard is a generally agreed upon definition of a certain level of performance in a content area that is expressed in terms of a cut score (e.g., basic, proficient, advanced). Technical Considerations in Assessment: The technical qualities of assessments, such as validity, reliability, and fairness, are considered before drawing conclusions about assessment results. Validity is the degree to which an assessment measures what it is supposed to measure. Reliability is a measure of the consistency of assessment results. The concept of fairness is a consideration of whether there is equity in the assessment process. Fairness is examined so that all participants in an assessment are provided the opportunity to demonstrate what they know and can do. Using Assessment Results Appropriately: Assessment is a critical component of accountability systems, such as those required under Title I-A of the ESEA, and can be the basis of many educational decisions. An assessment can be considered low-stakes or high-stakes, depending on the type of educational decisions made based on its result. For example, a low-stakes assessment may be a formative assessment that measures whether students are on-track to meet proficiency goals. On the other hand, a state high school exit exam is a high-stakes assessment if it determines whether a student will receive a diploma. When the results of assessments are used to make high-stakes decisions that affect students, teachers, districts, and states, it is especially important to have strong evidence of validity, reliability, and fairness. It is therefore important to understand the purpose of educational assessments, and the alignment between the purpose and their use, and to give consideration to the appropriateness of inferences based on assessment results. A glossary containing definitions of commonly used assessment and measurement terms is provided at the end of this report. The glossary provides additional technical information that may not be addressed within the text of the report. |
The federal government has a long history of involvement in water resource development and management to facilitate water-borne transportation, expand irrigated agriculture, reduce flood losses, and, more recently, restore aquatic ecosystems. Increasing pressures on the quality and quantity of available water supplies—due to growing population, environmental regulation, in-stream species and ecosystem needs, water source contamination, agricultural water demand, climate variability, and changing public interests—have resulted in heightened water use conflicts throughout the country, particularly in the West. Federal water resource construction waned during the last decades of the 20 th century in response to fiscal constraints, interest in more local control of water and land resources, and requirements to assess environmental impacts of federal actions and to protect fish and wildlife. This marked the end of expansionist federal policies of the early 20 th century that had led to widespread federal investment in dams, navigation locks, irrigation diversions, and levees and basin-wide planning and development efforts. The 110 th Congress is faced with numerous water resource issues regarding the federal role in the planning, construction, maintenance, inspection, and financing of water resource projects and federal investment in water resources research and data collection. Congress makes these decisions within the context of multiple and often conflicting laws and objectives, competing legal decisions, and entrenched institutional mechanisms, including century-old water rights and long-standing contractual obligations. Although most water resource legislation typically addresses site-specific needs, certain themes and issues appear in many local and regional water resources conflicts. For example, demand for new project services (e.g., improved navigation, new water supply, improved or new flood control facilities), protection of threatened and endangered species, and water quality concerns are common to many conflicts. Even so, most water resource legislation deals with specific sites. The 110 th Congress is considering site-specific restoration legislation for coastal Louisiana, the Upper Mississippi River-Illinois Waterway System, the Great Lakes, the San Joaquin River, and the Platte River. However, the more typical site-specific measures, on a smaller scale, are the hundreds of individual water resources projects authorized through Water Resources Development Acts (WRDAs) and stand-alone bills addressing new water supply technologies and augmentation of existing water supplies, rural water supply development, and Indian water rights settlements. Oversight of existing laws and projects (e.g., Central Valley Project, flood protection in New Orleans and Sacramento) and project operations is also expected, especially where court decisions, agency actions, or other circumstances (such as drought) may affect project operations (e.g., federal projects on the Colorado, Columbia, Klamath, Missouri, Rio Grande, and San Joaquin rivers and pumps in the California Bay-Delta). In the West, naturally scarce water supplies and increasing urban populations have spawned new debates over water allocation—particularly over water for threatened or endangered species—and have increased federal-state tensions, since the federal government has generally deferred to state primacy in intrastate water allocation. Observed changes in the timing of snowmelt and runoff and the potential for further climate variability due to climate change has increased concerns about the reliability of developed water supplies and the flexibility of existing management mechanisms. Western water legislation during the 110 th Congress centers on project management and program issues, such as San Joaquin River settlement legislation, the Bureau of Reclamation's Title 16 water reclamation and recycling program, and sustainability of the West's water supplies. Oversight of the Bureau's Central Valley Project (CVPIA, Trinity River, and CALFED and other San Francisco Bay-San Joaquin/Sacramento Rivers Delta [Bay-Delta] management issues), Klamath project, and Colorado River operations also may continue. Nationally, congressional attention during the 110 th Congress may focus on the federal role in levee construction, maintenance, and evaluation, and water resources management generally. Hurricane Katrina oversight issues—such as how to better coordinate federal activities and how to respond or rebuild in the wake of catastrophic damages—may be of particular focus, as might the examination of other areas of the country that may also be vulnerable. Also of concern nationwide is the status of threatened and endangered species and the health of the nation's rivers and riparian areas. Federal obligations to protect threatened and endangered species and other environmental quality requirements have resulted in increased attention to river and watershed restoration efforts. The federal government is involved in several significant restoration initiatives ranging from the Florida Everglades to the California Bay-Delta (CALFED). At the same time, the demand for traditional or new water supply projects, navigational improvements, flood control projects, and beach and shoreline protection continues. In fact, both the Everglades and Bay-Delta restoration efforts include significant water supply components. Controversy over how much water should be divided among recovering (threatened and endangered) species, protecting water quality, and supplying farms, cities, and other uses has been ongoing. Further, widespread drought throughout different parts of the country over the past several years has spurred new requests for developing and ensuring dwindling water supplies, and new security threats to water infrastructure have placed added pressures on budgetary resources. The 109 th Congress left pending several national water policy proposals, ranging from new water study commissions and assessments to global sanitation and drinking water aid, some of which have been reintroduced in the 110 th Congress. The 110 th Congress also has addressed water resource issues during consideration of individual project authorizations, as well as during debate on WRDA legislation ( H.R. 1495 ) and on FY2008 appropriations for the Bureau and the Corps. Specific issues that are being or may be discussed during the 110 th Congress are treated below. Other general issues also being discussed include federal reserved water rights in relation to federal lands, transfer of water across federal lands and through federal facilities, Indian water rights settlements, licensing of nonfederal hydropower facilities (i.e., private dams regulated by the Federal Energy Regulatory Commission (FERC)), and whether to establish a national water commission to address federal water policy and coordination. Most of the large dams and water diversion structures in the United States were built by, or with the assistance of, the Bureau of Reclamation in the Department of the Interior (Bureau) or the U.S. Army Corps of Engineers in the Department of Defense (Corps). Traditionally, Bureau projects were designed principally to provide reliable supplies of water for irrigation and some municipal and industrial uses; Corps projects were designed principally for flood control, navigation, and power generation. The Bureau currently manages hundreds of storage reservoirs and diversion dams in 17 western states, providing water to approximately 9 million acres of farmland and 31 million people. The Corps' operations are much more widespread and diverse, and include several thousand flood control and navigation projects throughout the country, including 25,000 miles of waterways (with 238 navigation locks), nearly 1,000 harbors, and 400 dam and reservoir projects (with 75 hydroelectric plants). Since the early 1900s, the Bureau has constructed and operated many large, multi-purpose water projects. Water supplies from these projects have been primarily for irrigation. Construction authorizations slowed during the 1970s and 1980s due to several factors. In 1987, the Bureau announced a new mission: environmentally sensitive water resources management. In the following decade, increased population, prolonged drought, fiscal constraints, and increased water demands for fish and wildlife, recreation, and scenic enjoyment resulted in increased pressure to alter operation of many Bureau projects. Such changes have been controversial, however, as water rights, contractual obligations, and the potential economic effects of altering project operations complicate any change in water allocation or project operations. In contrast to the Corps, there is no regularly scheduled authorization vehicle for Bureau projects. Instead, Bureau projects are generally considered individually. Bureau-related water project and management issues that are being or may be considered during the 110 th Congress include: San Joaquin River restoration settlement legislation; examination of the Bureau's Title 16 (recycling and reuse) program; oversight of CVPIA and CVP operations; oversight of, and appropriations for, CALFED (and other Bay-Delta issues, such as Delta Smelt population declines); San Joaquin/San Luis Unit drainage issues and potential title transfer; authorization of individual water recycling and desalination projects; response to drought, and effects of climate variability on federal reservoirs; and Colorado River water management issues. A broader issue that often receives attention from Congress is oversight of the Bureau's mission and its future role in western water supply and water resource management generally. As public demands and concerns have changed, so has legislation affecting the Bureau. Further, many in Congress have questioned the Bureau's shift in focus from a water resources development agency to a water resource management agency. Some have also questioned the increasing number of proposals to fund new rural water supply projects with high federal cost-share ratios and grants for reclaiming and reusing water. Critical questions Congress may address include: What should be the future federal role in water resources development and management? What do western water managers need from the Bureau and how can the Bureau help with western water management? Should (or to what extent should) the federal government develop or augment new supply systems designed primarily to serve communities/municipalities, or is this a local/regional responsibility? Who should pay, and how much? Should the Bureau be involved in environmental mitigation or is this best handled through new institutional arrangements (e.g., CALFED) or other existing agencies (e.g., Fish and Wildlife Service and/or the Environmental Protection Agency)? Should existing projects be revamped or "re-operated" to accommodate changing demands, and, if so, do new policies and institutions (state-federal roles) need to be addressed, and again, who should pay? Relatedly, the issue of whether there should be a National Water Commission or periodic water resource assessments received some attention in the 109 th Congress, and at least one bill has been reintroduced in the 110 th Congress. Congress authorizes Corps water resources activities and makes changes to the agency's policies generally in Water Resources Development Acts, and at times in the annual Energy and Water Development Appropriations acts. Contents of a WRDA are cumulative and new acts do not supersede or replace previous acts. From the late 1980s until 2002, WRDAs followed a loosely biennial cycle; the last WRDA was enacted in 2000. WRDA bills were introduced or considered in 2002, 2003, 2004, 2005, and 2006, but were not enacted. Their enactment was complicated by differences over whether to authorize controversial projects, and whether to reform or change the way the Corps plans and evaluates projects. Consideration of WRDA 2007 bills by the 110 th Congress has included debates on changes to state and local roles in projects, potential changes in Corps policies and practices (such as changes to Corps permitting and regulatory practices), and authorization of high-profile projects. Prior to Hurricane Katrina, the project authorizations receiving the most attention were coastal Louisiana wetlands restoration, lock expansion and ecosystem restoration for the Upper Mississippi River-Illinois Waterway, and Everglades-related projects. The 2005 hurricane season added other authorizations to the debate, including authorizations for near-term and long-term hurricane protection measures for Louisiana and other Gulf Coast states and flood control activities in other areas of the nation vulnerable to flooding. Hurricane Katrina increased interest in flood control and Louisiana projects in the bill, while also increasing interest in streamlining federal spending, which has some observers concerned about authorizing more Corps projects. For more information on current WRDA issues, see CRS Report RL33504, Water Resources Development Act (WRDA) of 2007: Corps of Engineers Project Authorization Issues , by [author name scrubbed] et al. The 110 th Congress continues to address issues related to the Administration's adoption of a performance-based budgeting approach for the agency, as well as safety and security of Corps facilities and implementation of Florida Everglades ecosystem restoration. Recent Congresses have expressed dissatisfaction with the Corps' financial management, particularly the reprogramming of funds across projects and the use of multiyear continuing contracts for projects. Corps flood control and hurricane protection projects, in particular, are receiving congressional and public scrutiny following Hurricane Katrina. This scrutiny is added to the attention already on the Corps' river and reservoir management; in many cases, Corps facilities and their operation are central to debates over multi-purpose river management. For example, water resources management by the Corps, particularly on the Mississippi, Missouri, and Columbia and Snake Rivers system, remains controversial and is frequently challenged in the courts. The Corps' projects and role in emergency response also may be the subject of congressional oversight, legislative direction, authorizing legislation, and appropriations. Water resources debates in the 110 th Congress likely will be dominated by different opinions of the desirability and need for changing the water resource agencies' policies, practices, and accountability, and for authorizing multi-billion dollar investments in ecosystem restoration, navigation, and flood and storm damage reduction measures. A broad water resource issue significant to the water resources agencies and the nation is the changing federal role in water resources planning, development, and management. Hurricane Katrina raised questions about this role; in particular, the disaster brought attention to the trade-offs in benefits, costs, and risks of the current division of responsibilities among local, state, and federal entities for flood mitigation, preparedness, response, and recovery. The question of the federal role also is raised by the increasing competition over water supplies, not only in the West but also for urban centers in the East (e.g., Atlanta), which has resulted in a growing number of communities seeking financial and other federal assistance, actions, and permits related to water supply development (e.g., desalination and water reuse projects, reservoir expansions and reoperations). Congress rarely chooses to pursue broad legislation on federal water resources policies for many reasons, including the challenge of enacting changes that affect such a wide breadth of constituencies. Another practical challenge is the fractured nature of congressional committee jurisdictions over water resources and water quality issues and activities. Consequently, Congress traditionally has pursued incremental changes through WRDA bills for the Corps and project-specific legislation for the Bureau, and this pattern seems likely to continue. | Water resources management often involves trade-offs among user groups, environmental interests, and local, regional, and national interests. Water resources development is particularly controversial because of budgetary constraints, conflicting policy objectives, environmental impacts, and demands for local control. Hurricane Katrina brought to the forefront long-simmering policy disputes involving local control, federal financing, environmental and social tradeoffs, and multi-level accountability and responsibility for water infrastructure projects, such as levees. Construction, improvement, and management of other federal water resource projects (e.g., locks, dams, and diversion facilities) face similar challenges. The 110th Congress faces numerous issues and trade-offs as it considers water resource development, technology, water supply, and climate change legislation. These issues are likely to arise as Congress considers authorizations and appropriations for Bureau of Reclamation and Army Corps of Engineers projects (e.g., Water Resources Development Act of 2007, H.R. 1495), and agency policy and program changes (e.g., water reuse, federal project operations, and oversight of ecosystem restoration programs such as CALFED and Everglades). Oversight issues related to Hurricane Katrina and the federal role in hurricane and flood protection, and levee construction and management, also are ongoing. |
Congress annually considers several appropriations measures, which provide discretionary funding for numerous activities—such as national defense, education, and homeland security—as well as general government operations. Appropriations acts are characteristically annual and generally provide funding authority that expires at the end of the federal fiscal year, September 30. These measures are considered by Congress under certain rules and practices, referred to as the congressional appropriations process . This report discusses the following aspects of this process: The annual appropriations cycle, The relationship between authorization and appropriation measures, Types of appropriations measures, Budget enforcement for appropriations measures, and Rescissions. When considering appropriations measures, Congress is exercising the power granted to it under the Constitution, which states, "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law." The power to appropriate is a legislative power. Congress has enforced its prerogatives through certain laws. The so-called Antideficiency Act, for example, strengthened the application of this section by, in part, explicitly prohibiting federal government employees and officers from making contracts or other obligations in advance of or in excess of an appropriation, unless authorized by law, and providing administrative and criminal sanctions for those who violate the act. Furthermore, under law, public funds may be used only for the purpose(s) for which Congress appropriated the funds. The President has an important role in the appropriations process by virtue of the constitutional power to approve or veto entire measures, which Congress can override only by two-thirds vote of both chambers. The President also has influence, in part, because of various duties imposed by statute, such as submitting an annual budget to Congress. The House and Senate Committees on Appropriations have jurisdiction over the annual appropriations measures. Each committee is organized into subcommittees, with each subcommittee having responsibility for developing one regular annual appropriations bill to provide funding for departments and activities within its jurisdiction. Each House appropriations subcommittee is paired with a Senate appropriations subcommittee and the two subcommittees' jurisdictions are generally identical. The current appropriations subcommittee structure includes the following 12 subcommittees : 1. Agriculture, Rural Development, Food and Drug Administration, and Related Agencies; 2. Commerce, Justice, Science, and Related Agencies; 3. Defense; 4. Energy and Water Development, and Related Agencies; 5. Financial Services and General Government; 6. Homeland Security; 7. Interior, Environment, and Related Agencies; 8. Labor, Health and Human Services, Education, and Related Agencies; 9. Legislative Branch; 10. Military Construction, Veterans Affairs, and Related Agencies; 11. State, Foreign Operations, and Related Programs; and 12. Transportation, Housing and Urban Development, and Related Agencies. The President initiates the annual budget cycle with the submission of an annual budget proposal for the upcoming fiscal year to Congress. The President is required to submit the annual budget on or before the first Monday in February. Congress has, however, provided deadline extensions both statutorily and, sometimes, informally. The President recommends spending levels for various programs and agencies of the federal government in the form of budget authority (or BA). Such authority does not represent cash provided to or reserved for agencies. Instead, the term refers to authority provided by federal law to enter into contracts or other financial obligations that will result in immediate or future expenditures (or outlays ) involving federal government funds. Most appropriations are a form of budget authority that also provides the legal authority to make the subsequent payments from the Treasury. A FY2016 appropriations act, for example, provided $77,349,000 in new budget authority for FY2016 to the National Institute of Environmental Health Sciences for agency operations. That is, the act gave the institute legal authority to sign contracts to purchase supplies and pay salaries. The agency could not commit the government to pay more than the $77 million provided for these covered activities. The outlays occur when government payments are made. Budget authority must be obligated in the fiscal year(s) in which the funds are made available, but outlays may occur over time. In the case of the institute's activities, it may not pay for all the supplies until the following fiscal year. The amount of outlays in a fiscal year may vary among activities funded because the length of time to complete the activities differs. For example, outlays to pay salaries may occur in the year the budget authority is made available, while outlays for a construction project may occur over several years as various stages of the project are completed. As Congress considers appropriations measures providing new budget authority for a particular fiscal year, discussions on the resulting outlays involve estimates based on historical trends. Data on the actual outlays for a fiscal year are not available until the fiscal year has ended. After the President submits the budget proposal to Congress, each agency generally provides additional detailed justification materials to the House and Senate appropriations subcommittees with jurisdiction over its funding. The Congressional Budget and Impoundment Control Act of 1974 (CBA) provides for the annual consideration of a concurrent resolution on the budget. The budget resolution is Congress's response to the President's budget. It is a concurrent resolution because it is an agreement between the House and Senate that establishes overall budgetary and fiscal policy to be carried out through subsequent legislation. The budget resolution must cover at least five fiscal years: the upcoming fiscal year (referred to as the "budget year") plus the four subsequent fiscal years. The budget resolution, in part, sets total new budget authority and outlay levels for each fiscal year covered by the resolution. It also allocates federal spending among 20 functional categories (such as national defense, agriculture, and transportation), setting budget authority and outlay levels for each function. Within each chamber, the total new budget authority and outlays for each fiscal year are also allocated among committees with jurisdiction over spending, thereby setting spending ceilings for each committee. The House and Senate Committees on Appropriations receive allocations only for the upcoming fiscal year, because appropriations measures are annual. Once the appropriations committees receive their spending ceilings, they separately subdivide the amount among their respective subcommittees, providing spending ceilings for each subcommittee. The budget resolution is not sent to the President and does not become law. It does not provide budget authority or raise or lower revenues; instead, it is a guide for the House and Senate as they consider various budget-related bills, including appropriations and tax measures. Both the House and Senate have established parliamentary rules to enforce some of these spending ceilings when legislation is considered on the House or Senate floor, respectively. These spending ceilings for the upcoming fiscal year may be enforced through points of order during House consideration of each appropriation measure. During Senate consideration of each appropriations bill, the total new budget authority and outlay levels for the upcoming fiscal year as well as the subcommittee spending ceilings—but not the committee ceilings—may be enforced. The CBA establishes April 15 as the target date for congressional adoption of the budget resolution. Since FY1977, Congress has frequently not met this target date. In many instances in recent years (FY1999, FY2003, FY2005, FY2007, FY2011-FY2015, and FY2017), Congress did not adopt a budget resolution. There is no penalty if the budget resolution is not completed before April 15 or not at all. Under the CBA, however, certain enforceable spending ceilings associated with the budget resolution are not established until the budget resolution is completed. The act also prohibits both House and Senate floor consideration of appropriations measures for the upcoming fiscal year before Congress completes the budget resolution and, in the Senate, before the Senate Appropriations Committee receives its spending ceilings. The CBA allows the House, however, to consider most appropriations measures after May 15, even if the budget resolution has not been adopted by Congress. The Senate may adopt a motion to waive this CBA requirement for spending ceilings by a majority vote. If Congress delays completion of the annual budget resolution (or does not adopt one), each chamber may adopt a deeming resolution to address these procedural difficulties. The timing of the various stages of the appropriations process tends to vary from year to year. Although timing patterns for each stage tend to be discernible over time, certain anomalies from these general patterns occur in many years. Traditionally, the House of Representatives initiated consideration of regular appropriations measures, and the Senate subsequently considered and amended the House-passed bills. More recently, the Senate appropriations subcommittees and committee have sometimes not waited for the House bills; instead they have reported original Senate bills. Under this more recent approach, the House and Senate appropriations committees and their subcommittees have often considered the regular bills simultaneously. The House Appropriations Committee reports the 12 regular appropriations bills separately to the full House. The committee generally reports the bills in May and June. Generally, the full House starts floor consideration of the regular appropriations bills in May or June as well. The Senate Appropriations Committee typically begins reporting the bills in June and generally completes committee consideration prior to the August recess. The Senate typically begins floor consideration of the bills beginning in June or July. Consideration by the full House and Senate may continue through the fall. While Congress has traditionally considered and approved each regular appropriations bill separately, delays in their consideration may mean that one or more appropriations measures may not receive separate initial consideration in one or both chambers and that several appropriations bills may subsequently get combined into a single legislative vehicle prior to enactment, referred to as omnibus appropriations measures. If this process is not completed prior to the start of the fiscal year (October 1), Congress may need to enact one or more measures to provide temporary funding authority pending the final disposition of the regular appropriations bills, either separately or as part of an omnibus measure. Because budget authority is typically provided for a single fiscal year, temporary funding measures are necessary if action on a regular appropriations measure has not been completed prior to the beginning of a fiscal year in order to prevent a funding gap that could require an agency to cease non-excepted activities. Traditionally, temporary funding has been provided in the form of a joint resolution to allow agencies or programs to continue to obligate funds at a particular rate (such as the rate of operations for the previous fiscal year) for a specific period of time, which may range from a single day to an entire fiscal year. These measures are known as continuing resolutions (or CRs). After the President submits the budget, the House and Senate appropriations subcommittees hold hearings on the segments of the budget under their jurisdiction. They focus on the details of the agencies' justifications, which provide supporting materials to the budget submission. The hearings, at which primarily agency officials testify, may also be supplemented by meetings and communications between the subcommittee staff and agency officials. At the same time, the subcommittees may solicit requests from Members of Congress for programmatic levels and language to be included in the appropriations bills and committee reports. After conducting these hearings, the House and Senate Appropriations Committees make their suballocations, and the subcommittees begin to draft, mark up, and report the regular bills under their jurisdiction to their respective full committees. Both Appropriations Committees consider each subcommittee's recommendations separately. The committees may adopt amendments to a subcommittee's recommendations prior to reporting the bills and making them available for further consideration by their respective chambers. Prior to floor consideration of an appropriations bill, the House almost always considers a special rule reported by the House Rules Committee setting parameters for floor consideration of the bill. If the House adopts the special rule, it usually considers the appropriations bill soon thereafter. The House considers the bill in the Committee of the Whole House on the State of the Union (or Committee of the Whole), of which all Representatives are members. A special rule on an appropriations bill usually provides for one hour of general debate on the bill. The debate includes opening statements by the chair and ranking minority member of the appropriations subcommittee with jurisdiction over the regular bill, as well as other interested Representatives. After the Committee of the Whole debates the bill, it considers amendments. The appropriations bill is generally read for amendment, by paragraph. Amendments to general appropriations bills are governed by a variety of requirements: House standing rules and precedents that establish several requirements applicable to all types of measures, such as requiring amendments to be germane to the bill; House standing rules and precedents that establish a separation between appropriations and other legislation; Separate orders establishing certain requirements, such as those requiring a "spending reduction account" section in each regular appropriations bill and limiting permissible amendments to that section ; Spending limits imposed by the congressional budget process (see " Allocations and Other Limits on Appropriations Associated with the Budget Resolution " below); and Provisions of a special rule or unanimous consent agreement providing for consideration of a particular appropriations bill. If an amendment violates any of these requirements, any Representative may raise a point of order to that effect. These points of order are not self-enforcing. A Member must raise a point of order that an amendment violates a specific rule. If the presiding officer rules the amendment out of order, it cannot be considered by the House. A special rule or unanimous consent agreement, however, may waive requirements imposed by House rules or the budget process, thereby allowing the House to consider the amendment. During consideration of individual appropriations bills, the House sometimes sets additional parameters, either by adopting a special rule or by unanimous consent. For example, the House has sometimes agreed to limit consideration to a specific list of amendments or to limit debate on individual amendments by unanimous consent. After the Committee of the Whole completes consideration of the measure, it rises and reports the bill and any amendments that have been adopted to the full House. The House then votes on the amendments and final passage. After House passage, the bill is sent to the Senate. The recent practice has been for the full Senate to consider the text of a bill as reported by its Appropriations Committee in the form of a substitute to the House-passed appropriations bill. The Senate does not have a device like a special rule to set parameters for consideration of bills by majority vote. Before taking up the bill, however, or during its consideration, the Senate sometimes sets parameters by unanimous consent. When the bill is brought up on the floor, the chair and ranking minority member of the appropriations subcommittee make opening statements on the contents of the bill as reported. Committee and floor amendments to the reported bills must meet requirements established under the Senate standing rules and precedents and congressional budget process as well as any requirements agreed to by unanimous consent. The specifics of the Senate and House rules for general appropriations bills differ, including the waiver procedures, but include the following common themes : Separate consideration of legislation and appropriations ; and Enforcement of the spending limits imposed by the congressional budget process. The Senate generally does not require that amendments be considered in the order of the bill. Senators may propose amendments to any portion of the bill at any time it is pending unless the Senate agrees to set limits. The Constitution requires that the House and Senate approve the same measure in precisely the same form before it may be presented to the President for his signature or veto. Consequently, once the House and Senate have both completed initial consideration of an appropriations measure, the Appropriations Committees in each chamber will endeavor to negotiate a resolution of the differences between their respective versions. The practice has generally been for the House and Senate to convene a conference committee to resolve differences between the chambers on appropriations bills. Alternatively, agreement may be reached through an exchange of amendments between the houses. In current practice, the Senate typically passes the House bill with the Senate version attached as a single substitute amendment. As a result, the House and Senate resolve their differences based on disagreement on the measure as a whole. Members of the House and Senate appropriations subcommittees having jurisdiction over a particular regular appropriations bill, as well as the chair and ranking minority members of the full committees, are designated as conferees or managers and tasked with meeting to negotiate over differences between the House- and Senate-passed versions. The purpose of the negotiations is to resolve differences between the two chambers, and therefore House and Senate rules generally require conferees to negotiate within the scope of the differences on those matters in disagreement. Additionally, they may not include in the conference report new directed spending provisions , defined as any item that consists of a specific provision containing a specific level of funding for any specific account, specific program, specific project, or specific activity, when no specific funding was provided for such specific account, specific program, specific project, or specific activity in the measure originally committed to the conferees by either House. Completion of the conference report is not on a specified timeline, so negotiations are concluded only when a majority of the conferees from each chamber sign the conference report. Once conferees reach agreement on all points of difference, they report the conference report, which proposes a new conference substitute for the bill as a whole. In addition, the conference report includes a joint explanatory statement (or managers' statement) explaining the new substitute. A conference report may not be amended in either chamber. Usually, the House considers conference reports on appropriations measures first. The first chamber to consider the conference report may vote to adopt it, reject it, or recommit it to the conference for further consideration. After the first house adopts the conference report, the conference is automatically disbanded; therefore, the second house has two options—to adopt or reject the conference report. In cases in which the conference report is either rejected or recommitted to the conference committee, the two chambers may negotiate further over the matters in dispute. The measure cannot be sent to the President until both houses have agreed to the entire text of the bill. The rules governing the content of the conference report may be enforced or waived during House and Senate consideration of it. Prior to consideration of the conference report, the House typically adopts a special rule waiving all points of order against the conference report or its consideration. In the Senate, such points of order may be waived through unanimous consent or (in some cases) motions to waive. If a point of order is sustained, the conference report falls. A mechanism is available, however, through which new matter or new directed spending provisions included in a conference report can be stricken while the remaining provisions are effectively retained for further Senate consideration. If the presiding officer sustains a point of order against new matter or one or more new directed spending provisions, the offending language is stricken from the conference report. After all points of order under both requirements have been disposed of, the Senate considers a motion to send the remaining provisions to the House as an amendment between the houses since the changed legislative text can no longer be considered as a conference report. The House would then consider the amendment. The House may choose to further amend the Senate amendment and return it to the Senate for further consideration. If the House, however, agrees to the amendment, the measure is cleared for presidential action. Alternatively, the Senate may choose to retain such provisions by voting to waive these points of order. To succeed, the motion must be adopted by a three-fifths vote of all Senators duly chosen and sworn (60 Senators if there are no vacancies). An appeal of a ruling by the presiding officer on one of these points of order would also require a vote of three-fifths of all Senators. Under the Constitution, after a measure is presented to the President, he has 10 days to sign or veto the measure. If he takes no action, the bill automatically becomes law at the end of the 10-day period if Congress is in session. Conversely, if he takes no action when Congress has adjourned, he may pocket veto the bill. If the President vetoes the bill, he sends it back to Congress. Congress may override the veto by a two-thirds vote in both houses. If Congress successfully overrides the veto, the bill becomes law. If Congress is unsuccessful, the bill dies. Congress has established a process that provides for two separate types of measures—authorization measures and appropriation measures. These measures perform different functions. Authorization acts establish, continue, or modify agencies or programs. For example, an authorization act may establish or modify programs within the Department of Defense. An authorization act may also explicitly authorize subsequent appropriations for specific agencies and programs, frequently setting spending ceilings for them. These authorizations of appropriations provisions may be permanent, annual, or multiyear authorizations. Annual and multiyear provisions require reauthorizations when they expire. Congressional rules generally restrict appropriations measures to provide new budget authority only for programs, activities, or agencies previously authorized by law. Congress, however, is not required to provide appropriations for an authorized discretionary spending program. House and Senate rules enforce the separation of these functions into different measures by separating committee jurisdiction over appropriations and other types of legislation and rules prohibiting measures from including both appropriations and other legislation. Authorization measures are under the jurisdiction of legislative committees, such as the House Committees on Agriculture and Homeland Security or the Senate Committees on Armed Services and the Judiciary. Appropriations measures are under the jurisdiction of the House and Senate Appropriations Committees. The House and Senate prohibit, in various ways, language in appropriations bills providing appropriations for purposes not authorized by law or legislation on an appropriations bill. An appropriation for purposes not authorized by law, commonly called an unauthorized appropriation , is new budget authority in an appropriations measure (including an amendment or conference report) for agencies or programs with no current authorization or for which budget authority exceeds the ceiling authorized. Legislation refers to language in appropriations measures that changes existing law, such as establishing new law or amending or repealing current law. Legislation is under the jurisdiction of the legislative committees. Although House rules prohibit both unauthorized appropriations and legislation in regular appropriations bills and supplemental appropriations measures that provide funds for two or more agencies, the House may choose to waive their application. However, House rules do not prohibit such provisions in continuing resolutions. The House prohibition applies to bills reported by the House Appropriations Committee, amendments, and conference reports. The point of order applies to the text of the bill as well as any amendments or conference reports. Senate rules regarding legislation on appropriations bills restrict the content of amendments to regular bills, supplementals that provide funds for more than one purpose or agency, and continuing resolutions. Such amendments include those that are: offered on the Senate floor, reported by the Senate Appropriations Committee to the House-passed measure, or proposed as a substitute for the House-passed text. In other words, Senate rules prohibit legislation in both Senate Appropriations Committee amendments and non-committee amendments. They also prohibit non-germane amendments. These Senate rules do not apply to provisions in Senate bills or conference reports. Recently, the practice of the Senate Appropriations Committee has been either to (1) report the House-passed bill with a committee substitute, or (2) report an original Senate bill, wait until the Senate receives the House-passed bill, and then offer a committee substitute (comprising the text of the Senate bill) to the House-passed bill. In either case, the Senate considers the committee's recommendations in the form of a committee amendment. Senate rules are generally considered to be less restrictive than the House regarding what may be interpreted as unauthorized appropriations, and they prohibit such appropriations in comparatively fewer situations. For example, the Senate Appropriations Committee may report committee amendments containing appropriations not previously authorized by law. Similarly, an amendment moved by direction of the committee with legislative jurisdiction or in pursuance of an estimate submitted in accordance with law would not be prohibited under Rule XVI. An appropriation is also considered authorized if the Senate has previously passed the authorization during the same session of Congress, even if the bill has not been enacted into law. As a result, while the Senate rule generally prohibits unauthorized appropriations, Senators rarely raise this point of order. The division between an authorization and an appropriation is a construct of House and Senate rules created to apply to congressional consideration so that the term "unauthorized appropriations" does not convey a legal meaning with regard to funding. If unauthorized appropriations or legislation remain in an appropriations measure as enacted, either because no one raised a point of order or the House or Senate waived the rules, the provision will still have the force of law. Unauthorized appropriations, if enacted, are therefore generally available for obligation or expenditure. Legislative provisions enacted in an annual appropriations act also generally have the force of law for the duration of that act unless otherwise specified. There are generally three types of appropriations measures: regular appropriations bills, continuing resolutions, and supplemental appropriations measures. In general, during a calendar year, Congress may consider: 12 regular appropriations bills for the fiscal year that begins on October 1 (often referred to as the budget year) to provide the annual funding for the agencies, projects, and activities funded therein; one or more continuing resolutions for that same fiscal year; and one or more supplemental appropriations measures for the current fiscal year. The appropriations process assumes the consideration of 12 regular appropriations measures annually. The House and Senate Appropriations Committees are both organized into 12 subcommittees, with each subcommittee having responsibility for developing one regular annual appropriations bill. Regular appropriations bills contain a series of unnumbered paragraphs with headings, generally reflecting a unique budget account. The basic unit of regular and supplemental appropriations bills is the account. Under these measures, funding for each department and large independent agency is organized in one or several accounts. Each account generally includes similar programs, projects, or items, such as a research and development account or a salaries and expenses account, although a few accounts include only a single program, project, or item. For small agencies, a single account may fund all of the agency's activities. These acts typically provide a lump-sum amount for each account as well as any conditions, provisos, or specific requirements that apply to that account. In report language, the House and Senate Committees on Appropriations may provide more detailed expectations or directions to the departments and agencies on the distribution of funding among various activities funded within an account. Appropriations measures may also provide transfer authority. Transfers shift budget authority from one account or fund to another or allow agencies to make such shifts. For example, an agency moving new budget authority from a salaries and expenses account to a research and development account would be a transfer. Agencies are prohibited from making such transfers without statutory authority. Agencies may, however, generally shift budget authority from one activity to another within an account without additional statutory authority. This is referred to as reprogramming. The appropriations subcommittees have established notification and other oversight procedures for various agencies to follow regarding reprogramming actions. Generally, these procedures differ with each subcommittee. Congress has traditionally considered and approved each regular appropriations bill separately, but Congress has also combined several bills together into a single legislative vehicle prior to enactment. These packages are referred to as omnibus appropriation measures. In these cases, Congress typically begins consideration of each regular bill separately but has generally combined some of the bills together at a later stage in the legislative process, particularly while one or more is in conference. During conference on one of the regular appropriations bills, the conferees have typically added to the conference report the final agreements on other outstanding regular appropriations bills, thereby creating an omnibus appropriations measure. Omnibus acts may provide the full text of each regular appropriations bill included in the act or may incorporate the full text by reference. Omnibus acts may also be in the form of full-year continuing resolutions. Those that provide funding either by including the text of the regular bills or by incorporating them by reference may be considered omnibus bills, but those resolutions providing spending rates—such as is typically included in continuing resolutions—would not. Packaging regular appropriations bills can be an efficient means for resolving outstanding differences within Congress or between Congress and the President. The negotiators may be able to make more convenient trade-offs between issues among several bills and complete consideration of appropriations using fewer measures. Omnibus measures may also be used to achieve a timely end to the annual appropriations process. In general, budget authority provided in regular appropriations expires at the end of the fiscal year—September 30—unless otherwise specified. If action on one or more regular appropriations measures has not been completed by the start of the fiscal year, on October 1, the agencies funded by these bills must cease non-excepted activities due to lack of budget authority. Traditionally, temporary funding has been provided in the form of a joint resolution to allow agencies or programs to continue to obligate funds at a particular rate (such as the rate of operations for the previous fiscal year) for a specific period of time, which may range from a single day to an entire fiscal year. These measures are known as continuing resolutions (or CRs). In only four instances since FY1977 (FY1977, FY1989, FY1995, and FY1997) were all regular appropriations enacted by the start of the fiscal year. In all other instances, at least one CR was necessary to fund governmental activities until action on the remaining regular appropriations bills was completed. On or before the start of the fiscal year, Congress and the President generally complete action on an initial CR that temporarily funds the outstanding regular appropriations bills. In contrast to funding practices in regular bills (i.e., providing separate appropriations levels for each account), temporary CRs generally provide funding at a rate or formula, with certain exceptions. Recently, the CRs have generally provided a rate at the levels provided in the previous fiscal year for all accounts in each regular bill covered, with some account-specific adjustments, termed anomalies. The initial CR typically provides temporary funding until a specific date or until the enactment of the applicable regular appropriations acts, if earlier. Once the initial CR becomes law, additional interim CRs may be used to sequentially extend the expiration date. These subsequent CRs sometimes change the funding methods. Less frequently, a full-year CR may be enacted that continues funding—at a specific rate or formula for accounts in outstanding regular bills, typically with numerous account-specific exceptions—through the end of the fiscal year. For example, the FY2007 full-year CR ( P.L. 110-5 ) covered nine regular bills, the FY2011 full-year CR ( P.L. 112-10 ) covered 11 regular bills, and the FY2013 full-year CR ( P.L. 113-6 ) covered seven regular bills. In addition to the amounts provided in a regular appropriations measure, the President may request, and Congress may enact, additional funding for selected activities in the form of one or more supplemental appropriations measures (or supplementals). In general, supplemental funding may be enacted to address cases where resources provided through the annual appropriations process are determined to be inadequate or not timely. Supplementals have been used to provide funding for unforeseen needs, such as response and recovery costs due to a disaster. One recent example is the supplemental appropriations bill that was enacted in the wake of Hurricane Sandy in 2013. These measures, like regular appropriations bills, provide specific amounts of funding for individual accounts rather than funding based on a rate for operations (like a CR). Sometimes Congress includes supplemental appropriations in regular bills and CRs rather than in a separate supplemental bill. Budget enforcement for appropriations measures under the congressional budget process has both statutory and procedural elements. The statutory elements are derived from the Budget Control Act of 2011 (BCA), which imposes limits on discretionary spending each fiscal year through FY2021. The procedural elements of budget enforcement generally stem from requirements under the Congressional Budget Act of 1974 (CBA) that are normally associated with the budget resolution. Through this CBA process, the Appropriations Committee in each chamber, as well as each of their subcommittees, receives a procedural limit on the total amount of budget authority for the upcoming fiscal year. The BCA places separate limits on two categories of discretionary spending: "defense" and "nondefense." The defense category includes all discretionary spending under budget function 050 (defense). The nondefense category includes discretionary spending in all the other budget functions. The BCA limits were first implemented in FY2012 and are applicable for each of the fiscal years through FY2021. Pursuant to procedures under the BCA, the limits initially established for FY2014 through FY2021 were further lowered each fiscal year to achieve certain additional budgetary savings. The amount of the revised limits for the upcoming fiscal year is calculated by the Office of Management and Budget (OMB) and reported with the President's budget submission each year. The timing of this calculation, which is to occur many months prior to the beginning of the fiscal year, is intended to allow time for congressional consideration of appropriations measures that comply with the revised limits. If discretionary spending is enacted in excess of the statutory limits, enforcement primarily occurs through "sequestration," which is the automatic cancelation of budget authority through largely across-the-board reductions of non-exempt programs and activities. Any such across-the-board reductions affect only non-exempt spending subject to the breached limit and are in the amount necessary to reduce spending so that it complies with the limit. The evaluation of the spending limits and any necessary sequestration occurs at specified times after appropriations measures are enacted. The first such evaluation occurs 15 days after Congress adjourns a session sine die . If appropriations measures are enacted after that time, subsequent evaluations of the budgetary effects of these measures and any necessary sequestration occurs 15 days after enactment. The discretionary spending limits are also enforceable procedurally through points of order raised under Section 314(f) of the CBA. Section 314(f) prohibits the House or Senate from considering any measure, amendment thereto, or conference report that would cause one or both of the limits to be exceeded. The House can waive Section 314(f) through a special rule and the Senate by a three-fifths vote of Members. As mentioned previously, within each chamber, the total budget authority and outlays included in the annual budget resolution are allocated among the House and Senate committees with jurisdiction over spending, including the House and Senate Committees on Appropriations. Through this allocation process, the budget resolution sets total spending ceilings for each House and Senate committee (referred to as the 302(a) allocations ). The 302(a) allocation of the Appropriations Committee includes both discretionary spending and direct spending (including net interest). Discretionary spending is controlled by appropriations acts, which are under the jurisdiction of the House and Senate Committees on Appropriations. In addition to budget authority for all programs funded by discretionary spending, appropriations measures also include budget authority to finance the obligations of some direct spending programs controlled by legislation under the jurisdiction of the legislative (or authorizing) committees. The budget authority for direct spending provided in appropriations measures is predominantly for entitlement programs, referred to as appropriated entitlements . These entitlements are funded through a two-step process. First, legislation becomes law that sets program parameters (through eligibility requirements and benefit levels, for example); then the appropriations committees must provide the budget authority needed to finance the commitment. The Appropriations Committees have limited control over the amount of budget authority provided, since the amount needed is the result of previously enacted commitments in law. After the House and Senate Appropriations Committees receive their 302(a) allocations, they separately subdivide this amount among their subcommittees, providing each subcommittee with a ceiling. These subdivisions are referred to as the 302(b) suballocations . The authority for making 302(b) suballocations belongs to the House and Senate Appropriations Committees, and they may later be revised by the committees to reflect further action on appropriations. Such allocations become effective (and enforcable) once they have been reported by the committee. The spending ceilings associated with the annual budget resolution that apply to appropriations measures are generally for a single fiscal year (the upcoming fiscal year), because appropriations measures are annual. If the budget resolution is significantly delayed (or is never completed), there may not be 302(a) allocations or 302(b) suballocations to enforce until the budget resolution is in place. In such instances, the House and Senate have often adopted alternative mechanisms to provide at least temporary 302(a) allocations for their respective Appropriations Committees, thereby establishing some enforceable spending ceilings. Such mechanisms have been referred to as a "deeming resolutions." The method of adopting such alternative mechanisms for one or both chambers may take a variety of forms. For example, when Congress did not complete a FY2007 budget resolution, both the House and Senate adopted separate deeming resolutions in 2006. The House adopted a special rule that, in part, deemed the House-adopted FY2007 budget resolution and accompanying committee report in effect for enforcement purposes. As a result, the FY2007 total spending ceilings and 302(a) allocations (and therefore, subsequent 302(b) suballocations) were in effect. The Senate included in a FY2006 supplemental appropriations act a deeming provision that, in part, set FY2007 302(a) allocations for the Senate Appropriations Committee. For FY2014 and FY2015, an alternative mechanism for budget enforcement, which included a means to establish 302(a) allocations for appropriations, was enacted in the Bipartisan Budget Act of 2013. In the absence of a budget resolution, this mechanism allowed the chairs of the House and Senate Appropriations Committees to enter statements into the Congressional Record of budgetary levels for their respective chambers. Those statements, which included a 302(a) allocation for the chambers' Appropriations Committees, formed the basis for the subsequent 302(b) suballocations for the subcommittees. The restrictions on appropriations associated with the budget resolution are enforced procedurally through points of order that can be raised on the House and Senate floors when the appropriations measures are considered. Two CBA points of order, under Sections 302(f) and 311(a), are available to enforce the 302(a) allocation to the Appropriations Committees and the 302(b) suballocations to their subcommittees. These CBA points of order apply to committee-reported appropriations bills, certain non-reported appropriations bills, amendments, and conference reports to these measures during their consideration. If such an appropriation violates these rules, the legislation or amendment cannot be considered. The 302(f) point of order prohibits floor consideration of a measure, amendment, or conference report providing new budget authority for the upcoming fiscal year that would cause the applicable committee 302(a) or subcommittee 302(b) allocations of new budget authority for that fiscal year to be exceeded. The application of this point of order on appropriations measures is generally limited to discretionary spending (and any changes in direct spending initiated in the appropriations measures). For example, if a committee-reported regular appropriations bill had provided total new discretionary budget authority equal to the subcommittee's 302(b) allocation, any amendment proposing additional new discretionary budget authority would violate the 302(f) point of order. The 311(a) point of order prohibits floor consideration of a measure, amendment thereto, or conference report that would cause the applicable total budget authority and outlay ceilings in the budget resolution for that fiscal year to be exceeded. As the amounts of all the spending measures considered in the House accumulate, they could potentially reach or exceed these ceilings. This point of order would typically affect the last spending bills to be considered, such as supplemental appropriations measures or the last regular appropriations bills. In the House, the so-called Fazio Exception , however, exempts legislation if it would not cause the applicable committee 302(a) allocations to be exceeded. Separate orders adopted at the beginning of the 112 th through 114 th Congresses, established new requirements applicable to House consideration of amendments to appropriations bills. Section 3(d)(3) of H.Res. 5 (114 th Congress) provides a point of order against an amendment (or amendments offered en bloc) that proposes a net increase in budget authority, even if the level of budget authority in the bill is below the ceiling established under the appropriate 302(b) subdivision. This establishes a secondary enforcement mechanism intended to preserve any savings below the 302(b) subdivision achieved by the Appropriations Committee or through floor amendments. This new point of order applies only to general appropriations bills. In addition, the FY2015 budget resolution established points of order in both the House and Senate that prohibit language in appropriations measures that would produce a net increase in the cost of direct spending programs above levels specified in the resolution (for FY201-FY2019). Three points of order typically enforce spending ceilings associated with the budget resolution. Two are CBA points of order, as provided in Sections 302(f) and 311(a). The Senate application of these rules, however, varies from the House versions. The Senate 302(f) point of order prohibits floor consideration of such legislation providing new budget authority for the upcoming fiscal year that would cause the applicable 302(b) suballocations in new budget authority and outlays for that fiscal year to be exceeded. In contrast to the House, it (1) does not apply to 302(a) allocations, but (2) does enforce the outlay level associated with the 302(b) subdivisions. The 311(a) point of order in the Senate is similar to the House version. The Senate, however, does not provide for an exception similar to the Fazio Exception in the House. In addition, the FY2015 budget resolution established points of order in both the House and Senate that prohibit language in appropriations measures that would produce a net increase in the cost of direct spending programs above levels specified in the resolution (for FY201-FY2019). Senators may make motions to waive these points of order at the time the issue is raised. Currently, a vote of three-fifths of all Senators (60 Senators if there are no vacancies) is required to approve a waiver motion for any of these points of order. A vote to appeal the presiding officer's ruling also requires a three-fifths vote of all Senators. In the House and Senate, discretionary appropriations may be designated or otherwise provided so that they are effectively exempt from the budget enforcement limits. Such designations or allowances for additional budget authority are provided pursuant to Section 251(b)(2)(A)-(D) of the Balanced Budget and Emergency Deficit Control Act (BBEDCA) and include the following: Appropriations designated as emergency requirements; Appropriations designated as Overseas Contingency Operations/Global War on Terrorism (OCO/GWOT); Certain appropriations for continuing disability reviews and redeterminations; Certain appropriations for the health care fraud and abuse control (HCFAC); and Appropriations designated as for disaster relief. The BBEDCA does not limit the amount of budget authority that can be designated as emergency requirements or for OCO/GWOT each fiscal year, nor does it specify the types of activities that are eligible for such designations. In practice, the emergency requirements designation has generally been used to provide additional budget authority for unanticipated needs. The OCO/GWOT designation has generally been used for expenses associated with overseas operations, such as in Iraq and Afghanistan, as well as other purposes. The allowable purposes for the continuing disability reviews and redeterminations budget authority are such activities under Titles II and XVI of the Social Security Act and for the costs associated with conducting redeterminations of eligibility under Title XVI. The purposes for the HCFAC funds are any for that program at the Department of Health and Human Services. The BBEDCA specifies the maximum amounts for these programs that would be effectively exempt from the spending limits, if appropriated, for each of the fiscal years between FY2012 and FY2021. Budget authority eligible for the disaster relief designation is for the cost of activities carried out pursuant to a declaration of a major disaster under the Stafford Act (42 U.S.C. 5122(2)). The amount for this disaster designation is capped each fiscal year to the 10-year rolling average for such budget authority minus the high and low fiscal years during that period. If the entire allowable amount that can be designated for a fiscal year is not appropriated, the unused amount of the designation may be carried over to the following fiscal year. Section 314(d) of the CBA allows House amendments to strike amounts that are designated as an emergency in appropriations measures or amendments thereto, notwithstanding their budgetary effects. In the Senate, amounts that are designated as an emergency are subject to a point of order under Section 314(e). That point of order may be waived by a three-fifths vote of the Senate. If the point of order is not waived and the presiding officer sustains the point of order, the designation is stricken, and the measure or amendment may be vulnerable to the various enforceable spending limits. The House also considers the emergency, OCO/GWOT, and disaster relief designations to be legislative and prohibits their inclusion in general appropriations bills, amendments thereto, or conference reports. The Senate, however, does not consider such designations to be legislative. Rescissions are provisions of law that cancel previously enacted budget authority. For example, if Congress provided $50 million to an agency, it could enact subsequent legislation cancelling some or all of the budget authority prior to its obligation. Rescissions are an expression of changed or differing priorities. They may also be used to offset increases in budget authority for other activities. The President may recommend rescissions to Congress, but they must be enacted into law in order to take effect. Under Title X of the CBA, if Congress does not enact a bill approving the President's rescissions within 45 days of continuous session of Congress, the budget authority must be made available for obligation. In response to the President's recommendation, Congress may decide not to approve the amount specified by the President, approve the total amount, or approve a different amount. For example, in 2005, the President requested a rescission of $106 million from the Department of Defense (DOD), Operations and Maintenance, Defense-Wide account and $48.6 million from DOD, Research, Development, Test, and Evaluation, Army account. Congress provided a rescission of $80 million from the first account in the DOD, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006, but it did not provide a rescission from the second account. Congress may also initiate rescissions. For example, in the above act, Congress also included a rescission of $10 million from the Department of State, Diplomatic and Consular Programs account. As budget authority providing the funding must be enacted into law, so too a rescission cancelling the budget authority must be enacted into law. Rescissions can be included either in separate rescission measures or any of the three types of appropriations measures. | Congress annually considers several appropriations measures, which provide discretionary funding for numerous activities—for example, national defense, education, and homeland security—as well as general government operations. Congress has developed certain rules and practices for the consideration of appropriations measures, referred to as the congressional appropriations process. The purpose of this report is to provide an overview of this process. Appropriations measures are under the jurisdiction of the House and Senate Appropriations Committees. In recent years these measures have provided approximately 35% to 39% of total federal spending. The remainder of federal spending comprises direct (or mandatory) spending, controlled by House and Senate legislative committees, and net interest on the public debt. The annual appropriations cycle is initiated with the President's budget submission, which is due on the first Monday in February. This is followed by congressional consideration of a budget resolution that, in part, sets spending ceilings for the upcoming fiscal year. The target date for completion of the budget resolution is April 15. Committee and floor consideration of the annual appropriations bills occurs during the spring and summer months and may continue through the fall and winter until annual appropriations are enacted. Floor consideration of appropriations measures is subject to procedural rules that may limit the content of those measures and any amendments thereto. Congress has established a process that provides for two separate types of measures associated with discretionary spending: authorization bills and appropriation bills. These measures perform different functions. Authorization bills establish, continue, or modify agencies or programs. Appropriations measures subsequently provide funding for the agencies and programs authorized. There are three types of appropriations measures. Regular appropriations bills provide most of the funding that is provided in all appropriations measures for a fiscal year and must be enacted by October 1, the beginning of the fiscal year. If regular bills are not enacted by the beginning of the new fiscal year, Congress adopts continuing resolutions to continue funding, generally until regular bills are enacted. Supplemental appropriations bills provide additional appropriations to become available during a fiscal year. Budget enforcement for appropriations measures under the congressional budget process has both statutory and procedural elements. The statutory elements are derived from the Budget Control Act of 2011, which imposes limits on discretionary spending for each of the fiscal years between FY2012 and FY2021. The procedural elements generally stem from requirements under the Congressional Budget Act that are normally associated with the budget resolution. Through this Budget Act process, the Appropriations Committee in each chamber, as well as each of their subcommittees, receives procedural limits on the total amount of budget authority for the upcoming fiscal year (referred to as 302(a) and 302(b) allocations). Enforcement of the statutory limits occurs primarily through sequestration, while enforcement of the procedural limits occurs through points of order. Discretionary appropriations may be designated or otherwise provided so that they are effectively exempt from statutory and procedural budget enforcement. Such designations include "emergency requirements," "overseas contingency operations/global war on terrorism," and for "disaster relief." Rescissions are provisions of law that cancel previously enacted budget authority. As budget authority providing the funding must be enacted into law, so too a rescission cancelling the budget authority must be enacted into law. Rescissions can be included either in separate rescission measures or any of the three types of appropriations measures. |
Israel's energy sector is set to undergo significant changes that could transform the country into an exporter of natural gas. Development of three recently discovered natural gas fields—Tamar, Dalit, and Leviathan (see Figure 1 )—is projected to begin at the end of 2012 and be completed by the end of the decade. The estimated supplies from these fields (see Table 1 ) would enable Israel to decrease its natural gas and coal imports and possibly its oil imports. Coal imports would likely be most affected as coal is currently the primary fuel for electric generation, and can be displaced by natural gas. Israel's trade balance would likely improve and its carbon dioxide emissions would likely decline as a result. The discovery of natural gas resources has also led Israel to reevaluate the nation's energy tax policy. Israel's Ministry of Finance has recommended tax policy changes that would increase tax revenues, but decrease potential after-tax profits for developers. Regionally, Israel's success thus far has sparked interest from its neighbors to explore their boundaries for energy resources and has raised concerns from Lebanon about sovereignty over the discoveries. Israel is poised to became an energy producer and perhaps even a natural gas exporter provided its recent discoveries come to fruition. At the end of last year, Noble Energy, a U.S. independent energy company, reconfirmed its estimates for its third and largest natural gas discovery off the northern coast of Israel. The Leviathan field has an estimated resource base of 16 trillion cubic feet (tcf) of natural gas, but will require at least two more appraisal wells to be drilled before the size of the resource base is better defined. Noble Energy's other natural gas discoveries (Tamar and Dalit) coupled with the success of other companies puts Israel in a position to be self sufficient in natural gas and possibly become a natural gas exporter, thus improving the country's energy and economic security. Since January 2009, Noble Energy has made three natural gas discoveries—Tamar, Dalit, and Leviathan—with an estimated 25 tcf of resources. Israel's natural gas reserves—natural gas that has been discovered and can be expected to be economically produced—prior to the Noble Energy discoveries were estimated at 1.5 tcf or about 16 years worth at current production levels. If only half the natural gas from the new discoveries is produced at today's production levels, Israel would have well over a 100-year supply of natural gas. It is too early to know the rate of natural gas recovery from the three new fields or if other discoveries will arise, but it is highly likely that Israel's energy mix will move towards natural gas by the end of the decade. Tamar's first production is expected at the end of 2012, with Dalit one or two years after that, and Leviathan between 2016 and 2018. According to Noble Energy, Tamar alone is expected to reach a maximum capacity of one billion cubic feet per day (bcf/d) by 2013 or 2014, or over three times the rate of Israeli consumption in 2009 of 0.31 bcf/d. Until 2008, Israel's demand for natural gas was met by domestic production. An import pipeline from Egypt began deliveries in 2008 and despite public discontent against the sales in Egypt, the pipeline remains operational today ( Figure 2 illustrates Israel's natural gas consumption and highlights the effect of Egyptian imports). Natural gas from the new fields could displace the Egyptian imports, which has benefits and disadvantages for both countries. Israel pays below market prices for the natural gas it imports from Egypt. Continuing the imports and using additional production to begin exports, most likely to Europe or Jordan, could further improve Israel's energy and economic security. Eliminating the imports could improve Israel's trade balance and provide greater supply security. For Egypt, stopping the exports to Israel would have political advantages as the natural gas sales to Israel were unpopular with Egyptians and were taken into court. The impact of the current unrest in Egypt on its natural gas exports to Israel is unclear. Maintaining the exports to Israel could help Egypt's trade balance. At the end of April, the natural gas terminal near El-Arish in Egypt (see Figure 1 above) was attacked for the second time since protests erupted in that country in January. Natural gas from the terminal supplies the Arab Gas Pipeline to Jordan, Syria, and Lebanon, and a separate pipeline to Israel. There is no estimate for how long natural gas will not be exported. The pipeline was also attacked and disabled in February causing natural gas supplies to be stopped for about a month. The terminal has been a target for Bedouins who feel neglected and oppressed by Cairo. Israel's consumption of natural gas has been growing since 2003, but remains a relatively small portion of its current energy mix at 11%. Oil accounts for almost half of Israel's primary energy consumption, while coal is 35%. (See Figure 3 .) However, the recent natural gas discoveries have the potential to substantially change the share of natural gas use in Israel. Industry forecasts project that by 2015, Israel could be consuming 1 bcf of natural gas per day, an almost threefold increase from today's consumption. The three new natural gas fields represent potentially 26 times the total amount of energy currently consumed annually by Israel from all fuel sources. Israel's electricity generation sector will most likely utilize the new resources more than other sectors (see section below) and could even facilitate Israel moving towards electrification of its car fleet, a goal the government has set. Current energy infrastructure is equipped primarily for oil and coal; substituting natural gas would require major changes and investment to the electricity and transportation sectors. Israel's electricity generation sector will most likely undergo the greatest change because of the development of Israel's natural gas resources. Currently, natural gas fuels about 26% of Israel's electric generation. (See Figure 4 .) Coal supplies almost two-thirds of the generation capacity. If Israel were to convert all of its existing electric power generation to natural gas, it would require approximately an additional 0.8 bcf/d of natural gas, the estimated maximum output from the Tamar natural gas field alone. Replacing only its coal units would require approximately 0.67 bcf/d of natural gas. If these conversions were to occur, carbon dioxide emissions from the electricity generation sector would decrease 52% and 50%, respectively. However, this would be a major investment and likely require many years to achieve. Switching to a natural gas-based electrical sector would allow Israel to increase the domestic share of energy production. Currently, Israel imports all of its coal and most of its oil. In April 2010, Israel's Minister of Finance appointed a committee to examine fiscal policy related to oil and gas resources in Israel, prompted by the recent natural gas discoveries. The committee was directed by Israel's Minister of Finance to (1) evaluate Israel's fiscal system as it relates to oil and gas reserves and compare Israel's system to countries in similar economic circumstances; (2) propose an updated fiscal system; and (3) examine the potential effects current and future natural gas discoveries would have on the Israeli economy. The committee's draft conclusions were released by Finance Ministry on November 10, 2010. The committee found that "the current system does not properly reflect the public's ownership of its natural resources." The committee's draft conclusions recommended two major changes to Israel's tax treatment of the oil and gas industry. First, the draft conclusions suggested eliminating the existing depletion deduction. Second, a progressive tax on oil and gas profits was proposed. In the proposal, profits were determined using the ratio of total revenues to total exploration and development costs. The committee's draft conclusions did not recommend a change in Israel's royalty rate, which is set at 12.5%. The committee's final report was released on January 3, 2011, and fully accepted by Prime Minister Netanyahu and the cabinet. Overall, the committee's recommendations would increase the government's share on oil and gas revenues to between 52% and 62%, up from the current 30%. Like the draft conclusions, the committee's final recommendations suggest eliminating the depletion allowances and imposing a tax on oil and gas profits. The tax on profits would start after the project had earned cumulative net income equal to 150% of its exploration and development costs. The rate of tax would start at 20%, increasing to maximum rate of 50%. This tax increase would be phased in over time. Fields that start production prior to 2014—which would likely include Tamar and possibly Dalit, but not Leviathan—would be partially exempt from the tax increase. For reserves in which extraction begins by January 1, 2014, the profits tax will not apply until cumulative net income reaches 200% of exploration and development costs and will not be fully phased in until reaching 280%. The tax increase recommended in the final report was less than was initially presented in the draft proposal. The proposed tax increases will be enacted only if approved by the Israeli government. Israeli and U.S. companies oppose any tax increase, and argue that changing the tax regime will deter future energy resource development. Oil and gas producers in the United States pay the U.S. corporate income tax. The corporate tax is levied on taxable income, which is calculated as gross income less deductions. The statutory corporate income tax rate is generally 35%. There are a number of deductions specific to the oil and gas industry, such as the ability to expense intangible drilling costs (IDCs) and to claim percentage depletion instead of cost depletion. Oil and gas producers are also eligible for the Section 199 production activity deduction. The United States has generally not imposed a specific profits tax above and beyond the corporate income tax on the oil and gas industry. However, from 1980 through 1988, the United States levied a windfall profits tax (WPT) on the U.S. oil industry. In practice, the WPT was an excise tax. The tax was determined according to the price of oil rather than on profits. The WPT was enacted to address increased oil industry profits following the decontrolling of oil prices. The announcements by Israel and Noble Energy of significant natural gas discoveries have prompted Lebanese leaders to raise concerns that the natural gas fields are at least partially in Lebanese waters and that Israel will "steal" Lebanon's resources if the Lebanese government does not act. Lebanon and Israel have never defined their maritime border as the two countries are still technically at war. The Lebanese government has appealed to the United Nations, particularly the UN Interim Force in Lebanon, to intervene in defining the maritime border, but the UN has declined thus far to delineate the maritime border. Some trade press for the natural gas industry is depicting all the Noble Energy discoveries within Israeli borders. There has been rhetoric from both the Lebanese and Israeli governments about using all means necessary, including military action, to defend their national resources, according to regional press reports. Whether Israel will become an exporter of natural gas is yet to be determined. If the resource estimates are correct, the new fields would give Israel the resources to become an exporter. A number of factors raise doubts about the viability of exports: Growing domestic demand—and potential new uses for gas, energy security issues, the expense of liquefying the natural gas for transport, an existing global glut of natural gas, and the politics of pipeline exports. Noble Energy is exploring the possibility of building a liquefaction facility, possibly in Cyprus to utilize any natural gas discovered there, for exports to Europe and Asia, but it is too early to determine the feasibility of such a project. Hoping to replicate Israel's success in finding new energy resources, Cyprus, Lebanon, and Syria have announced timetables for holding auctions for licenses to explore for oil and gas. Cyprus and Syria plan to hold their license auctions this year, while Lebanon has theirs scheduled for 2012. It is unclear how the ongoing political deadlock might affect the Lebanese government's plans to move forward with its energy development. In December 2010, Cyprus and Israel signed an agreement defining their sea border. In March 2010, The U.S. Geological Survey (USGS) released a report on the Levant Basin province that stretches from the Sinai peninsula to the northern border of Syria and from the coast into the Mediterranean Sea to the western side of Cyprus. The report stated that the Levant Basin may hold 1.7 billion barrels of recoverable oil and 122 trillion cubic feet of recoverable natural gas. In light of the USGS report, Noble Energy and its partners have raised the prospect of drilling deeper, below the natural gas bearing formations in the Leviathan field in search of oil. Noble Energy estimates that there is a 17% probability that it could find 3 billion barrels of oil. The probability and estimate will likely change as additional information and data is gathered. The U.S. government is not directly involved in Israel's oil and gas policies. However, in the near-term, consultations regarding the energy policy and regulations would be one area that government to government interaction might take place. Israel has never been a major energy producer and must balance its normal economic and security concerns with development of this new resource. The United States has experience related to regulatory oversight, tax policy, and environmental concerns that could benefit Israel. The regional interest from other countries to develop energy resources creates an opportunity for discussions between Israel and its neighbors, bilaterally or multilaterally and directly or indirectly. Additionally, resolving the maritime demarcation issue between Israel and Lebanon would alleviate industry uncertainty. | Israel has been dependent on energy imports since it became a nation in 1948, but the recent offshore natural gas discoveries could change that and possibly make Israel an exporter of natural gas. Development of the recently discovered natural gas fields—Tamar, Dalit, and Leviathan—likely will decrease Israel's needs for imported natural gas, imported coal, and possibly imported oil. A switch to natural gas would most likely affect electric generation, but could also improve Israel's trade balance and lessen carbon dioxide emissions. Regionally, Israel's success thus far has sparked interest from its neighbors to explore their boundaries for energy resources and has raised concerns from Lebanon about sovereignty over the discoveries. Development of these new resources, and possibly other discoveries, would enhance Israel's economic and energy security. Israel is in the early stages of formulating the regulatory framework to oversee the development of these resources and may seek assistance from the United States or other natural gas producing countries in weighing its options. Key Points: The new discoveries—depending upon the actual production—could represent over 200 years' worth of Israel's current natural gas consumption. Israel's electrical generation sector will likely be the beneficiary of the new natural gas resources. Additional natural gas and possibly oil resources may exist. |
In 2009, the war in Iraq appears to be winding down, as security gains made since the height of the insurgency in 2006 and 2007 continue to be sustained, and as Iraqis increasingly seek management of their own affairs. A new U.S.-Iraqi Security Agreement that went into effect on January 1, which confirmed the Iraqis' responsibility for their own security, introduced a new era in Operation Iraqi Freedom (OIF)—the US-led coalition military operation in Iraq—and in US-Iraqi bilateral relations. Secretary of Defense Robert Gates called the Agreement a "watershed, a firm indication that American military involvement in Iraq is winding down." U.S. military commanders on the ground have indicated that in most parts of Iraq, the focus of U.S. military efforts has shifted from counterinsurgency (COIN) to stability operations, including advising the Iraqi Security Forces (ISF), and supporting security, economic, and governance capacity-building. On February 27, 2009, at Camp Lejeune in North Carolina, President Obama delivered a speech addressing "how the war in Iraq will end," in which he announced the drawdown of U.S. combat forces by August 2010 and the transition of the rest of the military mission to training and advising Iraq security forces, conducting counter-terrorism, and providing force protection for U.S. personnel. The United States begins this transition from a position of significant commitment – including some 140,000 U.S. troops deployed in Iraq as of March 2009, in addition to civilian experts and U.S. contractors, who provide substantial support to their Iraqi counterparts in the fields of security, governance, and development. Senior U.S. officials, including outgoing U.S. Ambassador to Iraq Ryan Crocker, and Secretary Gates, have suggested that lasting change in Iraq will require substantially more time, and that while the U.S. military presence will diminish, U.S. engagement with Iraq is likely to continue. The Government of Iraq (GoI), for its part, still faces challenges at the operational level, in countering the lingering threads of the insurgency; and at the strategic level, in achieving a single, shared vision of the Iraqi state, and in improving its capacity to provide good governance, ensure security, and foster economic development for the Iraqi people. Key policy issues the Obama Administration may choose to address, with oversight from the 111 th Congress, include identifying which U.S. national interests and strategic objectives, in Iraq and the region, should guide further U.S. engagement; monitoring and evaluating the impact of the changes in the U.S. presence and role in Iraq; and laying the groundwork for a future, more traditional bilateral relationship. OIF was launched on March 20, 2003. The immediate goal, as stated by the George W. Bush Administration, was to remove Saddam Hussein's regime, including destroying its ability to use weapons of mass destruction or to make them available to terrorists. The broad, longer-term objective included helping Iraqis build "a new Iraq that is prosperous and free." In October 2002, Congress had authorized the President to use force against Iraq, to "defend the national security of the United States against the continuing threat posed by Iraq," and to "enforce all relevant United Nations Security Council resolutions regarding Iraq." After the initial combat operations, the focus of OIF shifted from regime removal to the more open-ended mission of helping an emerging new Iraqi leadership improve security, establish a system of governance, and foster economic development. Over time, challenges to the emerging Iraqi leadership from homegrown insurgents and some foreign fighters mounted. Sectarian violence grew, catalyzed by the February 2006 bombing of the Golden Mosque in Samarra. In January 2007, in an attempt to reverse the escalation of violence, President Bush announced a new strategic approach, the "New Way Forward," including a "surge" of additional U.S. forces, together with additional civilian experts. The troop surge included five Army brigade combat teams (BCTs), a Marine Expeditionary Unit (MEU), and two Marine battalions. More importantly, most observers agree, Ambassador Crocker and the Commanding General of Multi-National Force-Iraq (MNF-I), General David Petraeus, institutionalized counterinsurgency approaches across the force and the U.S. effort as a whole. Those approaches emphasized population security, empowering the Iraqi Security Forces (ISF) through close partnership, and building GoI capacity to govern and foster economic development in order to capitalize on security gains. Over the course of the surge, observers generally agreed, security conditions on the ground improved markedly. In August 2008, GEN Petraeus agreed that there had been "significant progress" but argued that it was "still not self-sustaining." "We're not celebrating," he commented, and there are "no victory dances in the end zone." Practitioners and observers have identified a number of factors that may have contributed to the security improvements, including the additional surge forces; new and institutionalized counter-insurgency approaches concerning population security and reconciliation; the application of high-end technological capabilities by Special Operations Forces (SOF) and closer integration between SOF and conventional forces; the accumulated experience of U.S. leaders at all levels after multiple tours in Iraq; the growing numbers and capabilities of the Iraqi Security Forces; the ground-up rejection of violence and support for the coalition by many Sunni Arabs; and the ceasefire declared by Shiite cleric Moqtada al-Sadr and the abandonment of violence by many of his followers. While conventional, force-on-force wars tend to end with the unequivocal defeat of one party, the parameters for "mission success" in counter-insurgency efforts like OIF tend to be less definitive and more subject to qualitative interpretation. OIF appears poised to end with policy decisions by the U.S. and/or Iraqi governments, rather than with a decisive military victory on the battlefield. On November 17, 2008, U.S. and Iraqi officials signed two key new agreements, designed to define the terms of their future partnership at the strategic and operational levels. On November 27, the Iraqi parliament voted its support for the two agreements, and on December 4, the Iraqi Presidency Council approved them. The first document was the broad Strategic Framework Agreement, designed to provide a basis for future cooperation in multiple fields including diplomacy, culture, economics and energy, health and the environment, information technology, and law enforcement. This Agreement was based broadly on a declaration of principles, signed by President Bush and Iraqi Prime Minister Nouri al-Maliki, on November 27, 2007. The second document, the Security Agreement, was similar to a status of forces agreement (SOFA). It was the product of a contentious negotiations process that began in spring 2008. It elaborated the terms of the bilateral security partnership at the operational level, and provided the legal basis for the U.S. troop presence in Iraq. When approving the two agreements, the Iraqi parliament made the Security Agreement subject to a popular referendum, scheduled to be held by July 2009. The Agreement went into effect on January 1, 2009, at the expiration of the United Nations mandate that had provided the legal basis for the presence of the multi-national force in Iraq. The Security Agreement underscored both Iraqi sovereignty and the "temporary" nature of the U.S. military presence, and it imposed a number of constraints on the presence and operations of U.S. forces. It provided for the withdrawal of all U.S. combat forces from Iraqi cities and towns by June 30, 2009, and for the withdrawal of all U.S. forces from Iraq by December 31, 2011. This language was a stricter version of earlier drafts that reportedly had provided for time "horizons" or target dates. The Security Agreement stipulated that the United States shall not use Iraqi land, sea or air as a "launching or transit point for attacks against other countries." The Strategic Framework Agreement, which echoed this language, also provided that the United States shall not seek a "permanent military presence" in Iraq. The negotiations process reportedly considered various formulations regarding external threats to Iraq's sovereignty. The agreed language, in the Security Agreement, required bilateral consultations in case of such a threat, but made no other actions compulsory. The Security Agreement required that U.S. forces coordinate all military operations with Iraqi authorities. It tightly constrained the role of U.S. forces in detaining Iraqis and mandated the transfer of current detainees to Iraqi custody. It also granted Iraq some legal jurisdiction over U.S. servicemembers and defense civilians – specifically, in cases of "grave, premeditated felonies" committed off base and "outside duty status." As senior officials on the ground have underscored, the Security Agreement acknowledged that many of its provisions would require further interpretation. To that end, it established a committee structure to provide implementation guidance. On February 27, 2009, at the Marine Corps Base Camp Lejeune, President Obama announced "a new strategy to end the war in Iraq through a transition to full Iraqi responsibility." The setting for the speech quietly echoed its theme of transition. U.S. Marines entered Iraq at the start of OIF and helped lead both major combat and counterinsurgency (COIN) efforts. Recently, senior Marine Corps officials have argued that significantly increasing the Marine deployment to Afghanistan will require drawing down in Iraq—"during calendar year 2010." The President's policy calls for the withdrawal of all U.S. combat forces by August 31, 2010. That decision marked the culmination of a comprehensive strategic review of Iraq war efforts that President Obama ordered on his first full day in office. Military commanders were reportedly asked to review alternative 16-month, 19-month, and 23-month timeline options for the withdrawal of U.S. combat forces. The announced withdrawal timeline will mark 18 months from the time of the announcement, and approximately 19 months from the Inauguration—slightly longer than the 16-month timeline suggested by then-Senator Obama during the presidential campaign. According to the new policy, after August 2010, the U.S. forces' focus in Iraq will shift to a three-pronged mission: training, equipping, and advising the Iraqi security forces (ISF); conducting targeted counter-terrorism operations; and providing force protection for both civilian and military personnel. That so-called "transitional force" will initially included between 35,000 and 50,000 troops. All remaining U.S. forces are expected to be withdrawn by the end of 2011, in accordance with the U.S.-Iraqi Security Agreement. At the time of the announcement, there were approximately 140,000 U.S. troops deployed in Iraq, including 14 Brigade Combat Teams (BCTs) or equivalents, as well as a significantly larger number of support forces. On March 8, 2009, Administration officials announced that 12,000 U.S. troops would redeploy from Iraq without replacement by September 2009. Administration officials have suggested that between 10 and 12 BCTs would remain on the ground at the time of Iraq's national elections tentatively planned for the end of 2009. The key components of the "transitional force" are expected to be "Advise and Assist Brigades" (AABs). Some officials have suggested an initial target figure of six AABs but have noted that the number could be adjusted. Officials have explained that each AAB will be built on the chassis, or foundation, of a BCT, and it will be augmented with capabilities required for the stability operations-focused mission in Iraq, including training and advisory capabilities and significant enablers. Each unit is expected to prepare and train as an organic whole before deploying. AABs are expected to work closely with U.S. civilian counterparts, including Provincial Reconstruction Teams (PRTs); those relationships, including co-location and the degree and kind of support provided to civilian efforts, is likely to vary geographically across Iraq. The troop withdrawal policy does not imply that no further deployments of U.S. military units to Iraq will take place. Some U.S. units schedule to redeploy from Iraq in the near term will be replaced by fresh U.S. units. In addition, some units may end up serving shorter tours in Iraq than the now-standard 12 months of "boots on the ground." The drawdown and transition plans are expected to include a consolidation of three key military headquarters in Iraq: Multi-National Force-Iraq (MNF-I), the overall strategic-level command currently led by General Raymond Odierno; Multi-National Corps-Iraq (MNC-I), the operational-level command led since April 4, 2009, by Lieutenant General Charles Jacoby and Ft. Lewis-Washington-based I Corps; and Multi-National Security Transition-Command-Iraq (MNSTC-I), led by Lieutenant General Frank Helmick. Some officials have suggested that the headquarters consolidation is likely to take place after the Iraqi national elections, but well before the August 2010 transition. The new entity is expected to be significantly smaller in terms of personnel. The consolidation would reflect not only an elimination of redundancy, but also, as one official described it, discretely "choosing not to do some things." The Obama Administration's drawdown and transition policy was widely considered to reflect a compromise between two broad schools of thought—advocates, respectively, of a relatively gradual or a relatively accelerated drawdown. Many observers have suggested that the policy splits the difference by maintaining a relatively robust force on the ground through the political hurdles of 2009, which preparing to draw U.S. forces down relatively rapidly in 2010. One school of thought, which included many military commanders, supported a relatively longer timetable. Secretary of Defense Robert Gates acknowledged, "I think that, if the commanders had complete say in this matter, that they would have preferred that the combat mission not end until the end of 2010." One key concern was reportedly a desire to retain a robust force through the Iraqi political hurdles of 2009 to ensure their success and their ability to serve as catalysts of further stabilization. In December 2008, U.S. military commanders reportedly had recommended beginning the drawdown slowly, by withdrawing two BCTs over the first six months of 2009. Before the President's policy announcement, GEN Odierno, MNF-I Commanding General, stated, "I believe that if we can get through the next year peacefully, with incidents about what they are today or better, I think we're getting close to enduring stability, which enables us to really reduce." Proponents of a gradual approach also argued that it is important to take every remaining opportunity to train, advise, and mentor the Iraqi security forces (ISF). MNSTC-I Commanding General LTG Helmick commented in February 2009 that the ISF still had "a long way to go." He argued that if they continue to focus on logistics—their "Achilles heel"—and there are no major surprises from the enemy, then the ISF could have "a sustained ground capability to fight the insurgency" by the end of 2011. Some military commanders were also reportedly concerned that any significant drawdown would be complicated and would require substantial time and attention from U.S. military leadership on the ground. They urged delaying the bulk of the drawdown until 2010, to allow MNF-I to focus primarily on its substantive mission in 2009. The other broad school of thought urged the adoption of a relatively accelerated timeline. Some advocates of an accelerated timeline sought simply to end the U.S. military commitment in Iraq as soon as reasonably possible. Other proponents of this school argued that the U.S. troop presence in Iraq—and the antipathy that might be generated among the Iraqi population by the presence of a de facto occupier—could be hindering further progress. Announced troop withdrawal plans, it was argued, could spur progress by encouraging Iraqi leaders to accelerate their own efforts to assume more responsibility and make progress toward reconciliation, and by urging international partners to increase their constructive involvement. They stressed that it would be particularly helpful to reduce the visible presence of U.S. combat forces before the rest of the political "hurdles" Iraq faces in 2009, to reduce the risk that the U.S. presence might become the target of politically-motivated rhetoric and opposition. Some accelerated timeline advocates underscored the strain that simultaneous war efforts in Iraq and Afghanistan have placed on U.S. military forces—a strain likely to grow as the United States increases troop deployments to Afghanistan in 2009. The high demand for forces for the ongoing U.S. troop commitments in Iraq and Afghanistan has meant, for many servicemembers, repeated deployments, extended deployments, and/or short "dwell times" at home between tours. Military Departments, responsible in accordance with Title 10, U.S. Code, for "organizing, manning, training and equipping" the force, and some key observers, have expressed concerns about the stress these demands have placed, and may continue to place, on the force. Over time, DOD has introduced a series of policies designed to manage that stress—for example, limiting active duty Army deployments to 12 months for those deploying after August 1, 2008. Some observers from each school of thought have expressed concerns about the Obama Administration policy. At the time of the policy announcement, some Democratic Party leaders in Congress, including Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, questioned the need for a residual force as large as 50,000 troops. Some gradualists, in turn, urged the Administration to remain flexible about the timeline in execution, cautioning that "it cannot be carried out rigidly" and urging a readiness to "slow the pace next year if necessary." The Obama Administration announced its Iraq transition policy, and the U.S.-Iraqi Security Agreement came into force, against a backdrop of ongoing strategic-level challenges to the Government of Iraq, and multiple operational-level transitions in the counter-insurgency effort. Most observers agree that the GoI faces several major tests in 2009. These began with the provincial elections held in most parts of the country on January 31, 2009, and are also scheduled to include district-level elections in June; a national referendum on the security agreement in July; and national-level elections at the end of the year. These events carry some risk of unrest, but, many observers contend, should these hurdles be cleared safely and successfully, they might serve to further catalyze the consolidation of the Iraqi state. In addition, the GoI still faces several persistent strategic challenges – potential "spoilers" – that could disrupt not only security conditions on the ground but also progress toward a unified and stable Iraq. One major challenge, increasingly prominent in 2009, is a portfolio of tensions and competing claims in "the north," particularly between Iraqi Kurds and Arabs. The set of related issues includes resolving the political status of the multi-ethnic and oil-rich city of Kirkuk, together with other "disputed territories" along the Green Line that divides the Kurdistan Regional Government (KRG) from the rest of Iraq. The problems are complicated by the forced resettlement policies of Saddam's regime, which moved Kurds out of their homes and resettled Arabs in those areas; and by Kurdish efforts in the post-Saddam era to reclaim those areas. Further, the KRG and GoI continue to dispute the proper dispensation of oil revenues generated by the areas rich oil reserves. While Kirkuk city itself has been relatively calm, coalition and Iraqi officials in Kirkuk have noted with concern that outside players with strong vested interests, including ethnically based Iraqi political parties, and Turkey-based supporters of Iraqi Turkmen, sometimes use inflammatory language to stir up tensions in the city. Elsewhere, violence has flared—in 2008, Iraqi security forces skirmished with KRG peshmerga forces in the restive town of Khanaquin, in Diyala province, on the GoI side of the Green Line. The year 2009 is likely to prove pivotal in this ongoing set of debates. UNAMI is expected to present a comprehensive set of recommendations for resolving tensions in the north, as a basis for discussion. Provincial elections, held elsewhere on January 31, 2009, remain to be scheduled for At Ta'amin province, which includes Kirkuk. A second major challenge concerns how effectively Sunni Arabs, are incorporated socially, economically, and politically into the Iraqi polity. Sunni Arabs, who are concentrated in western and central Iraq, were a disproportionately privileged minority under Saddam's rule but lost much of that status after regime change. The provincial elections held on January 31, 2009, marked a positive step, by increasing Sunni Arab political representation at the provincial level. A particular concern is the ongoing integration of members of the Sons of Iraq (SoI) "community watch" program. A majority of the SoIs were Sunni Arabs—including some former insurgents—and key Shiite officials in the GoI were long wary of the SoI program. On October 1, 2008, the GoI began assuming responsibility for the SoIs, including paying their salaries, and this transition was expected to be completed by April 2009. The integration of former SoIs into the Iraqi security forces and civilian jobs has proceeded very slowly, and participants have reported serious delays in the payment of salaries. Some practitioners and observers have expressed concerns about the possible security repercussions if the GoI were to shut down the program, cease paying salaries, or fail to secure alternative employment for the SoIs. More seriously still, SoIs have reported a "campaign of arrests" against their members by Iraqi Security Forces (ISF), in Baghdad and Diyala provinces. In late March 2009, the detention of a key SoI leader in Baghdad by the ISF led to localized armed clashes, the detention of scores of SoIs, and the GoI decision to disband that SoI group. A third major challenge is the potential for violence in "the south," home to a long-standing and growing competition for power and resources between well-established Shiite political factions backed by militias that have sometimes used violence, and also to tribal Shi'a who may be beginning to find a public voice. Against that volatile backdrop in southern Iraq, both U.S. and Iraqi officials remain concerned about Iranian interventions—economic, social, and sometimes "military" in the form of the provision of lethal aid and sponsorship of proxies including Asa'ib al-Haq and Ketaib Hezbollah. Tensions in the south have the potential to be exacerbated by elections, and also by potential drives to form multi-provincial "regions" that would enjoy special access to authorities and resources. By the start of 2009, several major but uneven transitions were underway at the operational level in Iraq. First, the substantial security improvements achieved over the course of the "surge" had further deepened, with some fluctuations during combat operations in 2008 in specific parts of Iraq, and some remaining insurgent activity, particularly in north central Iraq. In March 2009, the outgoing Commanding General of MNC-I, LTG Austin, characterized the overall situation this way: "We are close to sustainable security but we're not there yet." Concerning the restive north, LTG Austin commented that the problems in Iraq's third-largest city Mosul, in Ninewah province, could still "put us off track and cause violence to really reignite in a greater way." East-central Diyala province, along the Iranian border, with its volatile mix of Kurds, and both Shi'a and Sunni Arabs, also remained a potential flashpoint. Second, accordingly, the focus of U.S. military operations shifted toward stability operations in the south and west, with greater remaining emphasis on COIN in north-central Iraq. Third, the operational capabilities of the Iraqi Security Forces (ISF) continued to grow, reflected in—and catalyzed by—ISF operational experiences in 2008 in Basra, Sadr City, Amarah, Mosul, and Diyala. According to U.S. commanders, the March 2008 ISF operations in Basra, targeting Shiite militias, were poorly planned and required a strong rescue effort by coalition forces. The August 2008 operations in Diyala, targeting affiliates of Al Qaeda in Iraq (AQI), were planned by the Iraqis in advance but still required coalition forces to provide enablers and to help hold areas once they were cleared. A fourth transition was a growth in 2008 in formal Government of Iraq (GoI) security responsibility, antedating the Security Agreement, as additional provinces transitioned to "provincial Iraqi control" (PIC). In practice, PIC arrangements varied from province to province but as a rule gave the GoI lead security responsibility—and practice exercising that responsibility—and mandated increased coordination of coalition operations and activities with the GoI. Fifth, as the ISF's basic capabilities improved, the coalition's approaches to training and partnering with the ISF evolved substantially though unevenly across Iraq. In terms of substance, many embedded "transition teams" shifted their training focus away from basic "move, shoot, and communicate" skills, toward more advanced skills including staff functions and the use of enablers. In terms of organization, the use of various forms of unit-to-unit partnering, which allows advising by example as well as by instruction, and complements the work of transition teams, grew substantially. Sixth, by early 2009, MNF-I was a far less "multi-national" force than in the past. By the end of 2008, most remaining coalition partner countries had brought their deployments in Iraq to a close. Major redeployments in late 2008 included the 2,000-strong Georgian contingent; the Poles, who had led Multi-National Division-Center South; and the South Koreans, who had led Multi-National Division-Northeast. Faced with the expiration of the UN mandate authorizing the multi-national force in Iraq, several coalition partners—the United Kingdom, Australia, and Romania—each signed a Memorandum of Understanding with the GoI, providing a new legal basis for the presence of their troops, but each of their mandates is set to expire on July 31, 2009. Seventh, the geographical focus of U.S. forces in Iraq shifted somewhat from north to south, as U.S. forces assumed some battlespaces in the south previously held by coalition partner forces. On March 31, 2009, the Multi-National Division-Center absorbed UK-led Multi-National Division-Southeast, to form the new Multi-National Division-South, under U.S. command, with responsibility for nine provinces. Eighth and finally, as civilian-led Provincial Reconstruction Teams (PRTs) grew, they increasingly took the lead in some efforts formerly spearheaded by the U.S. military. In some cases, including Najaf and Karbala provinces, PRTs operated without a significant nearby U.S. forces presence. Nevertheless, the military's extensive presence on the ground at district and local levels, compared with the limited number of U.S. civilian experts, meant that in practice, the military continued to play a strong "supporting" role in helping Iraqis develop civil capacity. Meanwhile, U.S. practitioners in Iraq, both civilian and military, have suggested that the appetite of GoI officials to be mentored, advised, or guided by U.S. officials—and thus the leverage that the U.S. government is able to exercise – is diminishing. In 2008, as Iraqi civilian and military capacity and capabilities grew, and as Iraqi confidence in those capabilities increased, GoI officials demonstrated growing assertiveness and less inclination to consult with U.S. officials before taking action. That approach was manifested, for example, in the decision by Prime Minister Nouri al Maliki to launch military operations in Basra in March 2008, and the GoI's unilateral decision to assume full responsibility for Sons of Iraq in fall 2008. Most practitioners and observers expect that U.S. leverage is likely to diminish further in 2009, under the new sovereignty regime and as the U.S. presence decreases. President Obama's drawdown and transition policy charts a new strategic course but also raises several questions about the future U.S.-Iraqi relationship. At the same time, OIF experiences as a whole raise additional strategic questions about U.S. Government preparations to undertake future complex contingencies. Announcing the drawdown and transition policy, President Obama stated that the goal is "an Iraq that is sovereign, stable and self-reliant." To that end, the President added, the United States would: Work to promote an Iraqi government that is just, representative, and accountable, and that provides neither support nor safe haven to terrorists; Help Iraq build new ties of trade and commerce with the world; and Forge a partnership with the people and government of Iraq that contributes to the peace and security of the region." Under that broad rubric, as the U.S. role in Iraq transitions, it might be useful to confirm key U.S. national interests regarding Iraq, and the crucial strategic objectives that, at a minimum, it is important for the United States to achieve to support those interests. Such broad objectives might address the following elements: U.S. interests in Iraq's domestic political arrangements. Some might argue that a democratic or broadly representative and inclusive Iraqi polity is essential as a key to Iraq's stability, while others might argue that the nature of Iraq's domestic political arrangements is much less important than simply a unified and stable Iraq. U.S. interests in Iraq's role in the fight against global terrorist networks. Some might argue that the most important goal is simply ensuring that Iraq does not serve as a safe haven for terrorists. Others might stress the importance of active intelligence-sharing by Iraq with the United States. Still others might argue that it is in U.S. interests that Iraq couple the counter-terrorism skills it is currently developing as part of its domestic counter-insurgency effort, with expeditionary capabilities, so that it could participate in future regional counter-terrorist activities. U.S. interests in the regional balance of power. Some might argue that Iraq's strength, relative to that of its neighbors, is important. Others might simply stress the importance of an absence of conflict—that is, as a long-stated U.S. goal puts it, an "Iraq at peace with its neighbors." Furthermore, it may prove judicious to update the formulation of U.S. strategic objectives as the U.S. mission and presence in Iraq change and results of those changes are assessed. In his policy announcement, President Obama stressed that the situation in Iraq remains dynamic and challenging: "But let there be no doubt – Iraq is not yet secure, and there will be difficult days ahead. Violence will continue to be a part of life in Iraq." As the Iraqi appetite for accepting guidance and advice from international partners continues to wane, U.S. policy makers may wish to reassess how the U.S. government might most effectively apply political, economic, and security "levers" to help shape Iraq's transformation into a stable and prosperous state. One challenge is an apparent mismatch in Iraq between those who are most susceptible to leverage and those making key decisions. Iraqi warfighting commanders, as a rule, recognize the extent to which they rely on U.S. military enablers, and remain eager for a continuation of U.S. support. At the same time, Iraqi political leaders—those who make the decisions—tend toward overconfidence in the capabilities of Iraqi security forces, and a less urgent sense of the need for close mil-to-mil partnership with the United States. Another strategic consideration concerns the kind of long-term partnership the United States wants to have with Iraq, including the traditional panoply of diplomatic and economic as well as security ties, and the kind of U.S. presence in Iraq that would be required to support such a relationship. On January 27, 2009, Secretary Gates told the Senate and House Armed Services Committees that "…we should still expect to be involved in Iraq on some level for many years to come." One particular challenge for both states may prove to be the cultural or psychological adjustment from an essentially paternalistic relationship to a partnership on equal footing. In the security field, decisions about the shape of that future partnership could suggest different possible forms for a future U.S. presence. In theory, one option would be establishing permanent U.S. military bases in Iraq, to support broader U.S. policy in the region, possibly on the model of those in Japan, South Korea, Germany, and Italy. Kurdish leaders have reportedly long proposed a permanent U.S. military presence in northern Iraq. However, the "permanent basing" option does not appear to enjoy support from the Obama Administration, Members of Congress, or from the Government of Iraq as a whole. A presence of U.S. forces beyond December 2011 would require revisiting and amending the U.S.-Iraqi Security Agreement. Another option would be a particularly robust U.S. Office of Security Cooperation (OSC), responsible for some combination of training, advising, and mentoring Iraqi security forces, and helping build the capacity of Iraqi security ministries. Following the usual pattern, the OSC would be responsible to both the U.S. Ambassador to Iraq and to the Commanding General of U.S. Central Command. One possible model might be the U.S. Military Training Mission to Saudi Arabia, which operates on the basis of a bilateral Memorandum of Understanding with the Government of the Kingdom of Saudi Arabia and serves to train, advise, and assist the Saudi Arabian Armed Forces. According to U.S. and Iraqi officials, Iraq, particularly in the south, continues to face a potential threat from Shi'a Iraqi proxy groups trained by Iran's Quds forces, and other forms of lethal aid from Iran. In March 2009, U.S. forces reportedly shot down an Iranian unmanned aerial vehicle over Iraqi territory, in eastern Diyala province. Meanwhile, Multi-National Corps-Iraq (MNC-I) is in the process of shifting its focus somewhat from north to south in Iraq, including relocating a Division headquarters to Basra and increasing the U.S. troop presence in southern Iraq as coalition partner troops withdraw or draw down. According to U.S. military commanders on the ground, the growing U.S. footprint in southern Iraq is not likely to be lost on Iran. Any such Iranian concerns might be exacerbated by the growing U.S. forces presence across Iran's eastern border, in Afghanistan. It is not clear to what extent U.S. "Iran policy" factors in current and potential Iranian activities in southern Iraq. In the context of growing potential for low-level U.S. military confrontations—"shadow-boxing"—with Iranian proxies in southern Iraq, as the U.S. force presence in that area grows, it may be important to consider scenarios in which tactical-level developments might escalate into strategic-level concerns. How Military Departments fulfill their Title 10 responsibilities to organize, man, train, and equip the force – how they make decisions about endstrength and capabilities required—may depend in part on lessons drawn from OIF, and on how applicable those lessons are deemed to be to potential future engagements. For example, lessons might be drawn from OIF concerning how to most effectively train foreign security forces and to prepare U.S. forces for that mission; how increasing the intelligence assets available to commanders on the ground affects their ability to identify and pursue targets; how "dwell time" policies for the Active and Reserve Components can best be implemented; and what closer operational integration between Special Operations Forces and conventional forces might suggest about the most effective division of labor between them. President Obama's drawdown and transition policy for Iraq has pressed the Army, in particular, to address the question of how and whether to institutionalize key capabilities developed, often through trial and error, for use during OIF. The policy calls for the deployment to Iraq, by mid-2010, of Advise and Assist Brigades (AABs). According to DOD officials, AABs are to be built on the chassis of existing BCTs and augmented as necessary with capabilities appropriate for the new stability operations mission in Iraq. The near-term requirement to prepare and deploy such units does not resolve a more fundamental question – how permanent should AABs be? In theory, for potential future contingencies, the Army could simply plan to use and adapt its standard force structure to meet new requirements as they arise, or it could dedicate resources to establish a standing capacity of some kind. Secretary of Defense Robert Gates has underscored that "…building the security capacity of other nations through training and equipping programs has emerged as a core and enduring military requirement," suggesting the need to institutionalize such capabilities. Dr. John Nagl has proposed one possible institutional solution – creating a permanent, standing Advisory Corps of 20,000 combat advisors, which would be organized, equipped, educated and trained to develop host nation security forces. Meanwhile, some officials suggest that Army leaders remain reluctant to make permanent changes to the Army's force structure, not least because such changes could mean assuming increased risk in more traditional areas of warfighting. The Army has advocated, as a substitute for "AAB," the term Brigade Enabled for Stability Operations (BESO). In March 2009, the Army announced that new BESOs would deploy from Fort Bliss, TX, to Iraq and Afghanistan later in the year. BESOs, Army officials stressed, would not depart radically from the familiar BCT construct—they would "remain full-spectrum capable," and would be "…a matter of augmentation … slight modifications to gain skill sets." For the Department of Defense as a whole, in turn, OIF experiences may be used to help frame future discussions about the Department's force planning construct—a shorthand description of the major contingencies the Department must be prepared to execute simultaneously—which is used to shape the total force. Drawing conclusions, however, is not simple. Analytical challenges include deciding what kind of contingency OIF represents, how likely it is to be representative of future contingencies, and which chronological "slice" of OIF requirements (given the great variation in troop commitment and equipment over time) to use to represent the effort. Recent DOD guidance documents—including DOD Directive 3000.07 "Irregular Warfare IW" issued on December 1, 2008, which stated that "it is DoD policy to recognize that IW is as strategically important as traditional warfare"; the 2008 National Defense Strategy ; and the 2009 Quadrennial Roles and Missions Review Report —all suggested a relatively strong future DOD emphasis on capabilities required for complex contingencies like Iraq and Afghanistan. A further strategic consideration concerns how lessons are drawn from OIF regarding U.S. government coordination in complex contingencies, including decision-making, planning and execution. Just as the executive branch's responsibilities in this area are divided among different agencies, congressional oversight responsibilities are divided among different committees of jurisdiction, such that achieving full integration can be a challenge for both branches of government. One set of questions prompted by OIF experiences concerns the decision-making process about whether to go to war and if so, how to do so. Key issues include the rigor of the inter-agency debates, the effectiveness of the provision of "best military advice" to key decision-makers, and the thoroughness of congressional oversight in general. Another set of questions raised by OIF concerns balancing roles, responsibilities, resources, and authorities among U.S. government agencies to support implementation of activities required in complex contingencies—such as security forces training, local governance work, and economic reconstruction. In security forces training, OIF experiences included several different patterns for the distribution of responsibilities between the Departments of Defense and State. In OIF, governance and economic reconstruction work, in turn, have been carried out by Provincial Reconstruction Teams (PRTs), by civilian U.S. government agencies operating separately from PRTs, and by military units—not always in close conjunction with one another. Based in part on OIF experiences, many observers have concluded that the capacity of U.S. Government civilian agencies, including deployable capabilities, should be enhanced; and that the modalities for coordinating and integrating civilian and military efforts in the field should be improved. The President's drawdown and transition announcement left open a number of operational issues that U.S. practitioners, policy makers, and Members of Congress may wish to consider. The Obama Administration transition policy generally calls for a diminishing U.S. government role in Iraq, but senior U.S. civilian and military officials on the ground are likely to continue to face myriad small choices about exactly how much support to provide, in various circumstances, to their host nation partners. During the formal occupation of Iraq, from 2003 to 2004, the coalition was responsible for all facets of Iraqi public life. In the early post-occupation days, the coalition's general approach was to do everything possible to get Iraqi institutions up and running, limited primarily by resources and personnel available to implement the efforts. As Iraqi capacity grew, the role of Iraqi civilian and military officials and institutions shifted, to various degrees, from sharing responsibilities to leading, with some support or back-up from the coalition. By 2008, U.S. civilian and military officials in Iraq were seriously discussing a fundamental question: how much U.S. help is enough? The debates addressed both the U.S. military's relationship with the Iraqi Security Forces, and U.S. government civilian expert assistance provided through Provincial Reconstruction Teams and at the national level. A number of U.S. officials, both civilian and military, argued that, in the words of one military commander, "it's time to take the training wheels off," that it is okay to "let the Iraqis fail." Taking a step back, they argued, is not only a key to reducing the U.S. commitment over time—it may also be the best way to reduce the risk of Iraqi dependence on U.S. help, and to encourage Iraqis to assume more responsibility and to learn to solve problems themselves. One former brigade commander in Iraq, from this school of thought, argued, "It's time to let go," and added the observation: "The coalition has a very difficult time having the restraint and discipline to refrain from intervening." Some officials countered that, given the shrinking U.S. presence as U.S. forces draw down, and the diminishing Iraqi appetite to be advised and mentored, it is important to facilitate the growth of Iraqi capacity as much as possible while the window of opportunity is still open. President Obama's drawdown and transition policy prescribes the withdrawal of all U.S. combat troops from Iraq by the end of August 2010, and the U.S.-Iraqi Security Agreement mandates that all U.S. forces withdraw from Iraq by the end of 2011. Further, in March 2009, the Obama Administration announced plans to withdraw a total of 12,000 U.S. troops from Iraq by September 2009. Within those parameters, remaining key remaining decisions include: When, before the end of August 2010, to transition the U.S. force presence in each geographic area of Iraq from combat troops to Advise and Assist Brigades (AABs). How large of a residual transition force, between roughly 35,000 and 50,000 troops, to leave in Iraq after August 31, 2010. How quickly to draw down the residual force between August 2010 and the end of 2011. Whether the basic parameters of the Obama policy timeline, including the August 2010, could be adjusted, should changing circumstances on the ground appear to make that advisable. Supporting the development of the Iraqi Security Forces (ISF) is a critical focus of U.S. military operations in Iraq. Counterinsurgency (COIN) theory emphasizes the importance of conducting operations "by, with and through" host nation forces; and helping to build such forces when their capacity or capabilities are not adequate. From the outset, the organization and focus of the coalition's efforts to train, equip, and mentor the ISF varied across the battlespace of Iraq, depending on the conditions on the ground, the level of development of the locally based ISF, and the availability of coalition forces for training missions. A key operational consideration, looking ahead, is how to accomplish the ISF training mission as U.S. forces draw down and AABs are established. The "standard" approach to training the ISF has been the use of embedded "transition teams" that typically live and work with a host nation unit. One key point of variation over time has been the size of these teams. Transition teams working with the Iraqi Army, for example, typically included between 11 and 15 members, depending on the size of the Iraqi unit they embedded with. In practice, however, the numbers have varied—for example, in western Anbar province, Multi-National Force-West (MNF-W), led by U.S. Marines, consistently used larger teams, with between 30 and 40 members. One key development over time, in the view of U.S. commanders on the ground and many experts, has been an overall improvement in the quality and effectiveness of the transition teams—in part a reflection of standardization and improvements in the training "pipelines" used by the Military Departments to produce the trainers. In 2008, as the basic operational capabilities of the ISF grew, the use of embedded transition teams shifted toward higher-level ISF headquarters, including brigades and divisions. The substantive efforts of the teams also shifted, from basic skills like patrolling to leadership and enablers. For example, teams working with the Iraqi Army increased their focus on staff functions and logistics, and teams working with the Iraqi Police increased the emphasis on specialized skills like forensics. In effect, transition teams work themselves out of a job, as their host nation partner unit improves. The U.S. military may not, in every case, have the full spectrum of skills required to staff all types of embedded teams. While logistics experts in the U.S. military are well-placed to share that expertise with Iraqi Army counterparts, U.S. Military Police (MPs) generally do not have the requisite specialized policing skills and have thus relied on collaboration with civilian International Police Advisors, who have been in short supply. In addition to transition teams, coalition forces throughout Iraq have made substantial use of various forms of "unit partnering," in which coalition maneuver units work side-by-side with Iraqi units of equal or larger size. Commanders on the ground have stressed the value of unit partnership, as a complement to the use of embedded teams, as an effective way to "show" rather than just "tell" ISF unit leaders how they might most effectively organize their headquarters, lead their troops, and manage staff functions. Unit partnership has not been envisaged as a permanent arrangement – any individual unit partnership has been designed to be temporary, a catalyst to the development of that Iraqi unit. As conditions permitted, commanders extended unit partnering beyond the Iraqi Army to Ministry of the Interior (MoI) forces, including the Iraqi Police and the Department of Border Enforcement. That outreach to the MoI was initially more common in Multi-National Division-Center, south of Baghdad, and in Multi-National Force-West in Anbar, than in Multi-National Division-North, which was still actively engaged in combat operations, together with ISF counterparts, in Diyala and Ninewah provinces, in late 2008. Coalition forces have also provided substantial support to the "capacity-building" of the key security institutions of the Government of Iraq—the Ministry of Defense, the Ministry of the Interior, and the Counter-Terrorism Bureau. This support, led by the Multi-National Security Transition Command-Iraq (MNSTC-I), part of MNF-I, has included mentoring Iraqi senior leaders in leadership and management skills, as well as providing technical assistance to ministry personnel. Coalition officials have stressed the growing importance of maximizing such capacity-building efforts while Iraqis are still receptive to receiving such training. With appropriate leadership skills, they argued, Iraqi senior leaders in the security sector could make substantially greater and more effective contributions to the development of the ISF, gradually reducing the need for U.S. advice and support. Coalition commanders have also underscored the importance of utilizing the right U.S. and coalition personnel for the mission, including senior "mentors" with enough leadership experience and stature to carry weight with their Iraqi counterparts. The Obama transition policy for Iraq underscores the importance of the ISF training and advisory effort, naming it one of the three missions of the U.S. transition force from August 2010 forward. The increasingly smaller U.S. military footprint and the reduction in senior U.S. military leadership in Iraq could complicate that mission somewhat. One issue may be the ability of the U.S. AABs, spaced thinly across Iraq, to continue to provide ISF counterparts with key enablers, such as logistics; Intelligence, Surveillance and Reconnaissance (ISR); and the ability to call in close air support (CAS). On the other hand, over time, ISF units are expected to rely increasingly on their own capabilities for such support. A related issue may be the ability of AABs to continue the practice of providing mentorship through close relationships with equivalent Iraqi units. For example, under MNC-I, Multi-National Divisions (MND) were often able to provide a BCT to partner full-time with an Iraqi Army (IA) Division based in the same province; and MND Commanding Generals themselves developed close relationships with their IA counterparts. One option, under the AAB footprint, might be a transition from a relationship of "partnership" to one of "liaison" with less senior U.S. officers. The U.S.-Iraqi security agreement requires that all U.S. combat forces withdraw from Iraqi "cities, villages, and localities" no later than the time when the ISF assume security responsibility in the relevant province, and in any case no later than June 30, 2009. By early 2009, many U.S. forces had already pulled out of major urban areas, consolidating at large Forward Operating Bases (FOBs) and handing over to the ISF the responsibility to provide continual presence. The Obama drawdown and transition policy, including the planned withdrawal without replacement of 12,000 U.S. troops by September 2009, might serve to accelerate this shift. This dynamic marks a sharp departure from a basic premise of COIN in Iraq. Top U.S. commanders in Iraq long argued that "living where we work" is what made the counter-insurgency effort a success. This phrase refers to establishing a security presence in cities and towns, including small command outposts of U.S. forces, and Joint Security Stations that include both U.S. and various Iraqi forces. That presence, commanders have noted, allowed ongoing collaboration between U.S. and Iraqi forces, making those partnerships more effective, and it facilitated frequent interaction with the local population, building trust and confidence. In 2008, before the terms of the U.S.-Iraqi Security Agreement were finalized, U.S. commanders generally favored "thinning" the ranks in cities and towns over time – that is, using a progressively lighter but still dispersed U.S. footprint, as the ISF gradually assumed responsibility for providing the "presence" in each area. Looking ahead, one option is that some U.S. forces might retain a light, distributed presence in some urban areas, after the June 2009 deadline, in advisory capacities to the ISF. In December 2008, Commanding General of Multi-National Force-Iraq (MNF-I), General Raymond Odierno, noted that some U.S. forces were likely to remain inside cities and towns after June 2009, in order to continue to train and mentor Iraqi security forces. In March 2009, Deputy Commanding General of Multi-National Division-Baghdad, Brigadier General Fred Rudesheim, noted that somewhere under 10% of U.S. troops based in Baghdad, for example training teams that work with the Iraqi Army and National Police, might remain in the city past June 30, 2009. At the end of March 2009, MNC-I Commanding General LTG Austin noted that based on joint assessments, Iraqi officials were likely to request for a continuation of some U.S. force presence in Mosul and Diyala, beyond the deadline. The U.S.-Iraqi Security Agreement required the coordination of all U.S. military operations—including ground operations, air operations, and detainee operations—with Iraqi authorities. The Agreement required the establishment of a committee structure to elaborate more detailed implementing instructions; by February 2009, such a structure of committees and sub-committees, including Iraqi and U.S. civilian and military participation, was in place and functioning. In a December 2008 letter to the force, regarding the new Agreement, GEN Odierno noted that the new environment would "require a subtle shift in how we plan, coordinate, and execute missions throughout Iraq," and that new rules of engagement would be issued. In early 2009, MNF-I officials noted that the Security Agreement was the fundamental theme of current U.S. efforts in Iraq. The premise for future U.S. operations, according to MNC-I, is to "figure out how to get it done through Iraqis." A key issue is the further impact that the Security Agreement will have on U.S. operations. In practice, according to commanders on the ground, before the Security Agreement went into effect, the vast majority of U.S. operations were already closely coordinated with the GoI. Further, most of those operations were already "combined" with Iraqi forces. These transitions had been facilitated by the Provincial Iraqi Control (PIC) process, in which, by decision of the GoI in consultation with MNF-I, lead security responsibility for a given province was transferred to Iraqi control, based on assessments of security conditions and local ISF capabilities. Before the Security Agreement went into effect, 13 of 18 provinces had transitioned to PIC, and PIC arrangements generally required that U.S. operations be coordinated with the GoI. Another common practice, before the Security Agreement, was that the GoI granted approval in advance for U.S. forces to carry out certain categories of activities, or to take action against certain targets. The use of warrant-based arrests—now required—was already frequently practiced in 2008. As of early 2009, U.S. commanders on the ground, particularly those in PIC provinces, have reported a smooth transition to operations under the Security Agreement. One U.S. BCT commander, based in Qadisiyah province where the 8 th Iraqi Army Division is headquartered, stated: "We do all of our operations … by, with and through the Iraqi security forces. They're all joint. Anybody that we detain, we detain with a warrant." Concerning the use of Iraqi air space, the Security Agreement stated: "Surveillance and control over Iraqi airspace shall transfer to Iraqi authority immediately upon entry into force of this Agreement". It added a caveat: "Iraq may request from the United States forces temporary support for the Iraqi authorities in the mission of surveillance and control of Iraqi air space." The caveat is important because the capabilities of the Iraqi Air Force are still in the very early stages of development and training. In addition, that training has focused, first of all, on skills relevant to the ongoing counter-insurgency (COIN) fight, such as moving troops and supplies, and providing some ISR. U.S. officials have noted that Iraqi officials and commanders on the ground remain aware that they still lack key COIN capabilities such as sufficient ISR and CAS; that they acknowledge that they do not yet have the ability to defend Iraqi airspace; and that they remain eager for the support of U.S. air assets. In late 2008, U.S. officials expressed some confidence that it would be possible to reach agreements on shared use of air space. The Security Agreement did not address a parallel concern related to operational coordination: Iraqi coordination with U.S. forces concerning ISF operations. U.S. commanders on the ground report that it is increasingly common for ISF commanders to inform U.S. forces only after they have carried out local operations; some commanders add that these are positive developments in terms of growing ISF capabilities and initiative. At the same time, it could be helpful for U.S. forces to know in advance about significant ISF operations, for two reasons: first, the ISF might call on U.S. forces suddenly, during such operations, to provide key enablers; second, such operations could have an impact on U.S. force protection. Article 22 of the Security Agreement described provisions for detainee operations. One set of provisions placed tight constraints on the circumstances under which U.S. forces may take Iraqis into physical custody. Another set of provisions, of even more concern to U.S. commanders on the ground, specified how the cases of those detainees held by coalition forces would be further adjudicated. The Security Agreement mandated that U.S. forces provide information about all detainees held, and stated that Iraqi authorities would "issue arrest warrants for persons who are wanted by them." The agreement required U.S. forces to turn over custody of all "wanted" detainees, and then to release all remaining detainees "in a safe and orderly manner." In anticipation of a more stringent new detention regime, throughout 2008, MNF-I carried out a detainee release program, releasing detainees to their homes and communities whenever possible. As of late November 2008, U.S. forces held approximately 15,800 detainees in theater internment facilities, after releasing more than 17,500 during 2008. Some U.S. military commanders expressed concerns about the remaining "legacy" population. In many cases, for the detainees it held, the coalition lacked releasable evidence with legal sufficiency in Iraqi courts. Scrupulous collection of evidence—such as photographs, diagrams, eye-witness accounts—common in civilian law enforcement, was not always an integral part of coalition combat operations in Iraq. Such legacy detainees could pose real security threats to the Iraqi population, or to the coalition, commanders warned. Some coalition officials and outside observers also expressed concerns that the GoI adjudication of legacy detainee cases, whether or not legally sufficient evidence exists, might evince a sectarian bias—in particular, a tendency to treat Shiite Arabs more leniently than Sunni Arabs. In January 2009, Iraqi and U.S. officials reached an agreement that the U.S. military would transfer 1,500 detainees per month to Iraqi authorities. At the first such transfer, Iraqi officials had warrants for 42 of the 1,500; they chose to keep about 70 others for further investigation; and they planned to release the remaining persons to their home communities at a rate of about 50 per day. Some detainees have expressed fears that they may face harm if they return to their home communities, as part of the new release process; in those cases, the GoI reportedly agreed to help them resettle elsewhere. In March 2009, it was reported that six recently released detainees were abducted and killed by local police officers, in an apparent act of retaliation. Some local Iraqi officials, in turn, have expressed concerns that some released detainees may return to violence—for example, the deputy police chief in Fallujah, Anbar province, commented, "Of course they represent a threat." Over the course of Operation Iraqi Freedom, the balance of U.S. civilian and military roles and responsibilities has evolved to include a larger civilian footprint and a stronger civilian role, and integration between U.S. civilian and military efforts has increased over time. Looking ahead, as U.S. forces draw down, a key operational issue is the most effective future balance and pattern of U.S. civilian and military efforts in Iraq. As a rule, the military has played the preponderant role in OIF, including in non-traditional fields such as governance and reconstruction. As of 2008, the U.S. military remained the de facto default option in many cases, though military officers were usually the first to note that they lacked the requisite expertise. One key role of the U.S. military in Iraq throughout has been supporting civilian-led efforts to provide Iraqis with governance mentorship, and in particular, to build linkages among the national, regional, and local levels. As MNC-I officials noted, "Our job at Corps is to establish the connective tissue between the center and the provinces." As a rule, while PRTs focused on governance at the provincial level, military units, with far more boots on the ground, worked on a daily basis to foster governance at the district and local levels, and to help link those levels to higher levels of Iraqi government. Through early 2009, the U.S. military continued to provide some support for small-scale reconstruction initiatives, though unevenly across Iraq. Some commanders continued to facilitate the reopening of small businesses—and to use the number of reopened businesses as a metric of economic progress—while others decided to "give back," that is, "not spend," their Commanders Emergency Response Program (CERP) funds, in order to encourage Iraqis to budget and spend their own money. As security conditions on the ground in Iraq improved, civilian and military officials all pointed to increased opportunities for civilian assistance initiatives, particularly capacity-building at all levels. As one U.S. commander argued, "Embassy people should be out more every day now, like we are." Some provincial Iraqi officials, for their part, appear eager to welcome additional U.S. civilian expertise. In theory, one option, as U.S. troops draw down, would be to increase the U.S. civilian effort in Iraq in terms of personnel and resources, taking advantage of the improved security climate to boost support for Iraqi civilian capacity-building at the national, provincial, and local levels. In 2008, some key steps were taken to amplify U.S. government civilian assistance efforts at the provincial level, including authorization to add 66 civilian subject matter experts, in technical fields including agriculture and business development, to work with the PRTs. However, officials at U.S. Embassy Baghdad and at the Department of State noted that it was likely that peak PRT staffing levels in Iraq had already been reached. In 2008, the Embassy—in response to direction from Congress—began working on "PRT strategic drawdown" plans. The Obama Administration's drawdown and transition policy calls for consolidating PRT personnel at fewer locations, and for closely integrating the work of the PRTs and the AABs. In testimony before the House Armed Services Committee in January 2009, describing future plans, Secretary Gates noted: "The plans that General Odierno has developed in conjunction with Ambassador Crocker foresee that as we consolidate our forces, we would also consolidate our PRTs … so that the two would be stationed together and our forces would be in a position to continue to protect the civilian element." Some officials have suggested that those civil-military relationships might vary geographically, including closer integration—including co-location or even full integration into a single staff structure—where security conditions remain unsettled, and looser partnerships in relatively permissive areas. Good test cases are already available, in Najaf and Karbala provinces, for the ability of PRTs to function without a substantial co-located U.S. forces presence. In May 2008, the personnel of the PRTs for Najaf and Karbala provinces, who had been operating from a remote base in Hillah, in Babil province, relocated to their respective areas of operation. Najaf and Karbala were both PIC provinces at that time, with limited U.S. military presence. In Najaf, for example, in late 2008, the PRT, including a diverse team of civilian experts and a small U.S. military team that provided them with movement, was based at a small Forward Operating Base (FOB), together with a U.S. Army transition team that worked with the local Iraqi Army battalion and a small U.S. military "mayor's cell" that managed the installation. A team of private security contractors from Triple Canopy provided static security. In early 2009, U.S. officials in both Baghdad and Washington also pointed to Najaf as a possible model for the future. Over the course of OIF, the role of contractors supporting the operation has varied in both scope and scale. According to DOD, as of the first quarter of 2009, DOD had a total of 148,050 contractors in Iraq, including 39,262 U.S. citizens; 70,875 third-country nationals; and 37,913 host country nationals. A key operational issue looking ahead is the likely role of contractors supporting U.S. operations in Iraq as U.S. forces draw down. While some substantive requirements for contractor support may diminish, others could increase. For example, one of the three pillars of the mission of Advise and Assist Brigades, after August 2010, is to provide force protection to U.S. government civilians. As of early 2009, that function was performed, in many cases, by private security contractors. At the same time, requirements for some specialized contractor skills—for example, training and advisory support to the ISF – may increase as the U.S. force presence decreases. Another factor shaping the role of contractors may be explicit U.S. policy decisions. On January 31, 2009, MNF-I Commanding General, GEN Odierno, issued a directive instructing subordinate commanders to begin reducing their reliance on international contractors, including both U.S. and "third-country national" contractors, by five percent per quarter. The Directive noted that commanders should seek to replace them, where possible, with Iraqi contractors, and added, "As we transition more responsibility and control to the government of Iraq, it's time to make this change." A third factor shaping the role of contractors may be decisions stemming from provisions in the U.S-Iraqi Security Agreement that mandate, "Iraq shall have the primary right to exercise jurisdiction over United States contractors and United States contractor employees." In some instances, concerns about legal jurisdiction have reportedly prompted efforts by U.S. government agencies to transition key contractors to U.S. Government "term employee" status. For example, members of Human Terrain Teams—small teams of academic social scientists who support military units by engaging with the local population and "mapping" population characteristics and trends—were employed as contractors by BAE Systems. But in early 2009, reportedly in response to concerns about jurisdiction, the jobs were shifted to term appointments under the Department of the Army. One of the key operational issues with great potential impact on costs is the future disposition of U.S. military equipment as U.S. forces draw down. Several factors, in combination, are likely to shape equipment disposition decisions: Costs: In some cases, it may be more expensive to ship an item home than to leave it behind and replace it. Support to the ISF: Some U.S. military equipment and supplies may be required by the ISF to further develop their force—or even urgently required by the ISF to help prosecute the current COIN fight. Support for the war in Afghanistan: Some equipment, no longer required in Iraq, may be needed by U.S. military forces in Afghanistan. For example, U.S. Army engineering assets, urgently needed in Afghanistan, may be sent directly from one theater to the other. Stockpiles for future contingencies: Some equipment—particularly heavy equipment—may remain stockpiled in the CENTCOM theater, to support possible future contingencies, pending approval by host nations. Availability of Logistical Support: Redeploying equipment requires logistical support in the form of heavy equipment transports (HETs), whether military or commercial, to provide ground transportation; air assets; sea port capacity, including Kuwait and the Iraqi port of Um Qasr; as well as diplomatic permission from all other relevant host nations for basing, access, and/or overflight. A number of tools are available to Congress to help shape U.S. government policy toward Iraq, and the execution of that policy. One tool is limiting or prohibiting funding for certain activities. For example, the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 stated that no funding appropriated pursuant to authorizations in the Act could be used "to establish any military installation or base for the purpose of providing for the permanent stationing of United States Armed Forces in Iraq," or "to exercise United States control of the oil resources of Iraq." Congress may also make some funding contingent on achievement of certain milestones. For example, in the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ), Congress required that funding under Chapter 4 of the Act, "Department of State and Foreign Operations," be made available for assistance to Iraq "only to the extent that the Government of Iraq matches such assistance on a dollar-for-dollar basis." More broadly, in the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 , Congress established 18 benchmarks for the performance of the Government of Iraq, and provided that further U.S. strategy in Iraq would be conditioned on the Iraqi government's meeting those benchmarks. Another tool is holding oversight hearings, to ask Administration officials to account for the progress to date on policy implementation. For example, on September 10, 2008, the House Armed Services Committee invited Secretary of Defense Robert Gates and Chairman of the Joint Chiefs of Staff Admiral Michael Mullen to testify at a hearing entitled "Security and Stability in Afghanistan and Iraq: Developments in U.S. Strategy and Operations and the Way Ahead." On September 23, 2008, the Senate Armed Services Committee held a hearing on the situation in Iraq and Afghanistan, with Secretary Gates and General James Cartwright, Vice Chairman of the Joint Chiefs of Staff. Congress may also shape policy by establishing reporting requirements. For example, in the Supplemental Appropriations Act, 2008 ( P.L. 110-252 ), Congress required the Secretary of Defense to provide to Congress, every 90 days beginning not later than December 5, 2008, until the end of FY2009, a "comprehensive set of performance indicators and measures for progress toward military and political stability in Iraq." The Act lists detailed reporting requirements in two areas, stability and security in Iraq, and the training and performance of Iraqi security forces, and also required an assessment of "United States military requirements, including planned force rotations, through the end of calendar year 2009." This report is designed to support congressional consideration of future policy options for the war in Iraq by analyzing strategies pursued and outcomes achieved to date, by characterizing current dynamics on the ground in Iraq, and by identifying and analyzing key strategic and operational considerations going forward. The report will be updated as events warrant. Major topics addressed include the following: Analysis of future strategic and operational considerations. OIF war planning, including stated objectives, key debates in the major combat and post-major combat planning efforts, and the impact of apparent short-comings in the planning efforts on post-war developments. Major combat operations, including both successes and challenges encountered. Post-major combat military activities—combat operations, Iraqi security forces training, and an array of "reconciliation," governance, and economic reconstruction efforts—including analysis of evolutions over time in strategy and approaches. Assessments of the results of strategy and operations to date. The Administration's decision to launch Operation Iraqi Freedom had antecedents stretching back to the 1991 Gulf War and its aftermath. In the 1990's, the United States shared with other countries a concern with the Iraqi government's weapons of mass destruction (WMD) programs. Iraq had demonstrated a willingness to use WMD against its neighbors during the 1980-1988 Iran-Iraq war, and against its own citizens, as it did, for example, against Iraqi Kurds in Halabja in 1988. U.S. policy after the Gulf War supported the United Nations-led weapons inspection regime and the economic sanctions imposed to encourage Iraq's compliance with that regime. Before they were withdrawn in 1998, U.N. weapons inspectors located and destroyed sizable quantities of WMD in Iraq. U.S. post-Gulf War policy also included containment initiatives—"no fly" zones—imposed by the United States together with the United Kingdom and, initially, France. The northern "no fly" zone, Operation Northern Watch was designed to protect the Iraqi Kurdish population in northern Iraq and international humanitarian relief efforts there. Operation Southern Watch was designed to protect the Shiite Arab population in southern Iraq. These containment measures were periodically marked by Iraqi provocations, including troop build-ups and attempts to shoot down allied aircraft, and by allied responses including attacks on targets inside Iraq. In December 1998, the United States and the United Kingdom launched Operation Desert Fox, whose stated purpose was to degrade Iraq's ability to manufacture or use WMD. Also during the late 1990s, a policy climate more conducive to aggressive action against the Iraqi regime began to take shape in Washington, D.C., as some policy experts began to advocate actively fostering Iraqi resistance, in order to encourage regime change. In 1998, Congress passed the Iraq Liberation Act, authorizing support to Iraqi opposition organizations. Some supporters of this policy approach gained greater access, and in some cases office, under the Bush Administration after the 2000 presidential elections. For many U.S. policy makers, the September 11, 2001, attacks catalyzed or heightened general concerns that WMD might fall into the hands of terrorists. Reflecting those concerns, the first National Security Strategy issued by the Bush Administration, in September 2002, highlighted the policy of preemptive, or anticipatory, action, to forestall hostile acts by adversaries, "even if uncertainty remains as to the time and place of the enemy's attack." Throughout 2002, the stated position of the Administration was to aggressively seek Iraqi compliance with U.N. Security Council Resolutions concerning the inspections regime, while holding out the possibility of U.N Chapter VII action if Iraq did not comply. In September 2002, addressing the U.N. General Assembly, President Bush stated: "The Security Council Resolutions will be enforced ... or action will be unavoidable." On that occasion, President Bush also articulated a list of conditions that Iraq must meet if it wanted to avoid retaliatory action: give up or destroy all WMD and long-range missiles; end all support to terrorism; cease persecution of its civilian population; account for all missing Gulf War personnel and accept liability for losses; and end all illicit trade outside the oil-for-food program. On November 8, 2002, following intensive negotiations among its "Permanent 5" members, the U.N. Security Council issued Resolution 1441. In it, the Council decided that Iraq remained in "material breach" of its obligations; that the Council would afford Iraq "a final opportunity to comply"; that failure to comply would "constitute a further material breach"; and that in that case, Iraq would "face serious consequences." This language, though strong by U.N. standards, was not considered by most observers to imply "automaticity"—that is, that Iraqi non-compliance would automatically trigger a U.N.-authorized response under Chapter VII. While the Iraqi government eventually provided a large quantity of written materials, the Administration deemed Iraqi compliance to be insufficient. The Administration chose not to seek an additional U.N. Resolution explicitly authorizing military action under Chapter VII, reportedly due to concerns that some Permanent Members of the Council were prepared to veto it. The Administration's intent to take military action against Iraq was formally made public on March 17, 2003, when President Bush issued an ultimatum to Saddam Hussein and his sons to leave Iraq within 48 hours. "Their refusal to do so," he said, would "result in military conflict." As the Prussian military theorist Karl von Clausewitz wrote, war planning includes articulation of both intended goals and how they will be achieved. In the case of Operation Iraqi Freedom, Administration goals included both short-term military objectives and longer-term strategic goals. To meet that intent, the Administration planned—though apparently in unequal measure—for both combat operations and the broader range of operations that would be required on "the day after" regime removal. The Administration's short-term goal for OIF was regime removal. As President Bush stated in his March 17, 2003, Address to the Nation, "It is too late for Saddam Hussein to remain in power." In that speech, he promised Iraqis, "We will tear down the apparatus of terror ... the tyrant will soon be gone." In his March 2003 speech, President Bush declared that in the longer term, the United States would help Iraqis build "a new Iraq that is prosperous and free." It would be an Iraq, as he described it, that would not be at war with its neighbors, and that would not abuse its own citizens. Those were the basic "endstate" elements typically used by war planners. The U.S. Central Command (CENTCOM) OIF campaign plan, for example, described the strategic objective this way: "A stable Iraq, with its territorial integrity intact and a broad-based government that renounces WMD development and use and no longer supports terrorism or threatens its neighbors." Over time, the Administration's longer-term strategic objectives were fine-tuned. In the November 2005 National Strategy for Victory in Iraq, the Administration stated the long-term goal for Iraq this way: "Iraq is peaceful, united, stable, and secure, well-integrated into the international community, and a full partner in the global war on terrorism." In January 2007, at the time the "surge" was announced, the White House released an unclassified version of the results of its late 2006 internal review of Iraq policy. That document states: "Our strategic goal in Iraq remains the same: a unified, democratic, federal Iraq that can govern itself, defend itself, and sustain itself, and is an ally in the war on terror." In January 2009, in its regular quarterly update to the Congress, the Department of Defense (DOD) used almost the same language, with additional words to reflect the new security agreement: "The goal of the strategic partnership between the United States and Iraq remains a unified, democratic and federal Iraq that can govern, defend and sustain itself and is an ally in the war on terror." In March 2009, in its first Iraq report issued under the Obama Administration, DOD stated: "The United States seeks an Iraq that is sovereign, stable, and self-reliant; an Iraqi Government that is just, representative, and accountable; neither a safe haven for, nor sponsor of, terrorism; integrated into the global economy; and a long-term partner contributing to regional peace and security." To support the stated U.S. strategic objectives, CENTCOM, as it planned military operations in Iraq, defined the OIF military objectives this way: "destabilize, isolate, and overthrow the Iraqi regime and provide support to a new, broad-based government; destroy Iraqi WMD capability and infrastructure; protect allies and supporters from Iraqi threats and attacks; destroy terrorist networks in Iraq, gather intelligence on global terrorism, detain terrorists and war criminals, and free individuals unjustly detained under the Iraqi regime; and support international efforts to set conditions for long-term stability in Iraq and the region." From a military perspective, there are theoretically many different possible ways to remove a regime—using different capabilities, in different combinations, over different timelines. The 1991 Gulf War, for example, had highlighted the initial use of air power in targeting key regime infrastructure. The more recent war in Afghanistan had showcased a joint effort, as Special Operations Forces on the ground called in air strikes on key targets. Key debates in OIF major combat planning concerned the size of the force, the timelines for action, and the synchronization of ground and air power. According to participants, throughout the planning process, Secretary of Defense Donald Rumsfeld played an active role, consistently urging the use of a streamlined force and a quick timeline. Secretary Rumsfeld reportedly came into office with a vision of defense transformation, both operational and institutional. A basic premise of that vision, captured in the 2002 National Security Strategy , was that "... the threats and enemies we must confront have changed, and so must our force." In general, that meant transitioning from a military "structured to deter massive Cold War-era armies," to a leaner and more agile force. At issue in the OIF planning debates was not only how to fight the war in Iraq, but also—implicitly—how to organize, man, train and equip the force for the future. For military planners, the guidance to use a streamlined force reflected a fundamental shift away from the Powell Doctrine, named after the former Chairman of the Joint Chiefs of Staff, which stressed that force, if used, should be overwhelming. The planning effort started early. Just before Thanksgiving, 2001, President Bush asked Secretary Rumsfeld to develop a plan for regime removal in Iraq, and Secretary Rumsfeld immediately gave that assignment to the commander of U.S. Central Command (CENTCOM), General Tommy Franks. The planning effort for combat operations was initially very "close hold," involving only a few key leaders and small groups of trusted planners at each level. As the effort progressed, the number of people involved grew, but key elements of the plans remained compartmentalized, such that few people had visibility on all elements of the plans. The starting point for the planning effort was the existing, "on the shelf" Iraq war plan, known as 1003-98, which had been developed and then refined during the 1990's. That plan called for a force of between 400,000 and 500,000 U.S. troops, including three Corps (or Corps equivalents), with a long timeline for the deployment and build-up of forces beforehand. When General Franks briefed Secretary Rumsfeld on these plans in late November 2001, Secretary Rumsfeld reportedly asked for a completely new version—with fewer troops and a faster deployment timeline. In early 2002, General Franks briefed Secretary Rumsfeld on the "Generated Start" plan. That plan called for very early infiltration by CIA teams, to build relationships and gain intelligence, and then the introduction of Special Operations Forces, particularly in northern Iraq and in Al Anbar province in the west. The main conventional forces effort would begin with near-simultaneous air and ground attacks. The force would continue to grow up to about 275,000 troops. CENTCOM's air component—the Combined Force Air Component Command (CFACC)—reportedly urged modifying the plan to include a 10- to 14-day air campaign at the start, to target and hit Iraq's missile, radar, command and control, and other leadership sites, on the model of the Gulf War. But the early introduction of ground forces—rather than an extended exclusively air campaign—was apparently intended to take Iraqi forces by surprise. Later in the spring of 2002, CENTCOM and subordinate planners developed an alternative plan called "Running Start," which addressed the possibility that the Iraqi regime might choose the war's start time through some provocation, such as the use of WMD. "Running start" called for a smaller overall force and a shorter timeline. It would still begin with infiltration by CIA teams, followed by the introduction of SOF. Air attacks would go first, and as ground forces flowed into theater, the ground attacks could begin any time after the first 25 days of air attacks. The ground war might begin with as few as 18,000 ground forces entering Iraq. In the summer of 2002, planners developed a so-called "hybrid" version of these two plans, which echoed key elements of the "Running Start" plan—beginning with an air campaign, and launching the ground war while other ground forces still flowed into theater. Specifically, the plan called for: Presidential notification 5 days in advance; 11 days to flow forces; 16 days for the air campaign; the start of the ground campaign as ground forces continued to flow into theater; and a total campaign that would last up to 125 days. This plan, approved for action, continued to be known as the "5-11-16-125" plan even after the numbers of days had changed. By January 2003, at the CENTCOM Component Commanders Conference hosted by General Franks in Tampa, the plans had coalesced around a modified version of "Generated Start." They featured a very short initial air campaign, including bombs and missiles—a couple of days, rather than a couple of weeks. The ground campaign would begin with two three-star-led headquarters—U.S. Army V Corps, and the I Marine Expeditionary Force—and some of their forces crossing the line of departure from Kuwait into Iraq, while additional forces continued to flow into theater. Meanwhile, the 4 th Infantry Division would open a northern front by entering Iraq from Turkey. The number of forces that would start the ground campaign continued to be adjusted, generally downward, in succeeding days. On January 29, 2003, Army commanders learned that they would enter Iraq with just two Divisions—less than their plans to that point had reflected. At that time, V Corps and its subordinate commands were at a training site in Grafenwoehr, Germany, rehearsing the opening of the tactical-level ground campaign at an exercise called "Victory Scrimmage." During that exercise, commanders and staff concluded that should they be required to "secure" cities in southern Iraq, they would have insufficient forces to do so. The V Corps Commander at the time, then-Lieutenant General William Scott Wallace, reflected after the end of major combat in Iraq: "I guess that as summer [arrived] I wasn't real comfortable with the troop levels." Most observers agree that the Administration's planning for "post-war" Iraq—for all the activities and resources that would be required on "the day after," to help bring about the strategic objective, a "free and prosperous Iraq"—was not nearly as thorough as the planning for combat operations. For the U.S. military, the stakes of the post-war planning efforts were very high. In theory, civilian agencies would have the responsibility for using political, diplomatic, and economic tools to help achieve the desired political endstate for Iraq, while the Department of Defense and its military forces would play only a supporting role after the end of major combat operations. But by far the greatest number of coalition personnel on the ground in Iraq at the end of major combat would be U.S. military forces, and the U.S. military was very likely to become the default option for any unfilled roles and any unanticipated responsibilities. A number of participants and observers have argued that the Administration should have sent a larger number of U.S. troops to Iraq, to provide security in the post-major combat period. Ambassador L. Paul Bremer, who served as the Administrator of the Coalition Provisional Authority (CPA) throughout the formal occupation of Iraq, leveled this criticism after departing Iraq. Asked what he would have changed about the occupation, he replied: "The single most important change—the one thing that would have improved the situation—would have been having more troops in Iraq at the beginning and throughout." A logical fallacy in the number-of-troops critique is that "How many troops do you need?" is not an especially meaningful question, unless what those troops will be expected to do is clarified. By many accounts, the OIF post-war planning process did not provide commanders, before the start of combat operations, with a clear picture of the extent of their assigned post-war responsibilities. A primary focus of the interagency post-war-planning debates was who would be in charge in Iraq, on "the day after." For the military, decisions by the Administration about who would do what would help clarify the military's own roles and responsibilities. Before making such decisions—in particular, what responsibilities would be carried out by Iraqis—the Administration cultivated Iraqi contacts. Based on months of negotiations, in conjunction with the government of the United Kingdom, the Administration helped sponsor a series of conferences of Iraqi oppositionists, including expatriates and some Iraqis—notably Iraqi Kurds—who could come and go from their homes. The events included a major conference in London in December 2002, and a follow-on event in Salahuddin, Iraq, in February 2003. At these events, Iraqi oppositionists agreed on a political statement and self-nominated a "leadership council," but the events did not directly produce U.S. policy decisions about post-war roles and responsibilities. During the same time frame, the Departments of State and Defense were locked in debate about post-war political plans for Iraq. The State Department supported a deliberate political process, including slowly building new political institutions, based on the rule of law, while, in the meantime, Iraqis would serve only in advisory capacities. Through the second half of 2002, the State Department's "Future of Iraq" project brought together Iraqi oppositionists and experts, in a series of working groups, to consider an array of potential post-war challenges. While a tacit goal of the project was to identify some Iraqis who might serve in future leadership positions, it was not designed to produce a slate of leaders-in-waiting. The project was also not designed to produce formal plans. However, some of the ideas it generated did reportedly help operational-level military planners refine their efforts, and the project might have had a greater impact had more of its output reached the planners. The Department of Defense (DOD)—more specifically and accurately the Office of the Secretary of Defense (OSD)—favored putting Iraqis in charge of Iraq, in some form, as soon as possible, based loosely on the model of Afghanistan. A "real" Iraqi leadership with real power, some officials believed, might find favor with the Iraqi people and with neighboring states, and might shorten the length of the U.S. commitment in Iraq. As Secretary Rumsfeld reportedly told President Bush in August 2002, "We will want to get Iraqis in charge of Iraq as soon as possible." In the fall of 2002, no clear decision emerged about the role of Iraqis in immediate post-war Iraq. Discussions among senior leaders apparently focused on the concept of a U.S.-led "transitional civil administration" that would govern, or help govern, Iraq. However, no agreement was reached at that time about what authority such a body would have, what its responsibilities would be, how long it would last, or which Iraqis would be involved. In January 2003, Administration thinking coalesced around a broad post-war political process for Iraq, captured in what was universally known at the time as the "mega-brief." The approach favored the State Department's preference for a deliberate process that would give Iraqi post-Saddam political life a chance to develop organically, but it also acknowledged DOD's concern to provide a visible Iraqi leadership—though very weakly empowered—as soon as possible. The "mega-brief" process would include creating a senior-level Iraqi Consultative Council (ICC) to serve in an advisory capacity; dismissing top Iraqi leaders from the Saddam era but welcoming most lower-ranking officials to continue to serve; creating an Iraqi judicial council; holding a national census; conducting municipal elections; holding elections to a constitutional convention that would draft a constitution; carrying out a constitutional referendum; and then holding national elections. It was envisaged that the process would take years to complete. The "mega-brief" approach—which gained currency just as U.S. troops were conducting final rehearsals for the war—implied that many governance tasks would need to be performed by coalition (non-Iraqi) personnel, whether civilian or military, for some time to come. Military commanders and planners typically base operational plans on policy assumptions and clearly specify those assumptions at the beginning of any plans briefing. For OIF planners, the critical policy assumptions concerned who would have which post-war roles and responsibilities. OIF preparations reversed the usual sequence, in that military planning began long before the key policy debates, let alone policy conclusions. During their planning process, military commanders apparently sought to elicit the policy guidance they needed by briefing their policy assumptions and hoping for a response. In December 2001, in his first OIF brief to President Bush, General Franks included as one element of the mission: "establish a provisional Iraqi government," but this measure was neither confirmed nor rejected. General Franks wrote later that as he briefed this to the President, he had in mind the Bonn Conference for Afghanistan. In August 2002, still without a policy decision about post-war responsibilities, CENTCOM included in its war plans briefing the assumption: "DoS [Department of State] will promote creation of a broad-based, credible provisional government prior to D-Day." Unable to determine what Iraqi civilian structure they would be asked to support, the military sought to elicit guidance about the coalition's own post-war architecture and responsibilities. According to General Franks, the CENTCOM war plans slides briefed to President Bush and the National Security Council on August 5, 2002, included the intentionally provocative phrase, "military administration," but no decision about post-war architecture was made at that time. Two months later, the OIF plans slides included, for the first time, a full wiring diagram of the coalition's post-war structure, describing post-war responsibilities in a "military administration." A "Joint Task Force" would be responsible for security, a civilian "High Commissioner" would be responsible for all other functions; and both would report to CENTCOM. This chart still failed to prompt a decision, although Office of the Secretary of Defense staff reportedly spent the ensuing weeks considering "High Commissioner" candidates, just in case. By late 2002, in the absence of detailed policy guidance, military commanders at several levels had launched "Phase IV" planning efforts, to identify and begin to prepare for potential post-war requirements. In January 2003, based on a recommendation that came out of the "Internal Look" exercise conducted in Kuwait in December 2002, Brigadier General Steve Hawkins was named to lead a new "Task Force IV." TFIV, an ad hoc organization, was tasked to conduct post-war planning, and to prepare to deploy to Baghdad as the nucleus of a post-war headquarters. TFIV was dispatched immediately to Kuwait, to work under the operational control of the Combined Forces Land Component Command (CFLCC)—the ground forces component of CENTCOM—and its commanding general, Lieutenant General David McKiernan. TFIV thus provided skilled labor, but no connectivity to the still on-going Washington policy debates about the post-war division of responsibilities. In March 2003, CFLCC launched a dedicated post-war planning effort of its own, led by Major General Albert Whitley (UK), who was part of the CFLCC leadership. His more comprehensive effort—known as Eclipse II—benefitted from close connectivity with its sister-effort, CFLCC's combat operations planning, but lacked direct access to the broader Washington policy debates. In addition to lacking policy guidance about post-war roles and responsibilities, these operational-level planning efforts lacked insight into key aspects of the current state of affairs in Iraq. For example, planning assumed that Iraqis, in particular law enforcement personnel, would be available and willing to resume some civic duties on the "day after." Also, plans did not recognize the deeply degraded status of Iraqi infrastructure, such as electricity grids. On January 20, 2003, by National Security Presidential Directive 24, the President created the Organization for Reconstruction and Humanitarian Assistance (ORHA), to serve first as the post-war planning office in the Pentagon, and then to deploy to Iraq. Throughout, ORHA would report to the Department of Defense. Retired Army Lieutenant General Jay Garner, who had led Operation Provide Comfort in northern Iraq after the Gulf War, was appointed to lead ORHA. He quickly brought on board a team of other retired Army general officers to serve in key leadership positions. ORHA held its founding conference on February 20 and 21, 2003, at the National Defense University. Participants included the fledgling ORHA staff, representatives of civilian agencies that would contribute to the effort, and representatives of the military commands—long since deployed to Kuwait—that would become ORHA's partners. As briefed at NDU, ORHA would be responsible for three pillars of activity in post-war Iraq—Civil Affairs, Humanitarian Affairs, and Reconstruction—while the military would be responsible for security. Those ORHA efforts would commence in each area as soon as major combat operations ended. The most important constraint was time—the civilian agencies were not organized or resourced to be able to provide substantial resources or personnel by the start of major combat operations. ORHA's command relationships with other Department of Defense bodies were initially a topic of dispute. During ORHA's "post-war planning office" days inside the Pentagon, General Garner reported directly to Secretary Rumsfeld. It was generally agreed that, once in the field, ORHA would fall under CENTCOM. CFLCC insisted that ORHA would also fall under CFLCC, but ORHA resisted that arrangement. Shortly after the founding conference at NDU, ORHA deployed to Kuwait with a skeleton staff and limited resources, and set up its headquarters at the Kuwait Hilton. Major combat operations in Iraq, launched in March 2003, roughly followed the course that had been outlined at the CENTCOM Component Commanders Conference in January that year. The coalition force was both joint—with representatives from all the U.S. military services—and combined—with participants from coalition partner countries. As long planned, the effort had actually begun before the full-scale launch, with early infiltration into Iraq by the CIA, including the so-called Northern and Southern Iraq Liaison Elements (NILE and SILE), whose task was to gather intelligence, form relationships, and lay the groundwork for the early entry of Special Operations Forces (SOF). SOF, in turn, had also entered Iraq before the formal launch. Among other missions, SOF secured bases in Al Anbar province in western Iraq, secured suspected WMD sites, pursued some of the designated "high-value targets," and worked closely with Iraqi Kurdish forces in northern Iraq—the pesh merga —to attack a key stronghold of the designated Foreign Terrorist Organization, Ansar al-Islam. Special operations forces in OIF, like the conventional forces, were both joint and combined—including contingents from the United Kingdom, Australia and Poland. Defense expert Andrew Krepinevich estimated that "nearly 10,000" SOF took part in OIF major combat. The visible public launch of OIF took place on March 20, 2003, shortly after the expiration of President Bush's 48-hour ultimatum to Saddam Hussein and his sons (see above, "Ultimatum to Saddam Hussein"). After months of debate about the sequencing of the air and ground campaigns, the planned sequence shifted in two major ways at the last minute. By early 2003, the plans called for beginning with a short air-only campaign, followed by the ground invasion. However, late-breaking evidence gave rise to stronger concerns that the Iraqi regime would deliberately destroy its southern oil wells, so the timing of the ground forces launch was moved up, ahead of the scheduled air campaign launch. Then, even closer to launch time, the CIA obtained what seemed to be compelling information about Saddam Hussein's location—at Dora Farms near Baghdad. In the early hours of March 20, just as the ultimatum expired, a pair of F-117 fighters targeted the site. That attack narrowly followed a barrage of Tomahawk missiles, launched from ships at key leadership sites in Baghdad. That night, coalition ground forces crossed the line of departure from the Kuwaiti desert into southern Iraq. The following day, March 21, 2003, brought the larger-scale "shock and awe" attacks on Iraqi command and control and other sites, from both Air Force and Navy assets. Early Iraqi responses included setting a few oil wells on fire, and firing a few poorly directed missiles into Kuwait, most of which were successfully intercepted by Patriot missiles. The ground campaign was led by Army Lieutenant General David McKiernan, the Commanding General of the Combined Forces Land Component Command (CFLCC), the ground component of CENTCOM. The strategy was a quick, two-pronged push from Kuwait up through southern Iraq to Baghdad. Under CFLCC, the ground "main effort" was led by U.S. Army V Corps, under Lieutenant General William Scott Wallace. V Corps was assigned the western route up to Baghdad, west of the Euphrates River. Meanwhile, the 1 st Marine Expeditionary Force (IMEF), led by Lieutenant General James Conway, was assigned the eastern route, closer to the border with Iran. From a tactical perspective, for both the Army and the Marines this was a very long projection of force—over 600 kilometers from Kuwait up to Baghdad, and more for those units that pushed further north to Tikrit or to Mosul. Those long distances reportedly strained capabilities including logistics and communications. The Marines were assigned the eastern route up to Baghdad—with more urban areas than the Army's western route. The basic strategy still called for a quick drive to Baghdad. Just across the border into Iraq, IMEF took the far southern port city of Umm Qasr. The UK First Armored Division, which fell under IMEF, was tasked to take Basra, Iraq's second largest city. The UK Division faced resistance from members of the paramilitary force Saddam Fedayeen and others still loyal to the Ba'ath Party. To limit casualties in the large urban area, rather than enter the city immediately in full force, the Division used a more methodical elimination of opponents, combined with outreach to the population to explain their intentions. IMEF supported the Division's use of a slow and deliberate tempo. After several weeks of gradual attrition, the Division pushed into Basra on April 6, 2003. The main IMEF force encountered some resistance as they pushed north, in particular at the town of Nassiriyah, a geographical choke-point. At Nassiriyah, "there were a number of things that seemed to hit us all about the same time, that dented our momentum," LtGen Conway later noted. There, the Marines suffered casualties from a friendly fire incident with Apaches. As widely reported, the Army's 507 th Maintenance Company lost its way in the area and stumbled into an ambush, in which some personnel were killed and others, including PFC Jessica Lynch, were taken hostage. The area was blanketed by fierce desert sandstorms. And the Saddam Fedayeen put up a determined resistance—"not a shock, but a surprise," as LtGen Conway later reflected. Evidence suggested that additional Iraqi fighters, inspired by the ambush carried out by the Fedayeen, came from Baghdad to Nassiriyah to join the fight. After the defeating the resistance at Nassiriyah, the Marines pushed up to Baghdad along their eastern route. In the west, the Army faced a longer distance but a less-populated terrain. V Corps began combat operations with two divisions under its command, the Third Infantry Division (3ID), under Major General Buford Blount, and the 101 st Airborne Division (101 st ), under Major General David Petraeus. The 3ID rapidly led the western charge to Baghdad, moving speedily through the south and reaching Saddam International Airport on April 4. The division launched its first "thunder run"—a fast, armored strike—into Baghdad on April 5, and the second on April 7. The purpose of the first, according to the Brigade Commander in charge, Colonel David Perkins, was "to create as much confusion as I can inside the city." The purpose of the second was "to make sure, in no uncertain terms, that people knew the city had fallen and we were in charge of it." The 101 st followed the 3ID up the western route through southern Iraq, clearing resistance in southern cities and allowing the 3ID to move as quickly as possible. Soldiers from the 101 st faced fighting in key urban areas—Hillah, Najaf, Karbala. Just after mid-April, the division arrived and set up its headquarters in Mosul, in northern Iraq. Like the Marines, the Army was somewhat surprised by the resistance they encountered from the Saddam Fedayeen. LTG Wallace apparently caused some consternation at higher headquarters levels with his candid remarks to the press in late March: "The enemy we're fighting is different from the one we'd war-gamed against." He explained, "The attacks we're seeing are bizarre—technical vehicles with .50 calibers and every kind of weapon charging tanks and Bradleys." Coupled with major sand storms, these attacks posed challenges to the ground forces' long supply lines—"lines of communication"—running up from Kuwait over hundreds of miles through southern Iraq. In the north, on March 26, 2003, about 1,000 soldiers from the 173 rd Airborne Brigade, part of the Army's Southern European Task Force based in Italy, parachuted into northern Iraq. They began their mission by securing an airfield so that cargo planes carrying tanks and Bradleys could land. Once on the ground, the 173 rd , working closely with air and ground Special Operating Forces and with Kurdish pesh merga forces, expanded the northern front of OIF. Initial coalition plans had called for the heavy 4 th Infantry Division (4ID) to open the northern front by crossing into Iraq from Turkey. The intended primary mission was challenging Iraqi regular army forces based above Baghdad. A more subtle secondary mission was to place limits on possible Kurdish ambitions to control more territory in northern Iraq, thus providing some reassurance to the Government of Turkey and discouraging it from sending Turkish forces into Iraq to restrain the Kurds. By early 2003, 4ID equipment was sitting on ships circling in the eastern Mediterranean Sea, waiting for an outcome of the ongoing negotiations with the Turkish government. But on March 1, 2003, the Turkish parliament rejected a proposal that would have allowed the 4ID to use Turkish territory. Iraqi opposition fighters made a very limited contribution to coalition major combat efforts. Before the war, the Office of the Secretary of Defense had launched an ambitious program to recruit and train up to 3,000 Iraqi expats, to be known as the "Free Iraqi Forces." Training, by U.S. forces, took place in Taszar, Hungary. Ultimately, the number of recruits and graduates was much lower than originally projected. Most graduates did deploy to Iraq, where they served with U.S. forces primarily as interpreters or working with local communities on civil affairs projects. Meanwhile, in late March 2003, Iraqi expatriate oppositionist Ahmed Chalabi contacted U.S. officials with a request to send a group of his own fighters from northern to southern Iraq to join the fight. After some discussion, agreement was reached and a U.S. military flight was arranged. In early April, Chalabi and 600 fighters stepped off the plane at Tallil air base in southern Iraq. The forces were neither equipped nor well-organized. Accounts from many observers, in succeeding months, suggested that some members of the group engaged in lawless behavior. On April 9, 2003, the statue of Saddam Hussein in Firdos square in Baghdad was toppled. Two days after the second 3ID "thunder run," this event signaled for many observers, inside and outside Iraq, that the old Iraqi regime had ended. Consistent with the war plans from "Generated Start" onward, U.S. forces continued to flow into Iraq. The 4 th Infantry Division (4ID), diverted from its original northern front plans, had re-routed its troops and equipment to Kuwait. 4ID forces began entering Iraq on April 12, 2003. The 1 st Armored Division (1AD) also began arriving in April 2003. According to the planning, the 1 st Cavalry Division (1CD) was scheduled to be next in line. However, in April 2003, Secretary Rumsfeld, in coordination with General Franks, made the decision that 1CD was not needed in Iraq at that time—a decision that apparently caused consternation for some ground commanders. As soon as it became apparent that the old regime was no longer exercising control, widespread looting took place in Baghdad and elsewhere. Targets included government buildings, and the former houses of regime leaders, but also some private businesses and cultural institutions. Leaders of the Iraqi National Museum in Baghdad reported, for example, that "looters had taken or destroyed 170,000 items of antiquity dating back thousands of years." Looters and vandals also targeted unguarded weapons stockpiles largely abandoned by former Iraqi security forces. Some observers and coalition participants suggested that the coalition simply did not have enough troops to stop all the unlawful behavior. Meanwhile, U.S. senior leadership attention had turned to Iraq's political future. In April, the President's "Special Envoy for Free Iraqis," Ambassador Zalmay Khalilzad, chaired two "big tent" meetings of Iraqis. The first was held on April 15, 2003, at the ancient city of Ur, near Tallil air base, and the second was held on April 28, at the Baghdad Convention Center. Participants include expatriate opposition leaders and Iraqi Kurds, together with a number of in-country community leaders who had been identified by the CIA and other sources. The sessions focused on discussion of broad principles for Iraq's future, rather than specific decisions about Iraqi leadership roles. On May 1, 2003, President Bush, standing aboard the USS Abraham Lincoln, declared an end to major combat operations in Iraq. He stated, "In the battle of Iraq, the United States and our allies have prevailed." At that point, the old Iraqi regime, though not completely dismantled, was no longer able to exercise control over Iraq's territory, resources, or population. Saddam Hussein was captured later, on December 13, 2003, by units of 4ID, outside his hometown Tikrit. This Report uses the term "post-major combat" to refer to the period from the President's announcement of the end of major combat, on May 1, 2003, to the present. This period has not been monolithic—it has included evolutions in national and military strategy, and in the specific "ways and means" used to pursue those strategies on the ground, as described below. From a political and legal perspective, the major marker after May 1, 2003, was the June 28, 2004, transition of executive authority from the occupying powers back to Iraqis. From a military perspective, the period after May 1, 2003, has included a continuation of combat operations as well as the introduction of many new missions. From the time of regime removal until June 28, 2004, the coalition was formally an occupying force. Shortly after the end of major combat, in May 2003, the United Nations Security Council recognized the United States and the United Kingdom as "occupying powers," together with all the "authorities, responsibilities, and obligations under international law" that this designation entails. Somewhat belatedly, in October 2003, the United Nations authorized a "multi-national force under unified command to take all necessary measures to contribute to the maintenance of security and stability in Iraq." That language referred to the coalition military command in Iraq at the time—the Combined Joint Task Force-7 ("CJTF-7"). As the deadline for the "transfer of sovereignty"—June 30, 2004—approached, U.S. and new interim Iraqi officials negotiated the terms for the presence and activities in Iraq, after that date, of the newly re-organized multi-national force, now called the Multi-National Force-Iraq ("MNF-I"). Agreement was reached to reflect the terms of that presence in the unusual form of parallel letters, one from U.S. Secretary of State Colin Powell, and one from Iraqi Prime Minister Ayad Allawi, to the President of the UN Security Council. Those letters were appended to U.N. Security Council Resolution 1546, issued on June 8, 2004. That U.N. Resolution reaffirmed the authorization for the multi-national force and extended it to the post-occupation period—on the grounds that it was "at the request of the incoming Interim Government of Iraq." It repeated the authorization language used in the October 2003 Resolution, with an important qualifier: the force was now authorized to "take all necessary measures to contribute to the maintenance of security and stability in Iraq in accordance with the letters annexed to this resolution." The U.S. letter spelled out the tasks the multi-national force would undertake, including combat operations, internment, securing of weapons, training and equipping Iraqi security forces, and participating in providing humanitarian assistance, civil affairs support, and relief and reconstruction assistance. Some of the early U.S.-Iraqi discussions had considered the possibility that Iraqi forces might, in some cases, fall under the command of the multinational force. However, the U.N. Resolution and the appended letters made clear that the command-and-control relationship between the Iraqi government and the multi-national force would be strictly one of coordination, not command. The Resolution called the relationship a "security partnership between the sovereign Government of Iraq and the multinational force." Both letters described coordination modalities to help ensure unity of effort. Both stated the intention to make use of "coordination bodies at the national, regional, and local levels," and noted that multi-national force and Iraqi officials would "keep each other informed of their activities." Further parameters of the MNF-I presence in Iraq were spelled out in a revised version of Order 17 of the Coalition Provisional Authority, issued on June 27, 2004. The document addressed issues including legal immunities, communications, transportation, customs, entry and departure, for government civilians and contractors as well as military forces. Issued by the legal executive authority of Iraq at the time, the Order was to remain in force "for the duration of U.N. Resolution mandates including subsequent Resolutions, unless rescinded or amended by Iraqi legislation." The final U.N. authorization, issued on December 18, 2007, extended through December 31, 2008. In requesting that authorization, in a letter appended to the UN Resolution, Iraqi Prime Minister Nuri al-Maliki made clear that it would be the final request by the Government of Iraq for an extension of the current mandate. The Iraqi Government, he wrote, "expects, in future, that the Security Council will be able to deal with the situation in Iraq without the need for action under Chapter VII of the Charter of the United Nations." In November 2008, the U.S. and Iraqi governments concluded a new status of forces-like agreement – the "security agreement" – which took effect on January 1, 2009, and which defines the legal terms of the presence of U.S. military forces, and the civilians who support them, in Iraq. Since the declared end of major combat operations, the formal relationships among U.S. military and civilian organizations operating in Iraq have shifted several times, in important ways. The period of formal occupation was characterized by multiple, somewhat confusing relationships. In late April 2003, LTG McKiernan, Commanding General of the Combined Forces Land Component Command (CFLCC), issued a proclamation stating: "The coalition alone retains absolute authority within Iraq." CFLCC, the military face of the coalition in Iraq, maintained a small headquarters presence in Baghdad, at the Al Faw Palace at Camp Victory, while the majority of its staff remained in their pre-war location at Camp Doha, Kuwait. The civilian face of the coalition in Iraq, in that time frame, was the Organization for Reconstruction and Humanitarian Assistance (ORHA), whose small staff had arrived in Baghdad in late April. The basic civil-military division of labor was clear—CFLCC was responsible for security, while ORHA focused on reconstruction and humanitarian issues. The command relationship between the two, debated before the war, was never clearly resolved during the very short duration of their partnership on the ground in Iraq. In early May 2003, President Bush announced his intention to appoint a senior official to serve as Administrator of a new organization, the Coalition Provisional Authority, which would serve as the legal executive authority of Iraq—a much more authoritative mandate than ORHA had held. On May 9, 2003, Ambassador L. Paul "Jerry" Bremer arrived in Baghdad with a small retinue, to take up the assignment. By mandate, Ambassador Bremer reported through the Secretary of Defense to the President. Later, in fall 2003, the White House assumed the lead for coordinating efforts in Iraq, and Ambassador Bremer's direct contacts with the White House became even more frequent. On June 15, 2003, the headquarters of U.S. Army V Corps, now led by Lieutenant General Ricardo Sanchez, assumed the coalition military leadership mantle from CFLCC—and the new body was named the CJTF-7. CJTF-7 reported directly to CENTCOM, and through it to the Secretary of Defense. At the same time, CJTF-7 served in "direct support" to CPA. In the view of many observers, that dual chain of command and accountability was not a recipe for success—particularly when the CENTCOM Commanding General and the CPA Administrator disagreed with each other. In May 2004, CJTF-7 separated into a higher, strategically focused headquarters, the Multi-National Force-Iraq (MNF-I), still led by LTG Sanchez, and a lower, operationally focused headquarters, the Multi-National Corps-Iraq (MNC-I). MNF-I retained CJTF-7's "direct support" relationship with CPA until the end of the formal occupation. CJTF-7 itself was a combined force, including a UK Deputy Commanding General, and many key staff members, as well as contingents, from coalition partner countries. As a rule, those representatives maintained direct communication with their respective capitals. CPA, too, was "combined," including a senior UK official who shared the leadership role, though not executive signing authority, with Ambassador Bremer, and who maintained a regular and full channel of communication with the UK government in London. On June 28, 2004, at the "transfer of sovereignty," the Coalition Provisional Authority ceased to exist. The new U.S. Embassy, led by Ambassador John Negroponte, inherited none of CPA's executive authority for Iraq—like other U.S. Embassies around the world, it simply represented U.S. interests in Iraq. The relationship between the Embassy and MNF-I—led by General George Casey beginning on July 1, 2004—was strictly one of coordination. The Multi-National Force-Iraq (MNF-I), like its predecessor CJTF-7, is a joint, combined force. It includes some Department of Defense civil servants, and it is supported by civilian contractors. The MNF-I headquarters, located in Baghdad, is the strategic-level headquarters, currently led, as of September 16, 2008, by U.S. Army General Raymond Odierno. The position of MNF-I Deputy Commanding General (DCG) has always been filled by a general officer from the United Kingdom—since March 2009, Lieutenant General Chris Brown has served simultaneously as MNF-I DCG and Senior British Military Representative to Iraq. The MNF-I staff is an ad hoc headquarters, including senior leaders and staff provided individually by the U.S. military services and by coalition partner countries. The Multi-National Corps-Iraq (MNC-I), also located in Baghdad, is the operational-level headquarters, reporting to MNF-I. Its role is synchronizing coalition forces actions throughout Iraq. MNC-I is built around a U.S. Army Corps. As of April 2009, the nucleus of MNC-I is I Corps, led by Army Lieutenant General Charles Jacoby, which replaced the XVIII Airborne Corps led by Lieutenant General Lloyd Austin. In each rotation, the Army Corps staff is augmented by additional U.S. and coalition partner senior leaders and staff. The structure and staffing of both MNF-I and MNC-I have evolved significantly from the early days of OIF. When U.S. Army V Corps became the nucleus of CJTF-7, in June 2003, its pre-war planning and exercising, and its OIF wartime experience, had been focused on the tactical-level ground campaign. Its senior staff positions were filled by Colonels; those senior positions were only gradually filled by General Officers over the course of summer and fall 2003. Under the command of MNC-I, Divisions or their equivalents are responsible for contiguous areas covering all of Iraq. The boundaries of the divisional areas of responsibility have shifted somewhat over time, to accommodate both shifting security requirements and major changes in deployments by coalition partner countries. The total number of U.S. forces in Iraq peaked early, during major combat operations, at about 250,000 troops. Since then, the number has varied greatly over time, in response to events on the ground, such as Iraqi elections, and to strategic-level decisions, such as the 2007 surge. The peak surge level of U.S. troops was about 168,000, in October 2007, up from a relative low of 135,000 troops in January 2007 just before surge forces began to arrive. As of February 1, 2009, the total number of U.S. troops in Iraq was about 146,000. The lower total, compared to October 2007, reflects the redeployment from Iraq without replacement of all five of the Army's "surge" brigades: the 2 nd brigade combat team (BCT) of the 82 nd Airborne Division; the 4 th BCT of the 1 st Infantry Division; the 3 rd BCT of the 3 rd Infantry Division; the 4 th BCT of the 2 nd Infantry Division; and the 2 nd BCT of the 3 rd Infantry Division. In September 2008, President Bush had announced that an additional Army BCT would withdraw from Iraq, in early 2009, without replacement. In November 2008, DOD announced that that unit—the 2 nd BCT of the 101 st Airborne Division, based in western Baghdad—would redeploy about six weeks earlier than planned. Their departure left 14 U.S. BCTs or BCT-equivalents in Iraq, before President Obama's February 2009 announcement of his Iraq drawdown and transition policy. Well before the surge, by many accounts, the demand for forces in Iraq had placed some stress on both the active and reserve components. The operational benefits of maintaining continuity, and keeping forces in place long enough to gain understanding and develop expertise, competed against institutional requirements to maintain the health of the force as a whole, including the ability to recruit and retain personnel. An additional challenge was that pre-war assumptions only very incompletely predicted the scope and scale of post-war mission requirements, which meant in practice, especially early in OIF, that individuals and units deployed without certainty about the length of their tours. U.S. Army V Corps, for example, was not specifically given the mission, before the war, to serve as the post-war task force headquarters, let alone a timeline for that commitment. As the press widely reported after the end of major combat operations, some members of the 3 rd Infantry Division (3ID), which had led the Army's charge to Baghdad, publicly stated their desire to redeploy as soon as possible. Major General Buford Blount, the 3ID Commanding General, commented: "You know, a lot of my forces have been over here since September, and fought a great fight and [are] doing great work here in the city. But if you ask the soldiers, they're ready to go home." Sometimes, changes in the security situation on the ground—rather than anticipated political events like Iraqi elections—have prompted decisions to extend deployments. The earliest and possibly most dramatic example took place in April 2004. The young Shiite cleric Muqtada al-Sadr and his militia, the Jaish al-Mahdi (Mahdi Army), staged uprisings in cities and towns throughout Shi'a-populated southern Iraq, just as the volatile, Sunni-populated city of Fallujah, in Al Anbar province, simmered in the wake of the gruesome murders of four Blackwater contractors. The 1 st Armored Division (1AD), which had served in Baghdad for one year, and was already in the process of redeploying, was extended by 90 days—and then executed a remarkable series of complex and rapid troop deployments to embattled southern cities. In early 2007, in an effort to provide greater predictability if not lighter burdens, the Department of Defense, under the leadership of Secretary of Defense Robert Gates, announced new rotation policy goals. Active units would deploy for not more than 15 months, and return to home station for not less than 12 months. Reserve Component units would mobilize for a maximum of 12 months, including pre- and post-deployment responsibilities, rather than 12 months of "boots on the ground," with the goal of five years between deployments. In April 2008, partly in anticipation of some reduction of stress on the force from the redeployment of the surge brigades, President Bush announced that active component Army units deploying after August 1, 2008, would deploy for 12 months, rather than 15. The President also recommitted to "...ensur[ing] that our Army units will have at least a year at home for every year in the field." Since its inception, OIF has been a multinational effort, but the number, size, and nature of contributions by coalition partner countries has varied substantially over time. Four countries provided boots on the ground for major combat—the United Kingdom, Australia, and Poland, in addition to the United States. Coalition forces contributions then reached their peak, in terms of the number of both countries and troops contributed, in the early post-major combat period. After that period, some countries withdrew their forces altogether. A number of other countries, as they reduced their contributions, withdrew the bulk of their contingents, but left a few personnel in Iraq to serve in headquarters staff positions. Past decisions to draw down forces may have been shaped, in some cases, by a perception that the mission had been accomplished. However, far more frequently, decisions seem to have been informed by domestic political considerations, sometimes coupled with apparent pressure from extremists seeking to shape those decisions. Most notable was the Spanish troop withdrawal, catalyzed by the March 11, 2004, commuter train bombings in Madrid, which killed nearly 200 people. The attacks took place just days before scheduled Spanish parliamentary elections, in which the ruling party of Prime Minister Jose Maria Aznar Lopez, who had supported OIF, was voted out of office. The new Prime Minister, Jose Luis Rodriguez Zapatero, gave orders, within hours after being sworn into office, for Spanish troops to come home from Iraq. In 2008, several major contributors redeployed or significantly drew down their forces. In June, Australia withdrew its battle group of combat forces, which had been based at Tallil Air Base in Nassiriyah province, in southern Iraq, but other Australian troops continued to serve in and around Iraq, including providing maritime surveillance, intelligence assistance, and logistics operations. In August, Georgia withdrew its 2,000-strong contingent, which had been deployed in Wasit province along the border with Iran, after Russian troops invaded Georgia. In October, Poland withdrew its remaining contingent of about 900 soldiers from Qadisiyah province in southern Iraq, where Poland had led the Multi-National Division Center-South. And in December, the Republic of Korea concluded its deployment in northern Iraq, focused on reconstruction, as the nucleus of Multi-National Division-North East. As of December 2008, the largest remaining non-U.S. coalition partner was the United Kingdom, which had approximately 4,100 troops on the ground and continued to lead Multi-National Division-Southeast, headquartered in Basra. That month, however, British defense officials indicated that the UK contingent would draw down to 400 by summer 2009. The expiration of the UN mandate as of December 31, 2008, forced all remaining coalition partners either to negotiate a bilateral status of forces agreement with the Government of Iraq, or to withdraw their forces. Most remaining partners chose to bring their deployments to a close. In December, the GoI signed agreements with the UK and Australian governments, authorizing their troops to remain in Iraq for the first six months of 2009. In late January, the Governments of Iraq and Romania reached agreement on the continued deployment of approximately 350 Romanian troops. Both Estonia and El Salvador reportedly sought to reach agreements with the GoI but ultimately decided to withdraw their contingents. In addition to MNF-I, foreign troops serve in two other organizations in Iraq. One of those is the NATO Training Mission-Iraq (NTM-I), which falls under the dual supervision of MNF-I and NATO. As of January 2009, 14 countries were contributing staff to NTM-I in theater, including: Bulgaria, Denmark, Estonia, Hungary, Italy, Lithuania, Netherlands, Poland, Romania, Slovenia, Turkey, Ukraine, the UK, and the United States. NATO reached an agreement with the GoI to allow the continuation of specific NTM-I missions until July 2009. The other is the United Nations Assistance Mission for Iraq (UNAMI), to which New Zealand and Fiji contribute forces in Iraq to provide security. The security situation in Iraq is multi-faceted, geographically varied, and constantly evolving. In a society where the rule of law is not completely established, politics—the struggle for power, resources and influence—more readily and frequently takes the form of violence. Iraqi people are often faced with imperfect, pragmatic decisions about who is best suited to protect them and their interests. As a general trajectory, after a brief period of relative quiet in 2003 following major combat operations, forms of violent expression grew in variety, intensity, and frequency, hitting peaks in 2005 and 2006. By 2008, indicators of violence had tapered off to markedly lower levels. By the end of 2008, DOD assessed, "the strength of the insurgency continues to decline." One major form of violence that has been practiced in post-Saddam Iraq is terrorism carried out by Sunni Arabs with stated Islamic extremist goals. Al Qaeda in Iraq (AQI) has been the most prominent named organization, but the threat may be better characterized as a loose network of affiliates, including both Iraqis and foreign fighters. Within the networks, assigned roles range from financiers, and planners of coordinated attacks, to unskilled labor recruited to emplace improvised explosive devices (IEDs). Their efforts to recruit primarily young males have capitalized on Iraq's widespread under-employment, which can make the prospect of one-time payments appealing, and general disaffection spurred by a perceived lack of opportunities in the new Iraq. The infrastructure used by AQI and its affiliates has included safe houses and lines of communication reaching, especially, through central and northern Iraq. The network has capitalized on Iraq's porous borders. In 2008, U.S. military commanders confirmed that the flow of foreign fighters continued, from Syria into Iraq. In its March 2009 quarterly report to the Congress, the Department of Defense stated, "Syria remains the primary gateway for Iraq-bound foreign fighters." Over time, the AQI network demonstrated adaptability, quickly shifting its tactics and its footprint as circumstances change. Pushed out of urban areas, they typically sought refuge and an opportunity to re-group in deep rural settings. As surge operations pushed AQI and its affiliates out of Baghdad in late 2007, they sought new bases of operation to the east and to the north, in the Diyala River Valley in Diyala province, and in the northern Tigris River Valley in Ninewah province. In early 2008, some AQI elements attempted to regroup in Mosul, but coalition and Iraqi operations pushed AQI elements out of the city and deeper into rural areas. As of August 2008, U.S. commanders in Iraq assessed that AQI was in disarray but still capable of conducting spectacular attacks. AQI was making increasing use of "surgical" attacks, such as sniper attacks, and using intimidation tactics, which may require fewer resources and less coordination that large-scale catastrophic attacks. In western Anbar province, where significant security progress was achieved earlier than in the north, commanders noted—borrowing from Mao—that there's "no longer a sea for the AQI fish to swim in;" that is, popular support for AQI had so sharply diminished that they were forced to operate clandestinely. As of the end of 2008, DOD assessed that AQI retained "limited freedom of movement in rural and some urban areas," and that it had both the intent and the ability to "carry out limited high-profile attacks within key urban center." Their strongest base of operations remained Ninewah province, where DOD assessed the city of Mosul to be "a logistical, financial and operational hub for AQI." In January 2009, the new Commanding General of Multi-National Division-North, Major General Robert Caslen, noted that there was still "a viable insurgency" in Mosul. February 2009 witnessed a series of attacks on U.S. troops in that region by men wearing Iraqi police uniforms. In March 2009, DOD assessed that AQI "retain[ed] the intent and capability to carry out spectacular attacks." Some Shi'a militias have been another major source of violence in post-Saddam Iraq. A central figure since the days of major combat operations has been the young Shi'a cleric Muqtada al-Sadr, the head of the Office of the Martyr Sadr political organization and its armed militia, the Jaish al-Mahdi ("JAM"). During the year of formal occupation, al-Sadr frequently delivered Friday sermons at mosques, using a hardline nationalist message to condemn the coalition and its Iraqi partners and to call for action against them. In April 2004, his followers staged coordinated, violent uprisings in cities throughout southern Iraq, which were put down by coalition forces. While continuing to voice staunch opposition to the U.S. force presence in Iraq, in August 2007, al-Sadr declared a ceasefire to which most of JAM adhered, and he repeated the call in February 2008. By the summer of 2008, al-Sadr was making efforts to shift the focus of his base organization to social, cultural and political activities, including an umbrella movement called al Mumahiddun , designed to provide social services . At the end of July 2008, Sadr issued a statement pledging his support and that of his followers to the Government of Iraq, if the GoI would refrain from signing any security agreement with the United States. He also urged his followers to refrain from any actions that would harm Iraqi civilians, or disrupt the provision of government services. Meanwhile, rogue elements of JAM—known euphemistically as "special groups" or "special groups criminals," including Asa'ib Ahl al-Haq (AAH) – defied al-Sadr's August 2007 ceasefire call and continued to practice violence. The Office of the Martyr Sadr, insisting that JAM itself was an "army of believers," described such elements as criminal infiltrators who find it useful to have the cover of the JAM name. In November 2008, however, Sadr called for members of the renegade AAH to return to the fold; and he created a new armed wing of his own movement, known as the Promised Day Brigade. According to U.S. and Iraqi commanders on the ground, the series of Iraqi-led military operations in southern Iraq, which began in Basra in March 2008, had the effect of isolating some Shiite extremists and forcing others to flee across the border into Iran. The Iranian government has reportedly pledged to help stop the further flow of lethal aid into Iraq, but reports suggest there has been no marked diminution. However, in official reports, the Department of Defense stated that as of March 2009, some Shiite extremist groups, including AAH and Ketaib Hezbollah (KH), continued to receive funding and support from Iran. DOD added that while Tehran has reduced the number of militants that it supports, it has "simultaneously improved the training and weapon systems received by the proxy militants." According to officials from the Multi-National Divisions that border Iran, the cross-border flow varies geographically over time, tending to seek the path of least resistance. The deployment of the Georgian full brigade to Wasit province, for example, made that province harder to traverse and pushed traffic north and south. As of August 2008, a key locus of cross-border smuggling—not only of lethal aid but also of consumer goods—was the border along Maysan province, where Marsh Arabs historically have traded goods for centuries. U.S. and Iraqi commanders have noted that Quds forces continue to train some Iraqi Shiite extremists, including former special groups members. They added that some infiltrations continued, with the apparent goal of carrying out assassinations or planting improvised explosive devices. They suggested that special groups may attempt to reassert themselves in Iraq, with help from Iran. As one Iraqi commander noted, "Sadly, our neighbors are not friendly." Some U.S. and Iraqi commanders commented that a special groups re-emergence might take the form of a streamlined, well-trained terrorist network with a cellular structure, operating under cover, rather than a mass movement with popular support. In March 2009, Iraqi Interior Minister Jawad al-Bolani noted that the ISF had evidence that Shiite militants were regrouping in Baghdad and some locations in southern Iraq. Meanwhile, the Iranian government apparently continues to seek influence among Iraqi Shi'a through the exercise of "soft power," for example by continuing to foster relationships with political leaders, by providing social services, and through investments including purchasing a power plant in the Shi'a-populated Sadr City section of Baghdad. Militant activities in southern Iraq and Baghdad have taken place against the backdrop of a deeply rooted intra-Shi'a struggle for power and resources. Some observers assess that, more than the Sunni-based insurgency or any other issue, the struggle for the Shi'a-populated south may shape Iraq's future. Other main protagonists include Prime Minister Maliki's Da'wa party, and the Islamic Supreme Council in Iraq (ISCI, formerly known as the Supreme Council for the Islamic Revolution in Iraq), which is backed by its Badr militia and which, like JAM, provides people with goods and services in an effort to extend its influence. The power struggle also includes smaller Shi'a political parties backed by militias, such as Fadila al-Islamiyah (Islamic Virtue), which is active in the major southern city and province of Basra. Relatively new to the power struggle are the ground-up voices of southern tribal leaders, most of whom stayed in Iraq through the Saddam period, unlike many Iraqi Shi'a political party leaders who spent years in Iran. Recognizing the largely untapped potential political power of southern tribal Shi'a, in 2008 Prime Minister Maliki sought to form consultative tribal isnad ("support") councils, first of all in Shi'a-populated areas including the southern provinces, which were supposed to articulate tribal needs to the provincial councils. In at least one case, Babil province, the governor sought to form a competing provincial tribal council. By late 2008, Maliki had expanded the effort to mixed-population provinces including Ninewah, Kirkuk, and Diyala, prompting protests from some senior officials. A number of observers viewed the support councils as a blatant "get-out-the-vote" initiative. Key political events have the potential to exacerbate the contest for political power and influence in the south. In April 2008, an 18-month moratorium expired on the implementation of a 2006 law on federalism, which included provisions for the creation of "regions" based on one or more provinces. "Regional" status could prove important because it affects the distribution of economic resources and political power. Major Shi'a groups in the south have called for various approaches to regionalization, based on their popular bases of support – for example, ISCI has advocated the creation of a nine-province in southern Iraq. Iran, too, has reportedly expressed interest in how southern Iraq might be regionally grouped. In 2008, local political parties and organizations in Basra took the first steps to seek regionalization of Basra province, by organizing a petition drive, but the effort failed to secure the required 140,000 signatures. In late 2008, some Iraqi provincial political leaders and security forces commanders in southern Iraq suggested that the several rounds of elections scheduled to be held in 2009—provincial, district, and national—carried the potential for violence, in part because many incumbents recognized that they might not have enough popular support to be elected. Others have stressed the importance of those elections as a safety valve for popular opinion. The results of the provincial elections held on January 31, 2009, reshuffled the balance of political power in southern provinces. Prime Minister Maliki's Da'wa party substantially increased its representation, earning pluralities in Baghdad and southern provinces, while ISCI lost significant ground, and some parties backed by al Sadr secured some support. Without clear majorities, governing will require coalition-building throughout the south. Less a source than a type of violence, Iraq has struggled for years with sectarian violence, particularly along the fault lines between populations predominantly of different sectarian groups. Those fault lines, some observers suggest, are where local populations are likely to feel most vulnerable, and might in some cases be most open to assurances of protection from one organized armed group or another. Sectarian violence skyrocketed in February 2006, following the bombing of the Golden Mosque in Samarra, one of Shiite Islam's holiest shrines. That attack prompted Shi'a reprisals targeting Sunnis and Sunni mosques in a number of cities. AQI responded in some locations by staging a series of further attacks. The sectarian-based displacement of many Iraqis from their homes, and the resulting greater segregation in urban areas, reduced the number of fault lines somewhat. Displacement and resettlement are dynamic issues—the United Nations High Commissioner for Refugees estimated that as of late 2008, there were nearly 2.8 million IDPs in Iraq. Some GoI resettlement and restitution initiatives have been launched, but DOD reports that as of March 2009, "returnees have reported little success accessing these benefits." In many instances, the usual challenges of displacement are compounded by both sectarian and class-based differences, between those who have fled, and those who have moved into the "abandoned" homes. Another major category of violence is opportunistic criminality, practiced with a view to sheer material gain rather than political or ideological goals. The inchoate status of Iraq's judicial system and law enforcement organizations has left room for opportunists to steal, loot, smuggle, kidnap and extort. In addition to the primary adversaries during major combat operations—the regime's forces and security structures—and the primary sources of violence in the period after major combat, coalition forces in Iraq have had to contend with the presence of two groups, designated by the Department of State as Foreign Terrorist Organizations, which are largely unrelated to the rest of the fight but of deep interest to some of Iraq's neighbors. Both cases have consumed substantial time and energy from MNF-I staff in Iraq as well as senior leaders in Washington, D.C., and both have had the potential to destabilize the broader security environment. The first group is the Kurdistan Workers Party—the PKK, also known over time as KADEK, Kongra-Gel, and the KCK. The PKK is based in southeastern Turkey, but maintains a presence in northern Iraq and reportedly uses that area to rest and re-group from its operations inside Turkey. The PKK's stated goal is the establishment of an independent Kurdish state, and it has practiced terror to that end, targeting Turkish security forces and civilian officials. Since 2003, the Turkish government has pushed for action against PKK members in northern Iraq. The U.S. and Iraqi governments have both strongly supported the Turkish government's stand against terrorism and the PKK in principle. In the past, both the Iraqi government and MNF-I reportedly expressed concerns that military action against the PKK in Iraq could open a new northern front, taxing their already thinly stretched forces. In 2007, the Government of Turkey received a one-year Turkish parliamentary authorization to conduct cross-border actions against the PKK, and in October 2008 the Turkish parliament extended the authorization for another year. In December 2007, the Turkish Air Force launched a series of air strikes, targeting presumed PKK positions in northern Iraq, followed in February 2008 by a week-long series of coordinated air and ground attacks. Initially, Iraqi government officials objected, stressing the need to respect the sovereignty of its territory and air space. U.S. senior leaders, reportedly informed in advance of the February 2008 attacks about Turkish intentions, publicly called on the government of Turkey to keep the operation as short as possible. In July 2008, the Turkish Air Force conducted another series of air strikes on presumed PKK positions in northern Iraq. In October 2008, following a PKK attack that killed 17 Turkish soldiers, Turkish forces launched another series of air strikes into northern Iraq. In November 2008, the U.S., Iraqi and Turkish governments launched a trilateral forum to exchange information and coordinate activities regarding the PKK. In March 2009, Turkish President Abdullah Gul visited Baghdad, the first visit by a Turkish head of state in 30 years. During the visit, at a joint press conference, Iraqi President Jalal Talabani called on the PKK to lay down its arms or leave Iraq. In public statements, PKK representatives rejected that call. During the year of formal occupation, the leadership of CJTF-7 and CPA, and senior officials in Washington, D.C., spent considerable time focused on the disposition of the Mujahedin-e Khalq ("MeK"). Formed by students in Iran in the 1960's, in leftist opposition to the Shah and his regime, the MeK later stepped into opposition against what it calls the "mullah regime" that took power after the 1979 Iranian Revolution. Over time, the MeK has sought opportunistic alliances, including moving its operational headquarters to Iraq, and making common cause with the Iraqi government, during the Iran-Iraq war in the 1980s. Although the MeK is a designated Foreign Terrorist Organization, some U.S. officials reportedly have considered the possibility of using the MeK as leverage against Tehran. Several times, some Members of Congress—reportedly some 200 in the year 2000—signed letters expressing their support for the cause advocated by the MeK. This awkward policy history was magnified by awkward events on the ground during OIF major combat operations, when, on April 15, 2003, members of the U.S. Special Operations Forces signed a ceasefire agreement with MeK leaders. Subsequently, Department of Defense issued guidance through CENTCOM to forces on the ground to effect a MeK surrender. Following a series of negotiations with MeK leaders, the several thousand MeK members were separated from their well-maintained heavy weapons and brought under coalition control at Camp Ashraf in Diyala province. The key operational concern, in the early stages, was that MeK non-compliance could generate large-scale operational requirements, effectively opening another front. Efforts have been underway since that time, in coordination with the Iraqi government and the many countries of citizenship of the MeK members, to determine appropriate further disposition. The efforts have faced obstacles, because some countries are reluctant to receive members of the MeK, while MeK members who are still citizens of Iran insist that they cannot return home for fear of persecution. The MeK's presence in Iraq is an irritant in Iraq's bilateral relationship with Iran. As of fall 2008, the Government of Iraq had initiated steps to transition responsibility for control of the MeK camp from U.S. to Iraqi security forces. In a public statement in September 2008, Minister of Defense Abdul Qadr noted that the sovereign government of Iraq should be responsible for any such group inside the country—"The Iraqi government is entitled to be the guard around the borders of the camp." After the security agreement took effect on January 1, 2009, U.S. forces handed control over the outer perimeter around Camp Ashraf to the ISF. MeK members told the press that in March 2009, ISF blockaded Ashraf, preventing the delivery of supplies including food and water. At the political level, the GoI has underscored its intent to close the facility. In January 2009, during a visit to Tehran, National Security Advisor Dr. Mowaffaq al-Rubaie stated, "The only choices open to members of this group are to return to Iran or to choose another country," and he added, "…the camp will be part of history within two months." In March 2009, Iran's supreme religious leader Ayatollah Khamenei reportedly expressed some impatience, telling visiting Iraqi President Talabani, "We await the implementation of our agreement regarding the expulsion of the hypocrites." Over time, U.S. military strategy for Iraq—and thus also operations on the ground—have been adapted to support evolving U.S. national strategy. In turn, national strategy has directly drawn some lessons from OIF operational experience. Given the scope and scale of the mission, and its lack of precise historical precedents, there has been ample need and opportunity for learning and adaptation. The Administration's basic national strategic objectives have remained roughly consistent over time. So have the major categories of activities (or "lines of operation")—political, economic, essential services, diplomatic—used to help achieve the objectives. What have evolved greatly over time are the views of commanders in the field and decision-makers in Washington, D.C., about the best ways to achieve "security" and how that line of operation fits with the others. This section highlights key episodes and turning-points in the theory and practice of OIF military operations, including early operations during formal occupation, "Fallujah II," COIN operations in Tal Afar, Operation Together Forward, the operations associated with the 2007 "New Way Forward," and surge follow-on operations in 2008. The review suggests that the application of counter-insurgency (COIN) theory and practice grew over time, but by no means steadily or consistently. Prussian military theorist Karl von Clausewitz argued: "The first, the supreme, the most far-reaching act of judgment that the statesman and commander have to make is to establish ... the kind of war on which they are embarking." In theory, how the "kind of war" is identified helps shape the tools selected to prosecute it. In the case of OIF after major combat operations, it proved difficult for senior Bush Administration officials and military leaders to agree on what "kind of war" OIF was turning out to be. On July 7, 2003, General John Abizaid, an Arabic speaker who had served during OIF major combat as the Deputy Commanding General of CENTCOM, replaced General Tommy Franks as CENTCOM Commander. At his first press conference in the new role, GEN Abizaid referred to the challenge in Iraq as a "classical guerrilla-type campaign." Slightly more carefully but leaving no room for doubt he added, "I think describing it as guerrilla tactics is a proper way to describe it in strictly military terms." The Pentagon pointedly did not adopt that terminology. Two weeks later, asked about his reluctance to use the phrase "guerrilla war," Secretary Rumsfeld noted: "I guess the reason I don't use the phrase 'guerrilla war' is because there isn't one, and it would be a misunderstanding and a miscommunication to you and to the people of the country and the world." Instead, he argued, in Iraq there were "five different things": "looters, criminals, remnants of the Ba'athist regime, foreign terrorists, and those influenced by Iran." In his account of that year, CJTF-7 Commanding General LTG Sanchez wrote that by July 2003, he and GEN Abizaid, his boss, had recognized that what they faced was an insurgency. A UK officer serving as Special Assistant to LTG Sanchez drafted a paper outlining the concepts of insurgency and counter-insurgency and their possible application to Iraq. The paper's ideas, and its nomenclature, gained traction and helped inform the command's planning. However, for years afterward, the Pentagon also resisted the terminology of "insurgency." At a November 2005 press conference, Chairman of the Joint Chiefs of Staff General Peter Pace, speaking about the adversary in Iraq, said, "I have to use the word 'insurgent' because I can't think of a better word right now." Secretary Rumsfeld cut in—"enemies of the legitimate Iraqi government." He added, "That [using the word "insurgent"] gives them a greater legitimacy than they seem to merit." During the formal occupation of Iraq from 2003 to 2004, the military command in Iraq, CJTF-7, was responsible for "security," while the civilian leadership, the Coalition Provisional Authority (CPA), was responsible for all other governance functions. In the views of the CJTF-7 leadership, establishing "security" required more than "killing people and breaking things"—it required simultaneous efforts to achieve popular "buy-in," for example by rebuilding local communities and engaging Iraqis in the process. Accordingly, CJTF-7 built its plans around four basic lines of operation, or categories of effort—political (governance), economic, essential services, and security—which differed only slightly from the categories in use in early 2008. Those lines of operation were echoed in the plans of CJTF-7's subordinate commands. CJTF-7 would lead the "security" line, and support CPA efforts in the other areas. Beginning in 2003, CJTF-7's basic theory of the case was that the lines of operation, pursued simultaneously, would be mutually reinforcing. Major General Peter Chiarelli, who commanded the 1 st Cavalry Division in Baghdad from 2004 to 2005, argued after his tour that it was not effective to try to achieve security first, and then turn to the other lines of operation. He wrote: "... if we concentrated solely on establishing a large security force and [conducting] targeted counterinsurgent combat operations—and only after that was accomplished, worked toward establishing a sustainable infrastructure supported by a strong government developing a free-market system—we would have waited too long." In the "security" line of operation, military operations under CJTF-7 included combat operations focused on "killing or capturing" the adversary. Aggressive operations yielded large numbers of Iraqis detained by the coalition—the large numbers, and frequent difficulties determining whether and where individuals were being held, were an early and growing source of popular frustration. In April 2004, the unofficial release of graphic photos of apparent detainee abuse at Abu Ghraib generated shock and horror among people inside and outside Iraq. Some observers have suggested that these developments may have helped fuel the insurgency. CJTF-7 military operations also included early counter-insurgency (COIN) practices for population control. Those practices included creating "gated communities"—including Saddam's home town of al-Awja—by fencing off a town or area and strictly controlling access through the use of check-points and ID cards. To make military operations less antagonistic, when possible, to local residents, units substituted "cordon and knock" approaches for the standard "cordon and search." The security line of operation also included early partnerships with nascent Iraqi security forces, including mentoring as well as formal training. Where troop strength so permitted, for example in Baghdad and in Mosul, Army Military Police were assigned to local police stations as de facto advisors. GEN Abizaid's theory was that the very presence of U.S. forces in Iraq was an "antibody" in Iraqi society. Therefore, to remove the possibility that insurgents could leverage the presence of an occupation force to win popular support, a key goal was to move quickly to an "overwatch" posture. Doing so would require an accelerated stand-up of Iraqi security forces. That approach shared with later COIN approaches the premise that U.S. forces alone could not "win"—that success in the security sphere would require acting by, with and through Iraqis. It differed sharply from later COIN approaches, however, in terms of implications for the U.S. forces footprint, size of presence, and many activities. While the military command did not have the lead role for the non-security lines of operation, it made contributions to those efforts. To address the most pressing "essential services" concerns, the military command created Task Force Restore Iraqi Electricity, and Task Force Restore Iraqi Oil, which were later consolidated into the Gulf Region Division, under the Army Corps of Engineers. To help jumpstart local economies—and to provide Iraqis with some visible signs of post-war "progress"—the military command launched the Commanders Emergency Response Program (CERP). As initially crafted, CERP provided commanders with readily available discretionary funds to support small-scale projects, usually initiated at the request of local community leaders. In the "governance" field, commanders needed Iraqi interlocutors to provide bridges into local communities, and advice concerning the most urgent reconstruction and humanitarian priorities. Since official Iraqi agencies were no longer intact, and since the CPA did not yet have a sufficient regional presence to help build local governments, commanders helped select provincial and local councils to serve in temporary advisory capacities. By most accounts, by the end of the year of formal occupation, in June 2004, the security situation had worsened—catalyzed in April by the simultaneous unrest in Fallujah and al-Sadr-led uprisings throughout the south. Many observers have suggested that none of the lines of operation—whether civilian-led or military-led—was fully implemented during the year of formal occupation, due to a lack of personnel and resources. In particular, GEN Abizaid's goal of diminishing the presence of U.S. "antibodies" in Iraq society was not realized, since highly inchoate Iraqi security forces training efforts, led by CPA, had not had time to yield results. The basic assumption of CJTF-7—that establishing security required simultaneous application of all the lines of operation—may never have been fully put to the test. One of the first very high-profile military operations after major combat was Operation Phantom Fury, designed to "take back" the restive city of Fallujah in the Al Anbar province. In November 2004, Phantom Fury—or "Fallujah II"—highlighted the intransigence of the emerging Sunni Arab insurgency, early coalition military efforts to counter it, and the complex intersection of political considerations and "best military advice" in operational decision-making. During major combat operations and the early part of the formal occupation, the military command practiced first an "economy of force" approach to Al Anbar province, and then a quick shuffling of responsible military units, which left little opportunity to establish local relationships or build expertise. Building relationships with the population is critical in any counter-insurgency, and it may have been particularly important in Al Anbar, where social structure is based largely on complex and powerful tribal affiliations. Coalition forces in Al Anbar during major combat were primarily limited to Special Operations Forces. After CJTF-7 was established, the first unit assigned responsibility for the large province was the 3 rd Armored Cavalry Regiment—essentially a brigade-sized formation. In fall 2003, the much larger 82 nd Airborne Division and subordinate units arrived in Iraq and were assigned to Al Anbar, but their tenure was brief—after six months they handed off responsibility to the 1 st Marine Expeditionary Force (IMEF). The city of Fallujah, like the rest of Al Anbar, is populated largely by Sunni Arabs. Under the old Iraqi regime, Fallujah had enjoyed some special prerogatives and had produced a number of senior leaders in Iraq's various security forces. Many residents therefore had some reason to be concerned about their place in the post-Saddam Iraq. On March 31, 2004, four American contractors working for Blackwater, who were driving through Fallujah, were ambushed and killed—and then their bodies were mutilated and hung from a bridge. Photos of that grisly aftermath were rapidly transmitted around the world—riveting the attention of leaders in Baghdad, Washington, and other coalition country capitals. What followed, in April 2004, was a series of highest-level deliberations in Baghdad and Washington concerning the appropriate response. Some key participants in the debates initially favored immediate, overwhelming military action, but those views were quickly tempered by concerns about the reactions that massive military action—and casualties—might produce. Several key Sunni Arab members of the Iraqi leadership body, the Iraqi Governing Council—threatened to resign in the event of an attack on Fallujah. And some senior U.S. officials expressed concerns about the reactions of other governments in the region, and of Sunni Arabs elsewhere in Iraq. The Administration's guidance, after the initial debates, was to respect the concerns of Iraqi leaders and to avoid sending U.S. military forces into Fallujah. What followed, instead, was a series of "negotiations" by CPA and CJTF-7 leaders with separate sets of Fallujah community representatives, some of them brokered by Iraqi national-level political leaders. And what emerged was a "deal" initiated by IMEF with a local retired Iraqi Army General and a group of locally recruited fighters, who formed the "Fallujah Brigade" and pledged to restore and maintain order. When the Fallujah Brigade collapsed that summer, the city of Fallujah had not been "cleared" by either the Brigade or IMEF. Over the summer, insurgents reportedly strengthened their hold on the city. Decisive military action—Operation Phantom Fury—was launched by IMEF in November 2004. Several factors may have shaped the timing of the Operation. By November, the new interim Iraqi government, led by Prime Minister Ayad Allawi, had had some time to establish its credibility—perhaps enough to help quell citizens' concerns in the event of large-scale military action. Key Iraqi elections were scheduled for January 2005, and eliminating a hotbed of insurgency beforehand might increase voter participation. And earlier in November, President Bush had been re-elected, which may have reassured some Iraqi leaders that if they agreed to the military operation, the U.S. government—and coalition forces—would be likely to continue to provide support to deal with any aftermath. The Marines began the Fallujah operations by setting conditions—turning off electrical power, and urging the civilians of Fallujah to leave the city. The vast majority of residents did depart—leaving about 500 hardcore fighters, who employed asymmetrical tactics against a far larger, stronger force. That coalition force included one UK battalion, three Iraqi battalions, six U.S. Marine battalions and three U.S. Army battalions. The operation reportedly included 540 air strikes, 14,000 artillery and mortar shells fired, and 2,500 tank main gun rounds fired. Some 70 U.S. personnel were killed, and 609 wounded. In Fallujah, of the city's 39,000 buildings, 18,000 were damaged or destroyed. In the aftermath, coalition and Iraqi forces established a tight security cordon around the city, with a system of vehicle searches and security passes for residents, to control movement and access. Fingerprints and retinal scans were taken from male residents. Observers noted that by spring 2005, about half the original population, of 250,000, had returned home—many of them to find essential services disrupted and their property damaged. The scale of destruction was criticized by some observers inside Iraq and in the Middle East region more broadly. The effects of the comprehensive "clearing" were not lasting. Al Qaeda affiliates gradually returned and made Fallujah a strong-hold and base of operations. Military operations in the town of Tal Afar, in 2005, marked an early, multi-faceted, and successful application of counter-insurgency (COIN) approaches, and successful results, in OIF. In Washington, "Tal Afar" gave birth to a new Iraq policy lexicon, and in Iraq—though not immediately—to the expanded use of COIN practices. Tal Afar is located in Ninewah province, along the route from the provincial capital of Mosul to Syria. Its mixed population of about 290,000 includes Sunni Arabs, Kurds, Turkmen and Yezidis. From April 2003 until early 2004, the 101 st Airborne Division had responsibility for Ninewah and Iraq's three northern, largely Kurdish-populated provinces. Because the north was relatively quiet, due in part to the effectiveness of the Kurdish pesh merga forces, the 101 st was able to concentrate primarily on Ninewah—a relatively high troops-to-population ratio. In early 2004, when the 101 st redeployed, responsibility for the area passed to a much smaller Stryker brigade. That brigade, in turn, was periodically asked to provide forces for operations elsewhere in Iraq, so the coalition force footprint in Ninewah was substantially reduced. Tal Afar—with a convenient trade route location, and a mixed population "perfect" for fomenting sectarian strife—become a base of operations for former regime elements and Sunni extremists, including suicide bombers. In May 2005, the 3 rd Armored Cavalry Regiment (3ACR), now commanded by Colonel H.R. McMaster, arrived in Tal Afar. COL McMaster was familiar with OIF issues from his previous service as the Director of GEN Abizaid's Commander's Action Group at CENTCOM. At CENTCOM, he had helped the command to think through the nature of the Iraqi insurgency, and to craft appropriate responses including targeted engagements with key leaders. As the author of a well-known account of Vietnam decision-making, COL McMaster could also readily draw key lessons from that earlier complex engagement. In early 2005, the 3ACR began their deployment preparations at home in Fort Carson, Colorado—studying COIN approaches, training and exercising those approaches, and learning conversational Arabic. Later, in Iraq, COL McMaster described the Regiment's mission in the classical COIN lexicon of "population security": "...the whole purpose of the operation is to secure the population so that we can lift the enemy's campaign of intimidation and coercion over the population and allow economic and political development to proceed here and to return to normal life." In practice, that meant taking "a very deliberate approach to the problem," beginning with months of preparatory moves. Those preparatory steps included beefing up security along the Syrian border to the west, and targeting and eliminating enemy safe havens out in the desert. They also included constructing a dirt berm ringing Tal Afar, and establishing check points to control movement in and out of the city. Before the launch of full-scale operations in September 2005, the Regiment urged civilians to leave Tal Afar. Then 3ACR cleared the city deliberately—block by block. After the clearing operations, 3ACR had sufficient forces to hold the city, setting up 29 patrol bases around town, every few blocks. Basing coalition forces among the population was an unusual approach at the time. Though common in the early days of OIF, by 2005, most coalition forces in Iraq had been pulled back to relatively large Forward Operating Bases (FOBs), secure and separate from the local population. That strategy was driven in part by the theory that the visible presence of coalition forces—and their weapons and their heavy vehicles—could antagonize local communities. 3ACR's COIN approaches also included working closely with their Iraqi security forces counterparts—the 3 rd Iraqi Army Division. COL McMaster credited that partnership as essential to the strategy: "What gives us the ability to ... clear and hold as a counterinsurgency strategy is the capability of Iraqi security forces." The key to the success in Fallujah, he added—and the major difference from "Fallujah II"—was popular support: "we had the active cooperation of such a large percentage of the population." COL McMaster's use of the phrase "clear and hold" was not accidental—it had been the name of the counter-insurgency approach introduced in Vietnam by General Creighton Abrams, following years of General William Westmoreland's "search and destroy" approach. A short time later, the Administration adopted and expanded on the "clear, hold" lexicon to describe the overall strategy in Iraq. In October 2005, in testimony about Iraq before the Senate Foreign Relations Committee, Secretary of State Condoleezza Rice began by stating: "Our political-military strategy has to be clear, hold, and build: to clear areas from insurgent control, to hold them securely, and to build durable, national Iraqi institutions." About three weeks later, in a major Veterans Day speech, President Bush echoed Secretary Rice's "clear, hold, build" language almost verbatim. The following month, November 2005, the Administration issued a new National Strategy for Victory in Iraq . The Strategy argued—roughly consistent with the military's long-standing lines of operation—that success required three major tracks, security, political and economic. Consistent with the basic theory of the case since 2003, these tracks were to be pursued simultaneously, and would be "mutually reinforcing." As the Strategy states, "Progress in each of the political, security, and economic tracks reinforces progress in the other tracks." The new Strategy prominently adopted the "clear hold build" lexicon, with a twist. "Clear, hold, build" was now the prescribed set of approaches for the security track alone. The political and economic tracks were also each based on a trinitarian set of approaches. In the security track, "build" now referred specifically to the Iraqi security forces and local institutions. "Build" also appeared in the other two tracks—capturing the focus on national-level institutions from the earlier public statements by President Bush and Secretary Rice. By March 2006, a complete, official narrative had emerged, in which Tal Afar operations had tested and confirmed both the "clear, hold, build" strategy, and the interdependence of the three major tracks. As a White House Fact Sheet, titled "Clear, Hold, Build," stated, "Tal Afar shows how the three elements of the strategy for victory in Iraq—political, security, and economic—depend on and reinforce one another." In June 2006, Iraqi and Coalition forces launched "Operation Together Forward," officially based on "clear, hold, build" and aimed at reducing violence and increasing security in Baghdad. Baghdad was chosen as the focus because it was "the center that everybody [was] fighting for—the insurgents, the death squads ... the government of Iraq." The Operation was predicated on basic counter-insurgency principles—"to secure the citizens' lives here in Baghdad." Together Forward included some 48 battalions of Iraqi and coalition forces—about 51,000 troops altogether, including roughly 21,000 Iraqi police, 13,000 Iraqi National Police, 8,500 Iraqi Army, and 7,200 coalition forces. Iraqi forces were in the lead, supported by the coalition. The effort included clearing operations, as well as a series of new security measures including extended curfews, tighter restrictions on carrying weapons, new tips hotlines, more checkpoints, and more police patrols. Together Forward theoretically included the other major tracks of the November 2005 National Strategy —political and economic efforts, as well as security, although the coalition's primary focus was security. As MNF-I spokesman Major General William Caldwell noted in July 2006, "It's obviously a multi-pronged approach ... but those [other tracks] are mostly the government of Iraq side of the house." MNF-I stated publicly from the start that Together Forward was expected to take months, not weeks. For several months after the operation was launched, the levels of violence in the capital rose. As MG Caldwell explained in October 2006, "the insurgent elements, the extremists, are in fact punching back hard." Once the Iraqi and coalition forces cleared an area, the insurgents tried to regain that territory, so the Iraqi and coalition forces were "constantly going back in and doing clearing operations again." Many observers attributed that circle of violence to a lack of sufficient forces—whether coalition or Iraqi—to "hold" an area once it was "cleared." The vast majority of participating forces were Iraqi, and at that juncture, some observers suggest, their capabilities were limited. MNF-I Spokesman MG Caldwell noted in July 2006: "We are by no means at the end state, at the place where the Iraqi security forces are able to assume complete control of this situation." By October 2006, MNF-I admitted that Together Forward had not achieved the expected results—it had "not met our overall expectations of sustaining a reduction in the levels of violence." In the event, from the experiences of Tal Afar, Operation Together Forward had applied the principle of close collaboration with host-nation forces, but only the "clear" element of the "clear, hold, build" mandate. By late 2006, senior diplomats and commanders in Iraq had concluded that the approaches in use were not achieving the intended results—indeed, levels of violence were continuing to climb. Several strategic reviews were conducted in parallel, some input from key observers was solicited, options were considered, and a decision was made and announced by the Administration—to pursue a "New Way Forward" in Iraq. While the Administration's basic long-term objectives for Iraq did not change, the New Way Forward introduced a fundamentally new theory of the case. Until that time, Iraq strategy had assumed that the major tracks of effort—security, political, economic—were mutually reinforcing, and should therefore be implemented simultaneously. The New Way Forward agreed that all of the tracks—plus a new "regional" track—were important, but argued that security was a prerequisite for progress in the other areas. As a White House summary of the results of the strategy review stated, "While political progress, economic gains and security are all intertwined, political and economic progress are unlikely absent a basic level of security." And as President Bush stated in his address to the nation on this topic, in January 2007, "The most urgent priority for success in Iraq is security." This thinking, though new as the premise for U.S. Iraq strategy, was not new to practitioners on the ground. As early as 2003, some U.S. practitioners in Iraq had suggested that substantial political and economic progress could not be expected, absent basic security conditions that allowed Iraqis to leave their homes, and civilian coalition personnel to engage with local communities. The New Way Forward institutionalized that view. The theory of the case was that security improvements would open up space and opportunities for the Iraqi government to make improvements in other areas. As General David Petraeus described it in March 2007, one month into his tour as the MNF-I Commander, if security improves, "commerce will return and local economies will grow." And at the same time, "the Iraqi government will have the chance it needs to resolve some of the difficult issues it faces." By early 2008, the basic premise had met with broad if not universal support among practitioners and observers. For example, in October 2007, Commandant of the Marine Corps General James Conway told a think-tank audience, "Certainly you have to have a level of security before you can have governance." Retired Marine Corps General James Jones, who led a congressionally mandated review of Iraqi Security Forces in 2007, described it differently. He suggested that the relationship between two major components of politics and security—national reconciliation and sectarian violence—is more complex: "It's a little bit of a chicken-and-egg question.... The real overall conclusion is that the government of Iraq is the one that has to find a way to achieve political reconciliation, in order to enable a reduction in sectarian violence." In his January 10, 2007, address to the nation, President Bush announced that to help implement the New Way Forward, the United States would deploy additional military units to Iraq, primarily to Baghdad. Their mission, a paraphrase of the "clear, hold, build" language, would be "to help Iraqis clear and secure neighborhoods, to help them protect the local population, and to help ensure that the Iraqi forces left behind are capable of providing the security that Baghdad needs." The surge forces would grow to include five Brigade Combat Teams (BCTs), an Army combat aviation brigade, a Marine Expeditionary Unit (MEU), two Marine infantry battalions, a Division headquarters, and other support troops. The number of U.S. forces in Iraq reached a peak of about 168,000 U.S. troops in October 2007. The surge effort also included a civilian component—increasing the number of civilian-led Provincial Reconstruction Teams (PRTs) and the size of their staffs. A White House Fact Sheet stated, "PRTs are a key element of the President's 'New Way Forward' Strategy." The fundamental premise of the Iraqi and coalition surge operations was population security. This marked an important shift from previous years, when the top imperative was transitioning responsibility to Iraqis. The two efforts were not considered mutually exclusive—during the surge, efforts would continue to train, mentor and equip Iraqi security forces to prepare for transitioning increasing responsibilities to them. But the relative priority of the "population security" and "transition" efforts was adjusted. In early 2008, close to the height of the surge, some Division Commanders commented that their guidance from their higher headquarters—MNC-I—was to practice patience, not to be in too much of a hurry to move to an overwatch posture or to transition responsibility to Iraqi security forces. The January 2008 mission statement of one division provides a good illustration of the new priorities—population security first, with a view to laying the groundwork for future transition. The division, "in participation with Iraqi security forces and the provincial government, secures the population, neutralizes insurgents and militia groups, and defeats terrorists and irreconcilable extremists, to establish sustainable security and set conditions for transition to tactical overwatch and Iraqi security self-reliance." The surge aimed to provide "population security" not merely with greater troop strength, but also by changing some of the approaches those troops used. One major emphasis was population control—including the extensive use of concrete barriers, checkpoints, curfews, and biometric technologies for identification including fingerprinting and retinal scans. In April 2007, some key Baghdad neighborhoods were entirely sealed off using these approaches, prompting the use of the moniker "gated communities." In an Op-Ed piece, Multi-National Corps-Iraq Commander Lieutenant General Ray Odierno explained that the gated communities were "being put up to protect the Iraqi population by hindering the ability of terrorists to carry out the car bombings and suicide attacks." As counter-insurgency expert Dave Kilcullen described it, "once an area is cleared and secured, with troops on the ground, controls make it hard to infiltrate or intimidate ... and thus [they] also protect the population." Some initial press coverage took note of some citizens' dismay at the tighter controls that gated communities brought. By early 2008, coalition and Iraqi leaders reported anecdotally that Iraqi residents were pleased at the added protection the "gated community" measures provided them—by "keeping the bad guys out." Another key set of population security approaches involved troop presence—including not only increasing the number of troops but also changing their footprint. From late in the formal occupation through 2006—including Operation Together Forward—coalition forces in Iraq had been consolidated at relatively large Forward Operating Bases (FOBs). Surge strategy called for getting troops off of the FOBs and out into local communities, to live and work among the population. As Major General James Simmons, III Corps and MNC-I Deputy Commanding General until February 2008, stated, "You have to get out and live with the people." Multi-National Force-West leaders agreed that the key is "living with the population," because "it makes Iraqis see us as partners in the fighting and rebuilding." As MNF-I Commanding General David Petraeus commented in July 2008, explaining surge approaches: "The only way to secure a population is to live with it—you can't commute to this fight." Accordingly, coalition forces established scores of small combat outposts (COPs) and joint security stations (JSSs) in populated areas. A JSS includes co-located units from coalition forces, the Iraqi police, and the Iraqi Army. Each component continues to report to its own chain of command, but they share space—and information. A COP is coalition-only, usually manned by a "company-minus." As of January 2008, for example, Multi-National Division-Center had established 53 such bases in their restive area south of Baghdad. Senior commanders at all levels have stressed the critical role JSSs and COPs played during the surge. General Petraeus noted in March 2007 that they allowed the development of relationships with local populations. Multi-National Division-Baghdad leaders called the creation of these outposts the "biggest change over time" in coalition operations in Iraq. Surge strategy still called on Iraqi and coalition forces to "clear, hold, build." Administration and coalition leaders admitted that in the past—in Operation Together Forward in 2006—insufficient forces had been available to "hold" an area once it was cleared. The surge was designed to correct that. As the President noted in his January 10, 2007, address to the nation, "In earlier operations, Iraqi and American forces cleared many neighborhoods of terrorists and insurgents, but when our forces moved on to other targets, the killers returned. This time," he added, "we'll have the force levels we need to hold the areas that have been cleared." General Petraeus confirmed the approach, and the contrast with past operations, in March 2007: "Importantly, Iraqi and coalition forces will not just clear neighborhoods, they will also hold them to facilitate the build phase of the operation." Key outside observers agreed. Retired General Jack Keane, a strong surge advocate, noted, "We're going to secure the population for the first time. What we've never been able to do in the past is have enough forces to stay in those neighborhoods and protect the people." President Bush announced one other major change which would make surge military operations different from those of the past—the lifting of political restrictions on operations, which had been imposed in the past by an Iraqi leadership concerned about its own fragility. In the past, President Bush noted, "political and sectarian interference prevented Iraqi and American forces from going into neighborhoods that are home to those fueling the sectarian violence." But this time, Iraqi leaders had signaled that Iraqi and coalition forces would have "a green light" to enter those neighborhoods. Enabled by the greater availability of U.S. and Iraqi forces in 2007, U.S. military commanders launched a series of major "combined" operations with their Iraqi security forces counterparts. In February 2007, just as surge forces began to flow into Iraq, U.S. and Iraqi forces launched Operation Fardh al-Qanoon , often referred to as the Baghdad Security Plan. Its primary emphasis was population security, and the primary geographical focal point was Baghdad, broadly defined. As then-MNC-I Commander LTG Odierno put it, "The population and the government are the center of gravity." The basic theory of the case was another paraphrase of "clear, hold, build." At the outset of operations, Major General Joseph Fil, Commander of 1 st Cavalry Division and the Multi-National Division-Baghdad, described the plan as "clear, control, and retain." That meant, he explained, clearing out extremists, neighborhood by neighborhood; controlling those neighborhoods with a "full-time presence on the streets" by coalition and Iraqi forces; and retaining the neighborhoods with Iraqi security forces "fully responsible for the day-to-day security mission." The specific targets of the Operation included Al Qaeda in Iraq (AQI) and its affiliates, and rogue Shi'a militia elements including the Jaish al-Mahdi "special groups." "Baghdad" was defined to include the surrounding areas, or "belts," which had been providing bases of operation and transit points, with access into the capital, for both Sunni and Shi'a extremists. LTG Odierno's guidance to his subordinate commanders was to stop the flow of "accelerants of the violence" through those areas into Baghdad. Operating in the "belts" required shifting the footprint of coalition forces to cover all the major supply lines leading into Baghdad. Coalition presence in many of the belt areas had previously been very light. During the spring of 2007, incoming surge brigades were deployed into Baghdad and its belts. April 1, 2007, a new division headquarters was added—the Multi-National Division-Center, initially led by 3 rd Infantry Division—to cover parts of Baghdad province and other provinces just south of Baghdad. Beginning in June 2007, once all the coalition surge forces had arrived in Iraq, coalition forces, in coordination with Iraqi counterparts, launched a series of operations: Phantom Thunder, followed by Phantom Strike, and then Phantom Phoenix. As "Corps-level operations," these were sets of division- and brigade-level actions coordinated and integrated across Iraq by MNC-I. They included close coordination with U.S. Special Operations Forces as well as with Iraqi military and police forces. The city of Baghdad was the most complex battle space in Iraq, due to the strong presence of both AQI and JAM special groups, the many potential fault lines among different neighborhoods, and a security "temperature" that can vary on a block-by-block basis. In the series of Corps-level operations, the Multi-National Division-Baghdad, led by the 4 th Infantry Division since December 2007, focused first on clearing the city, and then on establishing a strong presence to hold each neighborhood. The area just south of Baghdad and along the Tigris River, with its mixed Shi'a/ Sunni population, had long provided safe havens and a gateway to Baghdad for AQI and its affiliates from Al Anbar and Iraq's western borders, and for Shi'a extremists coming from southern Iraq or from Iraq's border with Iran. As part of the Corps-level operations, Multi-National Division-Center, led by 3ID, focused on clearing these restive areas, narrowing down to more specific pockets of resistance, including Salman Pak and Arab Jabour, as progress is made. To the north, Multi-National Division-North, led by 1 st Armored Division, focused on clearing and then holding those areas where AQI affiliates sought refuge as they were pushed out of Baghdad. Many AQI affiliates, pushed out of Baghdad by surge operations, initially relocated to Baquba, the capital city of Diyala province east of Baghdad. Reports suggested they had renamed it the new "capital of the Islamic State of Iraq." As operations by MND-North and Iraqi security forces pushed AQI out of that city, some AQI moved east up the Diyala River Valley, into the so-called "breadbasket" of Iraq near the city of Muqtadiyah—a focal point for the Division's operations in January 2008. Working in Diyala in partnership with the Iraqi 5 th Army Division, the combined forces uncovered a number of major weapons caches, and had "some very tough fights." In Al Anbar province to the west, the Multi-National Force-West, led by II Marine Expeditionary Force (Forward), working closely with Iraqi counterparts, focused its operations on a pocket of AQI concentration around Lake Thar Thar, northwest of Baghdad. As AQI was pushed out of major population centers including Ramadi and Fallujah, they tended to attempt to regroup in the desert, so another major coalition and Iraqi focus in Al Anbar has been targeting the AQI remnants in rural areas. Coalition and Iraqi military operations in 2008 have been characterized by growing ISF capabilities, and growing assertiveness of the GoI in employing the ISF. Operations have been carried out against both Al Qaeda in Iraq affiliates in north-central Iraq, and against extremist Shi'a militia members in the south and Baghdad. By the beginning of 2008, Corps-level operations had pushed AQI out of Anbar and Baghdad to the east and north. Operations by Multi-National Division-North in January 2008, in Diyala province, pushed AQI out of Diyala's capital city Baquba and further up the Diyala River Valley. Some members of AQI sought to establish the northern city of Mosul as their last stronghold—their "center of gravity." In 2007, through the height of the surge, Ninewah province and its capital city Mosul had been an "economy of force" area for both U.S. and Iraqi forces, as additional forces were sent south to Baghdad and nearby areas. Ninewah province offered AQI affiliates some geographic advantages, including land routes out to Iraq's porous western border. It also offered a volatile mixed population, including governing structures largely controlled by Kurds, a sizable Sunni Arab population that felt disenfranchised, and Christian, Yazidi, and other minority groups. On January 25, 2008, Prime Minister Maliki announced that there would be a major new Iraqi and coalition offensive against AQI in Mosul and stated that it would be "decisive." The Prime Minister established a new Ninewah Operations Command (NOC), designed to coordinate operations by all ISF. The NOC was scheduled to reach full operating capacity in May 2008, but as one senior U.S. commander noted, "they just weren't ready." Nevertheless, ISF did launch some clearing operations and took steps to secure Mosul including setting up check points and maintaining a presence at combat outposts. MNC-I noted its intent, once progress in Diyala province allows, to go back and complete the effort in Mosul, to "get it set." In October 2008, U.S. and Iraqi forces struck a major blow against AQI in Mosul by killing Abu Qaswarah, the senior AQI emir of northern Iraq. According to U.S. commanders on the ground, that successful operation was made possible by a series of actions and information-gathering by U.S. and Iraqi forces over preceding months, and his death was expected to disrupt the AQI network significantly. According to U.S. commanders, operations in Mosul in 2008 benefitted from an initiative by Multi-National Corp-Iraq (MNC-I) in the Jazeera desert, west of Mosul. MNC-I formed a task force around a military intelligence brigade headquarters, based it in the desert, and tasked it to coordinate intelligence fusion, drawing on sources from the U.S. Marines in the west, and U.S. and Iraqi SOF, in addition to its own assets. Commanders note that the approach has facilitated identifying and interdicting fighters coming across the desert toward Mosul. Meanwhile, in January 2008, operations in Diyala province, east of Baghdad, had driven AQI affiliates out of major population centers into rural areas. One U.S. military commander, emphasizing AQI's lack of cohesive structure, described them as "a bunch of gangs under the Al Qaeda rubric." In late July 2008, ISF, supported by coalition forces, launched operations against AQI in Diyala. Before the operations began, Prime Minister Maliki publicly stated the intention to launch operations, and as a result, according to U.S. commanders, many of the "bad guys" simply ran away. In the view of one U.S. commander, that approach may have "pushed the problem down the road," but on the other hand, he added, it might allow time for ISF capabilities to develop further. U.S. support to the operations included conducting blocking operations, to try to catch AQI affiliates attempting to flee, as well as providing air support, some logistics, and engineering support. According to U.S. commanders, the Diyala operations were the first to include rehearsals by the ISF and joint planning with Multi-National Corps-Iraq. Iraqi officials noted that the Diyala operations more than two Iraqi Army divisions, and more than one division from the Ministry of Interior. U.S. commanders add that while the Iraqi Army demonstrated some proficiency in "clearing," it has been harder for the Iraqis to figure out how to "hold" cleared areas—Iraqi planning for the "hold" portion of the operations was insufficient and hampered by a lack of Iraqi police. On March 25, 2008, based on direction from Prime Minister Nouri al-Maliki, Iraqi security forces launched a major operation, Sawlat al-Fursan (Charge of the Knights) in Basra, with the stated aim of targeting criminals operating under religious or political cover. Some Muqtada al-Sadr loyalists apparently viewed the matter differently, and accused the government of using its armed forces, many of which are strongly influenced by the Islamic Supreme Council in Iraq (ISCI), to attack a political rival. International Crisis Group expert Joost Hiltermann characterized the operations as "a fairly transparent partisan effort by the Supreme Council [ISCI] dressed in government uniforms to fight the Sadrists and Fadila." Prior to the operations, by many accounts, key militias in Basra controlled local councils and much of the flow of daily life on the streets of the city. In 2007, the UK-led Multi-National Division-Southeast (MND-SE), responsible for Basra, had determined that "the UK presence in Basra was a catalyst for violence." In August of that year, UK forces consolidated at the airport, outside the city, and assumed an overwatch posture. In an apparent attempt at reconciliation, the division reportedly made an accommodation with the Jaish al-Mahdi (JAM), agreeing to limit its own presence in the city. The launch of the "Charge" was, by many accounts, precipitate. In March 2008, Iraqi forces in Basra, assisted by UK advisors, had been preparing a staged plan to take back Basra, including setting conditions first, and then launching operations in June. According to Iraqi civilian and military officials in Basra, and U.S. and UK military officials, the Iraqi operation was not well-planned. Some officials, who were directly involved, note that when the Prime Minister arrived in Basra in March, he had been prepared only for a "limited operation" and was surprised by the magnitude of the challenge. Some observers suggest that Maliki was emboldened by progress against AQI in the north, and somewhat over-confident in the abilities of the ISF. The ISF applied considerable forces to the effort, including 21 Iraqi Army battalions and 8 National Police battalions—reportedly some 30,000 Iraqi forces altogether, including special operations and conventional army forces, as well as police. Extremists in Basra mounted fierce resistance—including simultaneous attacks on 25 Iraqi police stations by JAM-affiliated forces. Iraqi Minister of Defense Abdel Qadr Jassim was quoted as saying, "We supposed that this operation would be a normal operation, but we were surprised by this resistance and have been obliged to change our plans and our tactics." U.S. military officials report that without substantial assistance from the coalition, the operation would have been in jeopardy. As one senior U.S. commander explained it, Prime Minister Maliki had staked his reputation on the operation—if the operation failed, the government might collapse, so, he added, "We made sure that it would be successful." Coalition support included the advice and support of embedded transition teams, air strikes, and air lift. According to coalition officials, while many of the ISF performed competently, some—as widely reported—did not. One newly formed Iraq Army brigade, the 52 nd , which had no combat experience, seemingly collapsed under the pressure. In April 2008, the GoI noted that more than 1,000 members of the ISF had laid down their weapons during the fight. Accordingly, some 500 Iraqi Army Soldiers, and 421 members of the Iraqi Police in Basra, were fired. In the aftermath of the Basra operations, coalition and Iraqi commanders reported that the security situation had improved markedly. Accordingly to MND-SE, the ISF regained freedom of movement throughout the city. According to an Iraqi Army commander, security was much better, and the main challenge now was to act against criminals and outlaws. In March 2008, as operations in Basra commenced, some JAM elements stepped up attacks targeting coalition and Iraqi forces in Baghdad. The attacks included significant targeting of the International Zone, primarily from the direction of Sadr City, a stronghold of supporters of Moqtada al-Sadr and the Sadr family. To quell the attacks, U.S. and Iraqi forces launched operations, first of all targeting the southern part of Sadr City where many rocket attacks were originating. According to a senior U.S. military official, the Iraqi security forces, perhaps focused on the ongoing Basra operations, were reluctant to engage—he added, "We had to drag them to the fight." U.S. forces, while largely remaining outside Sadr City itself, brought to the fight air weapons teams and substantial layered ISR. After simmering for nearly two months, with continual pressure applied by coalition and Iraqi forces, the fight in Sadr City ended in May 2008 with a deal struck between Moqtada al-Sadr and the GoI. The arrangements reportedly allowed the ISF full access to the area. They called for an end to the launching of rockets and mortars from Sadr City, and for the removal of any explosives that had been laid down. They did not require the disbanding or disarming of JAM forces—and JAM affirmed that it did not possess any medium or heavy weapons. In the aftermath of the fighting in Sadr City, U.S. officials confirmed that ISF freedom of movement had been restored, and local residents reportedly confirmed that the grip of control by Shi'a militias over the local economy and public services had relaxed. In June 2008, the ISF launched clearing operations in Amarah, capital city of Maysan province just north of Basra. While little resistance was encountered, ISF found a number of weapons caches, assisted by information from the local population. The ISF followed by providing humanitarian assistance in the form of hot meals, and coalition forces introduced a temporary employment program, hiring local residents to remove trash and debris from city streets. U.S. commanders noted that the Amarah operations may have been the first that the ISF carefully planned. Improvised explosive devices (IEDs) are the enemy's "weapon of choice" in Iraq. Usually made with technologically simple, off-the-shelf materials, they generally do not require deep expertise to construct. As of early 2008, over 78% of those detained by coalition forces were interned based on suspicion of some IED-related activity. IEDs are the leading cause of coalition casualties in Iraq—and over time, they have driven changes in coalition operations, including an increased reliance on air lift for transportation of personnel and cargo. Recognizing the threat from these asymmetric weapons, both the Department of Defense and the military command on the ground in Iraq have made countering IEDs a top priority. At DOD, the Joint IED Defeat Organization, based in the Office of the Secretary of Defense and led since December 2007 by Lieutenant General Tom Metz, is mandated to facilitate the rapid development, production and fielding of new technologies and approaches. In the field, the premise of the counter-IED efforts has been to "attack the network." That involves not just capturing the IED emplacers, usually hired for a one-time payment, but also, in the words of one Division Commander, "influencing the decisions of those who place IEDs." More broadly, it includes mapping the relationships among emplacers, financiers, and overall strategists, including the support they receive from outside Iraq. To help execute those efforts, Multi-National Corps-Iraq and its subordinate multi-national divisions created dedicated counter-IED cells, reinforced by experts provided by JIEDDO. Their efforts include information-sharing about the latest enemy tactics, techniques and procedures, distributing and providing training for the latest counter-IED technology, training the force to recognize how the network operates, and integrating all available intelligence assets to better define—and target—the networks. MNC-I also includes a task force of technical experts who collect and analyze all found IEDs. MNF-I and MNC-I officials point to a dramatic decrease in enemy IED use, from September 2007 to September 2008, from about 110 incidents per day to about 26 incidents per day. Most of those incidents involved relatively unsophisticated devices, with key exceptions. According to U.S. officials, enemy IED use seems to follow cycles of innovation. In late 2007, a key IED concern was the explosively formed penetrator (EFP), able to target vehicles with a particularly powerful blast, but EFP trend lines diminished markedly after January 2008. In late 2007, another worrisome form of IED appeared, the improvised rocket-assisted mortar (IRAM)—a rocket with a propane tank and ball bearings. IRAMs take a long time to build, and they have indiscriminate and catastrophic effects. The first two IRAM incidents took place in November 2007, and a total of 13 incidents had taken place by August 2008. In mid-2008, the use of "building-borne IEDs"—houses wired to explode—became more common. Carrying out IED attack requires, to some extent, the ability to operate within a local population. U.S. commanders note that the most fundamental factor in explaining the successes to date in the counter-IED effort is that "the Iraqi population has turned against the IED effort." U.S. Special Operations Forces (SOF) have played an integral role throughout Operation Iraqi Freedom, including targeting key enemy leaders. MNF-I leaders note that as of 2008, SOF and conventional forces work in a much more closely integrated way than they did earlier in OIF. SOF is particularly well-suited to infiltrate difficult areas to reach key individual targets. But according to MNF-I and MNC-I leaders, SOF often rely, for targeting information, on conventional units' detailed, daily familiarity with their battle space, based on their long-standing relationships with local Iraqi counterparts. Further, commanders stress, after a SOF action, it is the conventional forces—in partnership with Iraqi forces—that stay to "hold" the area. Most press coverage of the counter-insurgency effort in Iraq has focused on the role of ground forces—the Army and the Marine Corps—including the number of troops on the ground, the approaches they have used, and the stress on those two Military Services. Air power has also been an integral element of the OIF counter-insurgency (COIN) effort—providing critical Intelligence, Surveillance and Reconnaissance (ISR) capabilities, and facilitating mobility—particularly given the lack of mass transit of troops by ground. Importantly from an analytical perspective, the role of air power in Iraq has evolved over time. One major shift over the course of OIF has been in the kinetic use of air power. Defense expert Anthony Cordesman has pointed to its "steadily more important role over time." In November 2007, Major General Dave Edgington, then the MNF-I Air Component Coordination Element (ACCE) Director, confirmed a sharp spike, once all the surge troops had arrived in Iraq, in the number of weapons dropped from fighters and bombers. Statistics released in January 2008 by the Combined Force Air Component Command (CFACC), the air component of CENTCOM, provided further detail about the upswing in the use of weapons. The yearly number of close air support (CAS) strikes, with munitions dropped, in OIF, rose from 86 in 2004, to 176 in 2005, to 1,770 in 2006, to 3,030 in 2007. During 2007, the monthly number of CAS strikes rose from 89 in January, then 36 in February, to 171 in June, 303 in July, and 166 in August, before dropping back to double-digits for the rest of the year. In January 2008, Maj. Gen. Edgington explained that close air support—or "on-call" support—is the type of kinetic air power that has been most in demand in Iraq. Coordinated air/ground operations during the first several months after the arrival of the full surge force produced the heaviest CAS requirements, but afterward the demand tapered off. The significantly higher demand for CAS, he noted, was less a reflection of a deliberate strategy to use more air power, than a natural result of a significantly larger number of U.S. troops, working significantly more closely with Iraqi counterparts and in local neighborhoods, and getting better information that made target identification much easier. As of January 2008, in a shift from mid-2007, the majority of weapons dropped were targeting deeply buried IEDs. Some counter-insurgency specialists have questioned the use of kinetic air power in counter-insurgency operations because it risks civilian casualties that could fuel the insurgency. For example, Kalev Sepp has written, "These killings drive family and community members into the insurgency and create lifelong antagonisms toward the United States." Commanders have stressed, in turn, that although there is always a chance of accidental civilian casualties, the likelihood has greatly diminished with the development of precision capabilities. Further, the decision cycle before a weapon is dropped includes a series of decision points that give commanders the opportunity to stop an action if new and better information becomes available about a civilian presence in the target area. In his December 2007 assessment of the use of air power in Iraq and Afghanistan, Anthony Cordesman concludes that "considerable restraint was used in both wars." Another major shift in the use of air in OIF, according to U.S. commanders, has been the growing availability of greater air assets—for example, significantly more full-motion video assets. In 2008, U.S. air assets—ISR, kinetic, and mobility—proved essential to the increasingly "combined" coalition and Iraqi operations on the ground. In the Basra operations in March 2008, U.S. transition teams embedded with Iraqi units relied on ISR and some kinetic air as key enablers, and the coalition also provided some essential airlift. U.S. and Iraqi military operations in the Sadr City section of Baghdad, in spring 2008, presented some specific challenges—a geographic area largely denied to legitimate Iraqi security forces but densely populated by civilians, serving as a launching pad for frequent attacks on Iraqi and coalition targets, in the middle of the nation's capital. In the judgment of some U.S. commanders, what helped make the U.S.-Iraqi Sadr City operations a success was pushing the control of air assets to lower levels in the U.S. chain of command. Commanders on the ground had access to layered inputs from manned and unmanned sensors, and multiple options—both ground- and air-based—for taking out targets, if the decision was to "kill" rather than "follow and exploit." As of the beginning of 2009, the Iraqi Security Forces (ISF) consisted of three major groups: the Army, Navy and Air Force under the Ministry of Defense (MoD); the Iraqi Police Service, the National Police, and the Department of Border Enforcement under the Ministry of Interior (MoI), as well as the Facilities Protection Service that was still being consolidated under the MoI; and the Iraqi Special Operations Forces that report to the Counter-Terrorism Bureau, under the office of the Prime Minister. Developing the ISF and the security Ministries that oversee them is a critical component of the role of U.S. and coalition forces in Iraq—a role that has evolved over time in response to events on the ground and changes in U.S. strategy. The scope of the challenge has been extensive, since none of Iraq's pre-war security forces or structures were left intact or available for duty after major combat operations. U.S. pre-war planning had foreseen an immediate and practical need for law enforcement, and for security more broadly, after major combat—particularly since some challenges to law and order might reasonably be expected after the collapse of the old regime. Planning had also stressed the need for security providers to have an "Iraqi face," to calm and reassure the Iraqi people. However, pre-war planning had erroneously assumed that Iraqi local police forces would be available, as needed, to help provide security for the Iraqi people. Instead, in the immediate aftermath of major combat, coalition forces found that civilian law enforcement bodies had effectively disappeared. Meanwhile, military pre-war planning had also assumed that Iraqi military units would be available for recall and reassignment after the war, as needed. Military plans counted on the "capitulation" of Iraqi forces, and included options for using some of those forces to guard borders or perform other tasks. Instead, on May 23, 2003, the Coalition Provisional Authority (CPA) issued CPA Order Number 2, which dissolved all Iraqi military services including the Army. That decision foreclosed the option of unit recall to support security or reconstruction activities, or to serve as building blocks for a new, post-Saddam army. Post-war Iraq was not, however, a blank slate in terms of trained and organized fighters. The Kurds in northern Iraq had long maintained well-trained and well-equipped forces—the pesh merga —which had worked closely with coalition forces during major combat. Somewhat more equivocally, a major Shi'a Arab political party, the Supreme Council of the Islamic Revolution in Iraq (SCIRI, later ISCI), maintained its own militia, the Badr Corps, which had been trained in Iran during the Iran-Iraq war. Like the pesh merga , Badr members were trained and equipped, but unlike them, they had no history of cooperation with coalition forces in Iraq. In the early days of the formal occupation, in various contexts, both militias offered their services to help provide security. The coalition—then the executive authority of Iraq—thus faced the additional challenge of whether and how to incorporate these militias into official Iraqi security structures. During the year of formal occupation, Iraqi security forces training was led and primarily executed by the Coalition Provisional Authority. Particularly in the earliest days, the efforts were characterized by limited long-term strategic planning, and by resources too limited for the scope and scale of the tasks. Police training began as a function of the CPA "Ministry of the Interior" office, initially under the leadership of former New York Police Commissioner Bernard Kerik. He was supported by a skeleton staff in Baghdad, and by some resources from the State Department's Bureau of International Narcotics and Law Enforcement Affairs (INL). Based on priorities articulated by Washington, the team focused initially on the capital city, including rebuilding the Baghdad Police Academy. The office also launched a limited call-back and re-training effort for former Iraqi police officers, but the effort was constrained by limited resources and staff—including a very limited presence outside Baghdad. Meanwhile, military units throughout Iraq had recognized an immediate need for some Iraqi law enforcement presence on the ground in their areas of responsibility. To the frustration of some CPA officials, military commanders launched police re-training initiatives in their areas, initially in the form of three-week courses, with the goal of quickly fielding at least temporary Iraqi security providers. Ambassador Bremer eventually instructed CJTF-7 to cease police recruiting. CPA also initially had responsibility for rebuilding Iraq's Army, under the supervision of Walt Slocombe, the CPA Senior Advisor for National Security, and a former Under Secretary of Defense for Policy. In an August 2003 Order, CPA directed the creation of the New Iraqi Army (NIA). The training effort, led day-to-day by Major General Paul Eaton, focused on recruiting and training Iraqi soldiers, battalion-by-battalion. The plan was to create higher headquarters later on—and in particular, once an Iraqi civilian leadership was in place to provide civilian control of the military. The initial, ambitious goal was the creation of 27 battalions in two years, which was adjusted to the even more ambitious goal of 27 battalions in one year. In early September 2003, as a stop-gap measure, at the urging of CJTF-7 with backing from the Office of the Secretary of Defense, CPA announced the establishment of the Iraqi Civil Defense Corps (ICDC). The ICDC would be a trained, uniformed, armed "security and emergency service agency for Iraq." In accordance with the Order he signed, establishing the ICDC, Ambassador Bremer delegated responsibility for its development to the senior military commander in Iraq—LTG Sanchez. Under CJTF-7's authority, Division Commanders launched ICDC recruiting and training programs, supporting the efforts in part with their own organic assets, and in part with CERP funding. In 2003 and early 2004, the various ISF training efforts—for the police, the NIA and the ICDC—proceeded in parallel, led by separate entities within the coalition, with little opportunity for integrated strategic planning and resourcing. The military command in Iraq had sought for some time to be assigned responsibility for the entire ISF training mission, based on the view that CPA did not have the capacity to accomplish all of it, or to coordinate its many elements in a single strategy. Ambassador Bremer resisted this design, based on the view that the military was not trained to train police forces. On May 11, 2004, President Bush issued National Security Presidential Directive (NSPD) 36, which assigned the mission of organizing, training and equipping all Iraqi security forces (ISF) to CENTCOM. This included both directing all U.S. efforts, and coordinating all supporting international efforts. It explicitly included Iraq's civilian police as well as its military forces. CENTCOM, in turn, created the Multi-National Security Transition Command-Iraq (MNSTC-I), a new three-star headquarters that would fall under the Multi-National Force-Iraq (MNF-I), to bring together all Iraqi security forces training under a single lead in Iraq. Since December 2004, in keeping with the original NSPD mandate concerning international contributions, the MNSTC-I Commanding General has been dual-hatted as the Commander of the NATO Training Mission-Iraq (NTM-I). NTM-I provides training, both inside and outside Iraq, to Iraqi security forces; assistance with equipping; and technical advice and assistance. As of August 2008, its permanent mission in Iraq included 133 personnel from 15 countries. Major initiatives have included helping the Iraqi Army build a Non-Commissioned Officer Corps; helping establish and structure Iraqi military educational institutions; and—with a strong contribution from Italy's Carabinieri—helping update the skills and training of Iraq's National Police. On October 1, 2005, MNSTC-I was given the additional responsibility of mentoring and helping build capacity in the Ministries of Defense and Interior. At the heart of the ISF training mission is the practice of embedding coalition forces and other advisors and experts—now called "transition teams"—with Iraqi military or civilian units, to train, mentor and advise them. That practice, though it has grown over time, is not new. In early 2004, under CJTF-7, some Army units embedded teams with the newly generated New Iraqi Army battalions. Under Commanding General George Casey, MNF-I initiated a more aggressive embedding strategy, and the effort expanded still further in scope when GEN Petraeus assumed command of MNF-I in February 2007. One thing that has changed over time is the strategic intent of the training mission. As the word "transition" in MNSTC-I's name suggests, the initial stated goal of MNSTC-I and the ISF training effort in general was to transition security responsibility to Iraqis. The sooner the Iraqis were capable of providing security for themselves, the sooner U.S. and other coalition forces could go home. Accordingly, embedded teams worked with their Iraqi counterparts with a view to the earliest possible independence of those Iraqi units. In early 2007, in keeping with the Administration's New Way Forward strategy and the surge emphasis on "population security" as a prerequisite for complete transition, the emphasis of the training and embedding mission shifted. The ultimate goal was still to transition security responsibility to Iraqis, but the timeline was relaxed. The primary focus, in the near term, would be working with Iraqi units to help them better provide population security. Working closely with U.S. counterparts on real-world missions, Iraqi units would be practicing the skills they would need to operate independently. Under MNF-I, several key subordinate bodies share responsibilities for training and advising Iraqi Security Forces and their respective headquarters institutions. MNSTC-I's broad mandate is to generate and replenish the ISF, improve their quality, and support the institutional capacity development of the security ministries—the Ministry of Defense, the Ministry of the Interior, and the Counter-Terrorism Bureau. In practice, MNSTC-I shares some of these responsibilities with the Multi-National Corps-Iraq (MNC-I), the three-star operational command that also reports directly to MNF-I. In working with the ISF, MNC-I's focus is operational, managing transition teams that embed with the Iraqi Army, the Department of Border Enforcement and the National Police, while MNSTC-I's focus includes both operational and institutional issues. Under MNC-I, the Iraq Assistance Group (IAG), a one-star command created in February 2005, is the "principal coordinating agency for the Iraqi Security Forces" within MNC-I. Originally, the IAG "owned" the transition teams that embed with Iraqi units, but a major change was made in mid-2007. At that time, transition teams, while still assigned to the IAG, were attached to the brigade combat teams, also under MNC-I, which were responsible, respectively, for the areas in which the teams were working. As previous IAG commander Brigadier General Dana Pittard explained, the change provided "unity of effort and unity of command in a brigade combat team's area of operations." The IAG continues to serve as the executive agent for transition teams throughout Iraq, ensuring they have the training and support they need. This includes synchronizing the curricula at the transition team training sites inside and outside Iraq, providing the teams with equipment and related training, and supporting the teams' Reception, Staging, Onward Movement, and Integration (RSOI) as they arrive in Iraq. The IAG also directly supports transition teams working with three Iraqi headquarters staffs: the Iraqi Ground Forces Command, the National Police headquarters, and the Department of Border Enforcement headquarters. And the IAG is helping spearhead the creation of an Iraqi Non-Commissioned Officer (NCO) Corps—including training Iraqi NCOs to run a new NCO training course. As a corollary to President Obama's troop drawdown and transition policy, the mission and structure of MNSTC-I are expected to transition into a large version of a typical Office of Security Cooperation, focused on mil-to-mil partnership activities, capacity-building in the security ministries, and foreign military sales. The Advise and Assist Brigades scheduled to compose the transitional force are likely to assume day-to-day responsibility for advising the Iraqi Army; MNSTC-I could retain responsibility for partnering with other ISF forces. Transition teams have been called the "linchpin of the training and mentoring effort." The teams vary in size, composition and focus, based on the needs of the Iraqi forces they partner with and the specific local circumstances, but the theory of the case is consistent: the teams simultaneously "advise, teach, and mentor," and "provide direct access to Coalition capabilities such as air support, artillery, medical evacuation and intelligence-gathering." They also provide continual situational awareness to coalition forces about the status of the ISF. Transition teams work with units in each of the Iraqi military and police services, with key operational headquarters, and with the security ministries. Due to resource constraints, coverage of Iraqi units by training teams has not been one-to-one. In 2008, as ISF capabilities grew, several shifts were underway, if unevenly across Iraq, in the focus of the embedded transition teams: from basic skills to more sophisticated capabilities, from lower-level units to higher-level headquarters, and from training to advising. In general, the embedded advisory effort is highly dynamic—work with any Iraqi unit is expected to be temporary. According to U.S. military officials, as of fall 2008, the embedded training effort was far from completed—while many Iraqi units had already "graduated" from the need for embedded advisors, others Iraqi units had just entered that form of partnership, and other units were still being generated by the Government of Iraq. For Ministry of Interior forces, the Department of Defense reported that as of August 2008, there were 27 border transition teams (BTTs) working with about two-thirds of Department of Border Enforcement units at battalion-level or above; and 41 National Police Transition Teams (NPTTs) which were partnering with about 80% of National Police units at battalion-level or above. For the Iraqi Police, there were 223 of 266 required Police Transition Teams (PTTs) working with Iraqi police at local, district and provincial levels. The Police Training Team mission is supported by a U.S. Military Police brigade, complemented by civilian International Police Advisors (IPAs) who provide expertise in criminal investigation and police station management. The IPA contracts are funded by DOD and managed by the Department of State. As of August 2008, MNSTC-I noted that about 400 IPAs were deployed in Iraq, at academies and with some units. Some contemporary observers have suggested—echoing the CPA's Ambassador Bremer—that military forces, including MPs, are not optimally suited to train civilian law enforcement personnel, and have urged the expansion of the IPA program. Some U.S. military officials, while strongly supporting the IPA program, caution that some IPAs have more relevant backgrounds than others—a police officer from a relatively quiet U.S. town with a 30-member police force may not have the background to train and mentor "big city cops" preparing for a counter-insurgency fight. Approaches to police training have varied over time, and by U.S. battle space in Iraq. In Anbar province, for example, Multi-National Force-West (MNF-W), led by the Marines, decided early in the effort to triple or quadruple the normal size of the embedded PTTs. As one commander noted, "You need to be able to leave Marines at the police station while others are out on patrol." But by mid-2008, based on analysis of 109 police stations, MNF-W concluded that around-the-clock PTT presence at the level of the local station was no longer necessary. In general, by mid-2008, the focus of the police training effort had shifted, in many locations, from basic policing to the professionalization of the force. As local police mastered basic skills such as carrying out patrols, PTTs increasingly emphasized higher-end skills, including police intelligence and forensics. To help with this new focus, for example, in summer 2008, MNF-W brought in experts from the Royal Irish Constabulary. For Ministry of Defense forces, the Iraqi Navy is supported by a Maritime Strategic Transition Team (MaSTT) advising the headquarters, and a Naval Transition Team (NaTT) embedded with sailors at the Umm Qasr Naval Base. The Coalition Air Force Transition Team (CAFTT) provides advisory teams to the Iraqi Air Staff, Air Operations Center, and individual squadrons. For the Iraqi Army, as of September 2008 there were 183 Military Transition Teams (MiTTs) working with Iraqi units from battalion to division level. At the Iraqi division level, the standard pattern calls a 15-member team led by a Colonel (or equivalent); at the brigade level—a 10-member team led by a Lieutenant Colonel; and at the battalion level—an 11-member team led by a Major. The teams, though small, include a wide array of specializations—including intelligence, logistics, maneuver trainers, effects, communications, and medical expertise. The MiTTs—like the PTTs—have varied, over time and by battle space, in number and composition. MNF-W consistently chose to use larger MiTTs—with 30 to 40 people. In some instances, U.S. Army MiTTs have also been augmented to form larger teams. In 2008, one major transition in the Iraqi Army training effort was a shift of focus from basic skills to enablers. MNC-I Commanding General LTG Austin made ISF logistics a top priority. To that end, MNC-I created Logistics Transition Assistance Teams (LTATs), drawing on Corps assets, to help jumpstart the development of Iraqi Army logistics capabilities. In mid-2008, U.S. commanders also stressed the Iraqi Army's continuing need for combat enablers, such as ISR, and the ability to call forward and adjust fires. A second major transition was a shift of focus from lower-level to higher-level Iraqi headquarters. Both U.S. Army- and Marine-led multi-national divisions are shifting some of their advisory efforts to the Iraqi brigade and division level, focusing on leadership and staff organization. A third transition was the shift, in the rhetoric of U.S. commanders, from "training" to "advising." In practice, that can mean decreasing the rank of the members of the embedded U.S. teams, and assigning them "liaison" rather than structured training functions. The methodology for forming the MiTTs and preparing them for their assignments has evolved significantly over the short duration of the program. Initially, in the push to field trainers quickly, teams were pulled together from individual volunteers and trained at seven different locations in the United States, without specific standards. Subsequently, the Army consolidated a training program for Army, Navy, and Air Force transition team members, under the auspices of the 1 st Infantry Division at Ft. Riley, Kansas. The program included 72 days at Ft. Riley, including 12 days of inprocessing and 60 days of training, followed by a theater orientation at Camp Buehring, Kuwait, and then by further counter-insurgency training and hands-on equipment training at the Phoenix Academy at Camp Taji, Iraq. The program sent new team leaders out to the field for a brief visit, at the very beginning of their training at Ft. Riley, and it solicited "lessons learned" from Transition Team members both mid-tour and at the end of their tours in Iraq. While the program of preparation improved markedly, the participants were still individual volunteers, who could come from any occupational specialty. As one program leader commented, the curriculum at Ft. Riley includes a measure of "move, shoot, and communicate" skills, as a refresher for all the "professors and protocol specialists" who volunteer. The Marine Corps created a separate program to prepare trainers—the Marine Corps Training and Advisory Group (MCTAG). Its mission is to "coordinate, form, train and equip Marine Corps advisor and training teams for current and projected operations." According to a senior Marine commander in Iraq, the individuals selected for the program are the "first team," with recent experience in command or in combat jobs such as battalion operations officer. The majority of MiTTs in Iraq are "external" teams—that is, they come out of the Ft. Riley and MCTAG systems. However, to help meet demand, about 20% of the MiTTs are "taken out of hide," or "internal"—that is, their members are pulled from U.S. units already serving in Iraq. The experiences with providing large-scale training to indigenous security forces in Iraq and Afghanistan prompted debates within the Department of the Army and DOD more broadly about likely future requirements to provide such training in general, and, more specifically, the best ways to continue to source the Transition Team mission in Iraq. In 2008, in addition to the work of embedded transition teams, the practice of "unit partnering"—that is, a one-to-one matching between a U.S. unit and an ISF unit of similar larger size—grew substantially. Unit partnering is an opportunity for U.S. units to provide an example of how a headquarters functions, how decisions are made, and how efforts are coordinated. The "lessons" are provided by fellow combat units that, like their Iraqi partners, practice the "curriculum" daily. Many U.S. commanders in Iraq describe unit partnering as the opportunity to "show," not just "tell." In August 2008, one commander observed that there was "greater energy from partnering, than from the transition teams." While unit partnering became much more widely institutionalized in 2008, the practice had been used by some U.S. units in the past. In 2007, for example, in the turbulent area of Mahmudiyah and Yusufiyah south of Baghdad, Colonel Mike Kershaw, Commander of the 2 nd Brigade of 10 th Mountain Division, tasked his entire field artillery battalion to embed with the 4 th Brigade of the 6 th Iraqi Army Division and its battalions. The de facto transition team—350 soldiers, staff, and all of their enablers—was far more robust than a MiTT, and had the added value of providing a visible example of how a U.S. battalion is organized and functions. The results in terms of Iraqi operational capabilities were apparently positive. Near the end of the brigade's tour, COL Kershaw reported, "We really conduct almost no operations where we do not have Iraqi forces either embedded with us, or where they are in the lead." Unit partnering is most common—and the closest "fit"—with the Iraqi Army. In mid-2008, for example, both Multi-National Division-Center and Multi-National Division-North assigned a brigade to partner with each Iraqi Army division in their respective battle spaces. Some brigades, in turn, such as the 1 st BCT of 10 th Mountain Division in Kirkuk, assigned one battalion to partner with each Iraqi Army brigade. A U.S. BCT commander in Diyala reported in January 2009 that he partners with every Iraqi brigade, battalion, squad and platoon in his area of responsibility. He stated, "We take our tactics, techniques, procedures and our skill sets, and we rub up against them extremely hard. And the end result is that we rub off on them." Across Iraq, some U.S. units have also partnered with units from other Iraqi security forces—a brigade in Baghdad, for example, described a growing partnership with the Iraqi police. However, unit partnering is both time- and personnel-intensive, and in some cases operational requirements have not permitted U.S. forces to unit-partner with all of the ISF in their battle space. Like ISF training in general, unit partnering is a dynamic endeavor—it is designed to boost the capabilities of Iraqi units, and at some stage of improvement a unit's need for a close partnership diminishes. As of early 2009, ISF units had reached quite varied stages of development—many, in the views of U.S. commanders, were very proficient, while others had just been formed, and the Government of Iraq has stated the intention to form still others. More so than the use of embedded teams, unit partnership requires a robust U.S. forces presence, and it may become more difficult to practice as U.S. forces in Iraq draw down. It seems that U.S. commanders, in more widely institutionalizing unit partnerships in 2008, decided to make maximum use of time and presence remaining in Iraq—whatever that might be. As one senior commander noted in August 2008, "If we partner with the Iraqis for the next six to nine months, then maybe they will be good enough." The Department of Defense reported that as of March 2009, there were approximately 615,000 assigned members of the Iraqi Security Forces. As of October 31, 2008, the following numbers of ISF, by category, had been "authorized" by the Government of Iraq, "assigned" based on payroll data, and "trained." The three categories—authorized, assigned, and trained—are not a continuum. Some of those "trained" may not currently be "assigned"—on the payroll—for example due to casualties, or having left the service for other reasons. Further, in some cases the numbers "assigned" have outstripped the numbers "authorized." In some cases, this due to hirings at the provincial level not yet approved at the national level. The overall numbers of Iraqi Security Forces (ISF) continue to grow, driven by revised estimates by the Government of Iraq of the forces required to provide security; by provincial-level requests for more police forces; and by the consolidation of forces from other ministries under the Defense and Interior Ministries. MNSTC-I and MNF-I estimate that the ISF numbers are likely to grow further in the future. According to MNSTC-I, the GoI's target size for the ISF is between 600,000 and 650,000, by the end of 2010. The total numbers of ISF alone provide only a partial gauge of progress toward the broadly recognized ultimate goal of independent and self-sustaining Iraqi security forces. Recent qualitative assessments of capabilities and gaps, by current officials and outside experts, provide a more complete picture. Both internal and external assessments of the ISF point to growing evidence of demonstrated operational capabilities, but raise some questions about some institutional capabilities, and thus about how close Iraqi forces and their oversight ministries are to completely independent and competent functioning. One of the most comprehensive external assessments of the ISF was carried out in late 2007 by the congressionally mandated Commission on the Security Forces of Iraq, led by retired Marine Corps General James Jones (the "Jones Commission"). The commission benefitted from the participation of many senior leaders with years of experience in policing as well as military matters, and from spending considerable time in Iraq with the ISF. In its September 2007 Report , the commission concluded, somewhat pessimistically, that "... in the next 12 to 18 months, there will be continued improvement in their [ISF] readiness and capability, but not the ability to operate independently." Later that year, retired General Barry McCaffrey concluded that the picture had improved somewhat, and that the ISF were making operational contributions. He wrote after the trip that while the Iraqi police were "a mixed bag," and "much remains to be done" in the Iraqi Army, overall, the Iraqi Security Forces were "now beginning to take a major and independent successful role in the war." By early 2008, U.S. commanders on the ground in Iraq were describing an operationally increasingly competent Iraqi force. As one leader with multiple tours in Iraq noted, improved ISF capabilities were the single biggest difference between January 2008 and several years earlier. Operationally, another leader observed, "the Iraqis are holding their ground, responsible for their own turf." Regularly in 2008, at the daily MNC-I Battle Update Assessments, Division Commanders described to the MNC-I Commander operations carried out unilaterally, or with coalition tactical overwatch, by Iraqi forces. By fall 2008, U.S. commanders on the ground in Iraq were consistently praising the tactical-level capabilities of their Iraqi counterparts. The Department of Defense argued in June 2008 that in operations in Basra, Mosul and Sadr City, the ISF "demonstrated their capability to conduct simultaneous extensive operations in three parts of the country." One senior U.S. commander noted, "They can move themselves around the battlefield." In March 2009, DOD confirmed the assessment of growing ISF operational capabilities, including their increasing use of after action reviews (AARs) but added: "The ISF continue to rely on the Coalition for logistics, fire support, close air support, communications, planning assistance, and intelligence surveillance and reconnaissance capabilities." In February 2009, Lieutenant General Frank Helmick, MNSTC-I Commanding General, stated that the ISF "are getting better every day, and they have in large measure provided much of the security posture that we have in this country right now. So they are doing okay, but we have a long way to go." Among Iraqis themselves, there appeared to be a range of views concerning the readiness of the ISF to operate independently. According to MNC-I, Iraqi operational commanders stress that they still want a close partnership with U.S. forces. In August 2008, one Iraqi Army division commander asserted that the United States should maintain combat forces in Iraq for another five years, to work with Iraqi counterparts. In contrast, according to some U.S. officials, the perception of some senior Iraqi civilian officials is that the ISF are ready, or very nearly ready, to maintain security independently. At a press conference in September 2008, seemingly striking a middle path, Minister of Defense Abd al-Qadir noted that the Government of Iraq expects to have a security force completely able to provide security to the Iraqi people on its own, by 2011 or the beginning of 2012. In the views of many coalition advisors, the biggest long-term challenges faced by the Iraqi Security Forces as a whole may be institutional, rather than operational. These include improving ministerial capacity and effectiveness; clarifying chains of command; and crafting long-term, integrated force modernization plans for personnel and equipment. In early fall 2008, MNF-I and MNSTC-I officials stressed the critical importance of civilian ministerial capacity. The practical challenges of growing and developing the Iraqi force are likely to continue for many years, they noted. But if the right, able civilian leadership is in place, they will be able to make needed decisions and solve problems as they arise. In March 2009, DOD flatly assessed: "Many of the Iraqi civilians working in positions inside the MoD and MoI are not yet fully trained and qualified for their positions." Current de facto chains of command within and among the Iraqi Security Forces reflect the exigencies of the GoI's ongoing counter-insurgency (COIN) efforts. To help coordinate the efforts of the various ISF in given geographical areas, the GoI created provincially-based operations commands that report up directly to the office of the Prime Minister. For some observers, the Prime Minister's direct access to the operations commands has raised concerns about potential misuse of the ISF for personal or even sectarian purposes. In some cases, the operations command arrangements have created tensions with provincial-level officials, who would ordinarily exercise greater control over some provincial-level security forces. The arrangements have also created some tensions with parent ministries in Baghdad—and in particular with the Interior Ministry, which apparently views the IA-led operations commands as "MoD-centric." The commands also create some practical confusion, since units still rely on their parent organizations for supplies and logistical support. For example, as of August 2008, Baghdad was divided into two area commands: "Karkh" and "Rusafa." Under each were two Iraqi Army (IA) divisions and one National Police (NP) division. Each division staff included representatives of the IA, NPs, and the Iraqi Police. Both IA and NP brigades fell under both IA and NP division headquarters. U.S. commanders working closely with these Iraqi units reported that this Iraqi experiment with jointness was working well at the tactical level, but became complicated when units turned to their respective ministries for support. Long-term force modernization planning and execution is another challenge for the ISF, in terms of both cost and strategic requirements. The current force continues to train and prepare for the ongoing counter-insurgency fight against Sunni and Shi'a extremists. Eventually, it is envisaged that the force will shift into a more typical division of labor—and train and equip themselves accordingly—in which MoD forces focus externally, and the Iraqi police, backed up by the National Police, provide domestic security. For civilian and military leaders of the ISF, one major challenge is balancing near-term security challenges with long-term requirements. In August 2008, Iraqi ground commanders were all focused completely on the current fight, while senior civilian ministry officials were looking out toward the future division of labor. At a press conference in September 2008, Minister of Defense Abd al-Qadir, speaking about the Iraqi police, stated that "it is their job to protect the citizen and our job to protect the frontier." By mid-2008, the Iraqi MoD had demonstrated keen interest in buying equipment for a future, outward-looking force—including tanks and fighter aircraft. DOD assessed in December 2008 that the "MoD has been overly focused on purchases for its steady-state force (2012 and beyond) rather than fundamental training, equipping, and sustaining shortfalls for its current force." Senior U.S. advisors have expressed concerns about still-nascent Iraqi abilities to effectively identify, fund, and contract for future requirements. Some add that the approach of some Iraqi officials appears to be based on traditional "bazaar culture," in which the goal is getting the lowest price, with little consideration for long-term maintenance or interoperability. In September 2008, the MoD signed the first letters of offer and acceptance (LOA) through the foreign military sales (FMS) program, for M1A1 tanks, armored reconnaissance helicopters, and C-130J transport aircraft. Some coalition advisors have noted that one of the greatest challenges for the ISF may be overcoming lingering sectarianism. The ISF as a whole is one of the most powerful national-level Iraqi institutions. A resurgence of sectarianism in the ranks could potentially turn key tools of the Iraqi government—the capabilities of its security forces—into potential threats to the unified whole state. Some Iraqi government officials, in turn, have expressed concerns about the size and scope of the ISF compared to other Iraqi government institutions. The more resources dedicated to the ISF, the more powerful the ISF will become, and the fewer resources that will be available for other government institutions. One provincial Governor added, "I fear the ISF. They are recruiting too many people. They are a big draw on the state budget and they have too much power." Both the size and the overall capabilities of the Iraqi Army (IA) continue to grow. MNC-I noted that as of December 20, 2009, the IA had 166 combat battalions (BN) conducting operations, of which 124 were in the lead for operations. A total of 208 combat BNs was planned. Altogether, at that date the IA had 213 BNs. DOD reported that by January 2009, the IA had 175 combat BNs conducting operations. DOD reported in March 2009 that that IA had 13 infantry divisions and one mechanized division, and 55 brigades, and 201 fully generated and trained BNs, all reporting to the Iraqi Ground Forces Command. In December 2006, the Iraq Study Group provided a very cautious overall assessment of the Army's capabilities, noting: "The Iraqi Army is making fitful progress toward becoming a reliable and disciplined fighting force loyal to the national government." Nine months later, in September 2007, the Jones Commission noted more positively that the Iraqi Army was increasingly effective at COIN, and increasingly reliable in general, but that progress among units was uneven. By the end of 2007, coalition commanders in Iraq pointed to further improvements Iraqi Army operational capabilities. In December 2007, Major General Joseph Fil, the out-going commander of Multi-National Division-Baghdad (MND-B), commented on the status of the Baghdad Operational Command, which has responsibility for Baghdad province and the two Iraqi Army divisions then under its command. MG Fil noted, "They are making good tactical decisions. They are planning true operations that involve multiple forces, combined operations that are frequently intelligence-driven." In January 2008, the Commanding General of Multi-National Division-North (MND-N), noted that the four different Iraqi Army divisions he partnered with were "growing in size and capacity every day." He commented, "Where we can't be, they can be, and in many cases we're conducting operations with them." By early 2008, some IA units had also developed the ability to move themselves across Iraq. As part of Operation Phantom Phoenix, the 3 rd Brigade of the 1 st Iraqi Army Division deployed independently, with less than a week's notice, from Al Anbar province in the west to Diyala in the east to support combat operations in the Diyala River Valley. According to MNF-I leaders, while not as attention-grabbing as combat operations, the move demonstrated a different but very important set of capabilities that Iraqi units will need to master, to operate independently in the future. In August 2008, U.S. commanders noted that most of the IA units that had participated in operations in Basra, Sadr City, Amarah, Diyala, and Mosul had performed very well at the tactical level. The Commanding General of Multi-National Force-West (MNF-W), in Anbar province, using a phrase common among U.S. forces, stated that the IA was not just "Iraqi good enough"—it was "Iraqi very good." By early 2009, U.S. commanders were reporting further growth in IA capabilities and initiative. In March 2009, DOD reported that "IA brigade and division staffs continue to show steady improvement in planning and executing combined and joint operations, intelligence gathering, information operations, civil-military operations, and limited post-conflict reconstruction operations." One BCT commander stated: "It is now routine for the Iraqi brigade commanders that I partner with to develop their own plans for operations, issue their orders to their battalions, and then expect and demand that those orders are carried out…Increasingly they do it independently, and they come to me on a much more reduced basis for specific help with certain enablers that they may not have yet." The list of the major developmental challenges faced by the Iraqi Army—building a strong leadership cadre, and developing key enablers such as logistics—has remained relatively consistent over time, although commanders and advisors on the ground point to specific incremental marks of progress in each area. Like all the other Iraqi security forces, the Iraqi Army has faced the challenge of quickly developing a capable leadership cadre. As many U.S. military commanders in Iraq point out, a basic problem is that leadership abilities depend in part on experience—their production cannot easily be "accelerated." The IA's leadership challenge may be more acute than that faced by the other security forces, since it is both large and, unlike the Iraqi Police, a nationally based service whose leaders must be able to command diverse mixes of soldiers in all regions of Iraq. In December 2006, the Iraq Study Group pointed out simply that the Iraqi Security Forces lacked leadership. In September 2007, the Jones Commission also noted that the Army was "short of seasoned leadership at all levels," and pointed in particular to "marginal leadership at senior military and civilian positions both in the Ministry of Defense and in the operational commands." In congressional testimony in January 2008, Deputy Assistant Secretary of Defense Mark Kimmitt indicated that the most important gap was in mid-level leadership —non-commissioned officers and field grade officers, who are required in far greater numbers than senior leaders. To help redress the situation, the Iraqi Army launched several initiatives, including accelerated officer commissioning for university graduates, waivers to time-in-grade or time-in-service promotion requirements, and recruitment of former Army officers and Non-Commissioned Officers (NCOs). It is possible that it will prove easier to generate leaders "on paper," than to accelerate generation of leadership qualities. In practice, the quality of IA leadership varies somewhat. MND-N noted in August 2008 that the Commanding Generals of the four IA divisions in their area of responsibility were "very good." One of the more impressive IA leaders, according to U.S. officials, is Major General Oothman, the Commanding General of the 8 th IA Division, headquartered in Diwaniyah, in Qadisiyah province. In August 2008, echoing U.S. military counter-insurgency thinking—and helping institutionalize it in the IA—MG Oothman stated, "Today's fight is a 360-degree battlefield," and explained that "once you clear an area, you have to put in Iraqi Police, the Iraqi Army and coalition forces to hold it." On the other hand, MND-B officials noted that leadership selection processes varied in quality. In August 2008, the newly selected commanding general of the newly formed 17 th IA division was a well-regarded, competent brigade commander—a good choice. But in some other cases, MND-B officials noted, the choices have been "terrible"—reflections not of competence but of political connections that make the selected leaders "untouchable" by their military chains of command. Another major challenge to the continued progress of the Iraqi Army is developing key enablers, ranging from intelligence to logistics—which are absolutely essential to an Army's ability to operate independently. In December 2006, the Iraq Study Group pointed out that the Iraqi Army lacked logistics and support to sustain their own operations. Later, in September 2007, the Jones Commission called logistics the Army's "Achilles' heel," and observed: "The lack of logistics experience and expertise within the Iraqi armed forces is substantial and hampers their readiness and capability." The Commission further concluded that the Army would continue to rely on coalition forces for combat support and combat service support—though the Commission did not estimate for how long that reliance would continue. Testifying before Congress in January 2008, then-MNSTC-I Commander LTG Dubik agreed that the Army "... cannot fix, supply, arm or fuel themselves completely enough at this point." As of March 2008, the Army was able to feed itself—a key component of life support. As of June 2008, the Army's maintenance backlog continued, but the backlog had been "stabilized" and the IA had better visibility than previously on what needs to be repaired. As of August 2008, the IA was continuing to develop a national-level maintenance and supply system, including the new National Depot at Taji, to serve as the "centerpiece" for national supply and maintenance services. The Depot is scheduled to be completed by the end of 2009—a target date that has slipped several times. In February 2009, LTG Helmick echoed the words of the Jones Commission, noting: "The Achilles heel of the Iraqi military is logistics." In June 2008, MNC-I Commanding General Lieutenant General Austin confirmed that the IA still had substantial room for improvement: There are still some things that need to be done, and those things include developing combat enablers that will enable them to do things like call for and adjust fires and integrate those fires into their formation, support themselves logistically, use their own intelligence, surveillance and reconnaissance assets to create intelligence and then be able to use that intelligence to plan operations. So there's some work to be done yet. Iraqi counterparts agree with this assessment. In August 2008, MG Oothman stated flatly, "I see no progress in logistics." He explained that the Iraqi Army started building its forces by concentrating first on operations, not on logistics or other enablers, such as repairing HMMWVVs, or providing spare parts, or building military hospitals. In February 2009, MNSTC-I Commanding General LTG Helmick assessed, "the Achilles heel of the Iraqi military is logistics." As of October 31, 2008, the Iraqi Air Force had 2,006 personnel on its payrolls, up from 1,300 in March 2008, out of 3,690 authorized personnel. According to MNSTC-I, the plan is for the Air Force to grow to 6,000 personnel by December 2009. As of December 2008, the small Iraqi fleet included 77 aircraft, 31 fixed-wing and 46 rotary-wing: 16 UH-1HP "Huey-II" helicopters and 17 Ukrainian Mi-17 helicopters for battlefield mobility; 3 C-130E "Hercules" aircraft; 6 King Air 350's for both ISR and as light transport aircraft; 8 CH-2000 aircraft; and 10 Cessna C-172's, 5 Cessna 208 "Caravans" plus 4 ISR Caravans, 10 Bell Jet Rangers and 10 OH-58A/C's for training. The Iraqi Air Force plans to have a fleet of 123 aircraft by December 2009. By any measure, the Iraqi Air Force is still a fledgling institution in the early stages of recruiting, training, and development. The effort to develop the Iraqi Air Force in earnest began at the start of 2007, and coalition advisors note that it takes three to five years to train pilots, air traffic controllers, and maintenance personnel—longer than it takes to train ground forces. The initial—and exclusive—focus of Iraqi Air Force training was counter-insurgency, including first of all battlefield mobility. In September 2007, the Jones Commission assessed that the Air Force was "well designed as the air component to the existing counterinsurgency effort, but not for the future needs of a fully capable air force." By August 2008, MNSTC-I noted that Air Force training had expanded to include "kinetic air to ground attack capability," and ISR capabilities. In early 2009, DOD reported that the Iraqi Air Force had made initial progress in COIN capabilities including ISR and airlift; capabilities still "lagging" included ground attack, airspace control, and command and control. In August 2008, the Iraqi Air Force was flying about 230 sorties per week, up from about 150 sorties per week one year earlier. The number had fallen slightly from a peak of over 300 sorties per week, in April and May of 2008, due to a combination of weather, sustainment challenges, and the grounding of Cessna 172s used for training. By March 2009, the number had climbed again to over 350 operational and training sorties per week, and the Iraq Air Operations Center was providing scheduling, and command and control, for those missions. In 2008, regular Air Force training was augmented by real-world experience supporting Iraqi Army operations. During the Basra operations in March 2008, the Iraqi Air Force flew 353 missions, transporting personnel and cargo, dropping leaflets providing information to the local population, and helping provide ISR. An open question for the future is what sort of air force—with what capabilities, personnel, and equipment—the Iraqi Ministry of Defense will determine it needs, to meet its full spectrum of security requirements. In February 2008, then-Commander of the Coalition Air Force Transition Team, Air Force Major General Robert Allardice, noted that like all of Iraq's MoD forces, the Iraqi Air Force is eventually expected to turn its attention to external threats. The final stage of development would include the use of jet aircraft to defend Iraq's air space. He estimated that Iraqis could have a self-sustaining Air Force with that capability "in about the 2011 or 2012 timeframe," depending on the investments they make. Other senior U.S. officials have raised questions about the capabilities that a future, externally focused Iraqi Air Force might really need. One official suggested that air defense capabilities may be more important than fighter aircraft. One challenge, he added, is that Iraqi Air Force senior leaders are former fighter pilots eager to have a fleet of fighter aircraft. A number of senior U.S. officials point out that most senior Ministry of Defense officials have an Army background—the Minister of Defense himself is a former tanker. That background, officials argue, together with the exigencies of the ongoing COIN fight, leaves them with relatively little time and attention for guiding the long-term development of their air and maritime services. Like the Iraqi Air Force, the Iraqi Navy is still in the early stages of development. As of March 2009, the Iraqi Navy had approximately 2,000 assigned personnel out of 3,596 authorized, with 500 more Marine recruits due by April 2009. That number included 499 former Iraqi Army soldiers, who joined the Iraqi Navy to form the 2 nd Iraqi Navy Marine Battalion. The small Navy is based primarily in the southern port city of Umm Qasr, and includes an operational headquarters, one squadron afloat, one support squadron, and two battalions of Marines. The missions of the Iraqi Navy as a whole include protecting Iraq's coastline and offshore assets. One of the Marine battalions provides port security at Um Qasr and Az Zubayr. The other Marine battalion provides oil platform security and conducts vessel boarding and search and seizure. As of December 2008, the Iraqi Navy was conducting an average of 42 patrols, and 35 commercial ship boardings, per week. As of August 2008, the fleet included 15 vessels—5 small, 24-meter patrol boats, and 10 seven-meter fast assault boats. The Iraqi Navy expects to acquire an additional 21 vessels in 2009-2010. In November 2008, the Iraqi Navy spearheaded an early mil-to-mil partnership with one of Iraq's neighbors—joint patrols with counterparts from Kuwait in the Khawr Abd Allah waterway. One challenge the Iraqi Navy faces, according to MNSTC-I officials, is conducting the preparations required to more than double its fleet—ensuring that the infrastructure is in place, and the proper training conducted. A longer-term challenge for the Iraqi Navy, and the MoD, is crafting a realistic and appropriate "future force vision" for the Navy. U.S. advisors note that, like the Air Force, the Navy faces the challenge of working for a Ministry that does not see their Service as a high priority, and that may not be "sophisticated enough" to define requirements and build a Navy. Iraqi Navy officials themselves are reportedly eager to continue working with coalition advisors, and do not want to build a force that would be likely to lead them into conflict. Iraqi Special Operations Forces (ISOF) were an early priority for Iraqi and coalition forces leaders. As of December 31, 2008, ISOF included 4,160 assigned personnel, of 4,733 authorized. As of March 2009, the single ISOF brigade included nine battalions – one counter-terrorism battalion, five commando battalions, and support units. Four of the commando battalions are regionally based – in Basra, Mosul, Diyala, and Al Asad. According to both U.S. commanders in Iraq and outside assessments, the ISOF are extremely competent. Since ISOF's inception, the selection process has reportedly been very competitive, and training—conducted by U.S. SOF—highly demanding. In September 2007, the Jones Commission reported, "The Special Operations brigade is highly capable and extremely effective." In August 2008, a senior MNSTC-I official confirmed, "ISOF is very capable, and increasingly so." ISOF has its own chain of command, separate from the Ministry of Defense. It reports to the Counter-Terrorism Command (CTC), an operational-level command that reports, in turn, to the Counter-Terrorism Bureau (CTB), the ministerial-level body under the Prime Minister that sets policy. Although this is not an uncommon arrangement in the region, one possible issue for Iraqi leaders in the future will be ensuring adequate integration of the ISOF and Iraqi conventional forces. Other observers have expressed concern that the ISOF, despite its several layers of headquarters, might be used by the Prime Minister for personal or political ends. Looking ahead, the next practical challenges for the ISOF include continuing to improve its capabilities. U.S. advisors note that the ISOF is eager to have access to the assets they have seen U.S. SOF counterparts employ, including specialized rotary air assets, ISR, and signals intelligence (SIGINT). One official noted in August 2008, "They're more conscious than others of how much they need US enablers." The Iraqi Police Service includes three categories—patrol police, station police, and traffic police. All are based on the principle of local recruitment and local service. The GoI's broad future vision is that the Iraqi Police (IPs) will eventually assume responsibility for providing internal security, backed up by the National Police, while the Iraqi Army turns its focus toward external security challenges. As of October 31, 2008, 300,156 Iraqi Police (IPs) were assigned, of 334,739 authorized. Those IPs serve at approximately 1,300 police stations across Iraq. At that date, 209,100 personnel had been trained, leaving a training backlog of over 90,000. (The backlog could be greater, since not all of those trained are necessarily still serving as IPs.) The backlog has real-world implications—for example, a shortage of IPs, in August 2008, to help "hold" areas of Diyala province that had been cleared by Iraqi and coalition forces. As one senior U.S. official noted, "We've overwhelmed the system." According to MNSTC-I, the GoI intent is to catch up on the training backlog by July 2009. One approach has been to condense required training into a shorter period—the 240 hours of IP training usually take eight weeks but have been compressed into four weeks by lengthening the training day. In addition, recruits who already have a degree in another field are offered an accelerated process. In terms of IP capabilities, in September 2007, the Jones Commission concluded that the IPs were improving at the local level, particularly when the IPs were locally recruited from relatively ethnically homogenous neighborhoods. In December 2007, General McCaffrey similarly observed that "many local units are now effectively providing security and intelligence penetration of their neighborhoods." In early 2008, a number of U.S. military commanders in Iraq described recent examples of specific operations planned and carried out in their areas of responsibility by Iraqi Police, stressing that these capabilities to plan and act independently—and successfully—had emerged relatively recently. Commanders also stressed the importance of the visible presence of the IPs at police stations and on patrol in local neighborhoods, and together with Iraqi Army and coalition forces at joint security stations, in helping provide population security. By early fall 2008, U.S. commanders noted that in general, the IPs were competent in basic skills—enough that the focus of embedded training and advisory efforts, and unit partnering, was shifting from basic policing skills to the professionalization of the force. In Baghdad, the GoI and MND-B were in the process of handing over security responsibility, neighborhood by neighborhood, to the IPs. As one U.S. commander observed in August 2008, using common coalition parlance, the IPs are "Iraqi good enough." For their part, in early fall 2008, Iraqi Army commanders recognized the importance of the IPs as part of the total effort, but still had some doubts about their capabilities. As one IA commander observed, "Without coordination between the IA and the IPs, there would be no security. But," he added, "the soldiers are more effective than the police." One long-standing concern of practitioners and observers, still unresolved, is infiltration of the IPs. In September 2007, the Jones Commission noted that the IPs were "... incapable today of providing security at a level sufficient to protect Iraqi neighborhoods from insurgents and sectarian violence," in part because they were "compromised by militia and insurgent infiltration." In June 2008, DOD stated that "militia and criminal intimidation and influences" were among the serious challenges still faced by the IPs. In August 2008, U.S. military officials confirmed that "there's some terrorist and some nationalist infiltration" of the IPs. The Iraqi National Police (NPs), unlike the IPs, are intended to be a national asset, not a regionally based one. While they initially focused on Baghdad, Interior Ministry is in the process of "regionalizing" the force, with the goal of establishing a presence in all provinces except those of the KRG, where they will provide backup for the IPs. As of early 2009, the first two NP Divisions were based in Baghdad; the 3 rd Division had established a presence in Salah ad Din with plans to expand to Diyala and Anbar; and the 4 th Division had established a presence in Basra with plans to expand to Wasit, Maysan, and Dhi Qar. The Department of Defense reported in December 2008 that 18 of the 33 NP battalions were "capable of planning, executing, and sustaining operations with limited coalition support." As of January 2009, there were 43,000 National Police assigned. Somewhat confusingly, 52,513 National Police had been trained—this number may include some who were removed from service or are no longer serving for other reasons. DOD reports that the desired endstrength is approximately 60,000. Particularly in their early days, the NPs more consistently prompted concerns about competence, corruption, and sectarian bias, than any other Iraqi security force. In June 2007, out-going MNSTC-I Commander Lieutenant General Martin Dempsey testified to Congress that the NPs were "the single organization in Iraq with the most sectarian influence and sectarian problems." In September 2007, the Jones Commission stated flatly: "The National Police have proven operationally ineffective. Sectarianism in its units undermines its ability to provide security; the force is not viable in its current form." Outside experts suggested several possible remedies. The Iraq Study Group recommended moving the NPs from the Interior Ministry to the Ministry of Defense, and giving them closer supervision. The Jones Commission recommended disbanding the NPs altogether. The Iraqi leadership opted for a different approach. One step was replacing NP senior leaders. Between late 2006 and January 2008, both of the NP division commanders, all 9 brigade commanders, and about 18 of 28 battalion commanders were replaced. The other major step was retraining—or "re-bluing"—both leaders and ranks, with the help of Italy's Carabinieri , under the rubric of the NATO Training Mission-Iraq. As of early 2009, the Carabinieri were gradually increasing their training and advisory support to the NPs, and continuing to support the NPs' professionalization efforts. In early 2008, some U.S. commanders in Iraq confirmed that there had been serious problems with the NPs, and suggested that the leadership changes and re-education had so far produced mixed results. As one Brigade Commander noted, "The National Police have been terrible!" One Division Commander praised the work of one NP brigade in solving problems in his area of responsibility, while noting that another NP brigade actually is the problem. One coalition leader credits Iraqi National Police Commander Major General Hussein with recognizing the challenges the NPs faced and with making this remark: "The National Police has two enemies—the insurgency, and our own reputation." In August 2008, MNSTC-I noted that the re-bluing process had been accelerated by boosting capacity from 450 to 900 students at a time. MNSTC-I added that the new NP commander is a "tremendous officer." U.S. commanders in Baghdad added that the NPs were being used very much like the Iraqi Army forces. One official added that the NPs were "pretty damned good!" Looking ahead, one future challenge for the Iraqi National Police is likely to be transitioning from an Army-like counter-insurgency role to a high-end policing function. The Department of Border Enforcement (DBE) faces the daunting task of protecting Iraq's 3,650 kilometers of land borders, some of it rugged and mountainous, against apparent infiltration by extremists from some neighbor countries, as well as controlling the usual flow of cross-border traffic. As of October 31, 2008, the DBE had 40,328 assigned personnel, of 45,550 authorized, and of whom only 36,673 had been trained. They were organized into 13 brigades with 44 line battalions and 7 commando battalions. The training gap—and the relatively low level of training in general—impinge on the DBE's effectiveness. Given the ratio of distances to personnel, and the current capabilities of those personnel, the DBE—as DOD put it in December 2007—is "stretched thin." The Jones Commission stated it more flatly in September 2007: "Iraq's borders are porous." The numbers and capabilities of the DBE do not appear to have progressed substantially since that time. The Iraqi Government's proposed way forward, over three years, includes constructing up to 712 border forts and annexes, to establish a line-of-sight perimeter, and increasing the use of biometric scan systems and personal information databases. Some U.S. officials complain that the MoI does very little to support the DBE and that, in the words of one U.S. commander, the DBE is "grossly under-funded." For example, in al Anbar province, instead of giving the DBE fuel, the MoI provided money to buy fuel. But at the long, remote border, the only fuel available for purchase was from the black market, which cost double the market price. Both coalition advisors and outside assessments have pointed out that the DBE continues to face additional challenges from corruption. In early 2008, coalition officials in Iraq agreed with the assessments by the Jones Commission that the DBE was infiltrated by outside interests, and that some members were apparently involved in cross-border smuggling. In part to address such concerns, in September 2008, the Ports of Entry Directorate, previously subordinate to the DBE, was ordered to report directly to the MoI. The Iraqi Oil Police (OP) is responsible for protection oil production infrastructure. Since January 2008, the MoI has paid OP salaries and held responsibility for sustainment, while the Ministry of Oil is responsible for developing and maintaining infrastructure; some reports suggest a need to further clarify these roles and responsibilities. DOD reported that as of October 2008, the OP included 29,411 assigned personnel, organized in nine battalions. Training is highly rudimentary—a three-week course—and according to DOD, the OP "lacks the basic equipment required to perform its mission." Both coalition advisors and outside assessments have consistently pointed to two serious shortcomings in the Ministry of Interior (MoI) itself: a lack of capacity and corruption. Capacity challenges apparently plague most of the Ministry's activities. The Department of Defense reported in June 2008: "Coalition advisors continue to report steady but uneven improvement in the MoI's ability to perform key ministry functions, such as force management, personnel management, acquisition, training, logistics and sustainment, and the development and implementation of plans and policies." By December 2008, DOD reported that the MoI's ability to plan had improved somewhat, but was still "not yet directly linked to resource allocation and program management." One particularly serious constraint, according to coalition officials, is that the Ministry of Interior lacks sufficient capacity to process the large and growing demand for personnel—to screen recruits, to train them, and to continue to account for them. To address this shortcoming, the Ministry is expanding the capacity of its training base to include 12 new training centers and the expansion of 6 existing ones; and rapidly generating officers through a recall and training program for former army and police officers. According to MNSTC-I, an additional pressure on the MoI training system was the absorption, in early 2008, of the "oil police," whose training to guard pipelines did not, in the words of one official, turn them into "LA cops." Corruption—and the perception of corruption—may be the even more difficult challenge for the MoI to eradicate. In December 2006, the Iraq Study Group concluded flatly that the MoI was corrupt. In September 2007, the Jones Commission assessed that "... sectarianism and corruption are pervasive in the MoI," and that the Ministry is "... widely regarded as being dysfunctional and sectarian." In January 2008, one coalition advisor stated bluntly that the MoI is filled with "card-carrying gangsters." The MoI has apparently taken some steps to battle internal corruption. The Department of Defense reported that in 2007, the MoI had opened 6,652 investigations of ministry personnel. Of these, 6,159 were closed during 2007, including 1,112 that resulted in firings, 438 in disciplinary actions, and 23 in forced retirement. In September 2007, the Jones Commission concluded that the Ministry of Defense (MoD) suffered from "bureaucratic inexperience, excessive layering, and over-centralization." In December 2008, DOD noted some progress but observed that "significant challenges remain," and that "logistical and sustainment capability remain[ed] a major area of concern and…much effort must yet be directed to the sustainment and logistical support capability within the ISF at the operational and strategic levels." In early 2008, MNF-I officials suggested that compared to other Iraqi ministries, the MoD is a model of progress—it has not faced the magnitude of corruption endemic at the MoI, and with close advisory support from the coalition, it has made substantial progress in both management and strategic planning. One major future challenge for the Ministry of Defense is likely to be clarifying and rationalizing the chain of command. As the Jones Commission stated in September 2007: "Parallel lines of direct communication to military units have been established under the control of the Prime Minister. He is perceived by many as having created a second, and politically motivated, chain of command." U.S. military officials confirmed this assessment in August 2008, and DOD noted in September 2008 that "MoD performance is hampered by ineffective coordination and unclear lines of authority, hampering unity of command." As of early fall 2008, Iraqi Army divisions reported to the Iraqi Ground Forces Command, which reported to the Joint Headquarters, which reported in turn to the MoD. However, some forces, from both the MoD and the MoI, fall under provincial Operations Commands, usually led by a General Officer from the Iraqi Army, which may report in practice directly to the office of the Prime Minister. Both ministries and uniformed operational headquarters, according to U.S. commanders in Iraq, are sometimes left out of the de facto chain of command. Operations Commands are in theory a temporary measure, designed to closely integrate the counter-insurgency efforts by all of the ISF in a given geographical area. Commands have been established in the provinces of Baghdad, Basrah, Karbala, Anbar, Ninewah, Diyala, and (as an exception) in the city of Samarra. Some U.S. and Iraqi commanders have suggested the possibility that Operations Commands might evolve into three-star Army Corps headquarters, perhaps with a geographic reach wider than a single province. As of early fall 2008, no plans were in place for such a transition. Further, while the "Corps" concept might be appropriate to the current internal counter-insurgency fight, an externally focused Army would not ordinarily "own battle space" domestically. Another challenge for the MoD to resolve, according to MNSTC-I officials, is centralized decision-making. As of August 2008, the vast majority of decisions were channeled personally to the Minister, which hinders efficient functioning. DOD reported in March 2009 that the "Defense Minister reviews almost all procurement and maintenance funding decisions and approves most equipment purchases, and that in some cases review by the Prime Minister is required." A MNSTC-I official noted that the premise seems to be, "If you don't make a decision, you can't get in trouble." One further challenge, according to MNSTC-I officials, is the MoD's difficulty in identifying requirements, budgeting for them, and obligating and spending the required funds. In 2006 and 2007, GoI spending on the ISF exceeded spending by the Iraqi Security Forces Fund, and that trend is projected to continue. The MoD remains hampered, according to MNSTC-I, by the fact that their "direct contracting capability is not fully developed." A final challenge may simply be capacity. According to DOD, as of December 2008, about 40% of civilian positions within the MoD were not filled. A central tenet of counter-insurgency is reaching out to the local population and securing at least their acceptance, if not their active support. In Iraq, a number of U.S. military commanders have pointed to changes in the attitudes and behavior of the Iraqi population as the most important difference between 2008 and earlier periods. In December 2007, for example, the out-going commander of Multi-National Division-Baghdad, Major General Joseph Fil, noted: "I attribute a great deal of the security progress to the willingness of the population to step forward and band together against terrorist and criminal militia." Coalition and Iraqi government efforts to reach out to the Iraqi population have increasingly fallen under the broad semantic rubric of "reconciliation." As of 2008, the term is very broadly used—from U.S. national strategy, to congressional legislation, to the names of Iraqi government structures and of offices and job titles in coalition headquarters. The term is variously used, but in the broadest sense, it refers to a multi-lateral reconciliation among all sub-groups and members of Iraqi society, except the self-designated truly "irreconcilables" and those who may have disqualified themselves by some egregious action. In practice, "reconciliation" in Iraq has taken a number of forms, several of which, discussed below, have played critical roles in shaping the security climate. Early in OIF, coalition forces recognized the importance of reaching out to disaffected Iraqi communities, but coalition efforts were constrained by lack of expertise, limited resources, and—initially—policy decisions. In 2003, some CPA and CJTF-7 leaders recognized the importance and the complexity of tribal dynamics in Iraq. As coalition forces commanders on the ground throughout Iraq frequently engaged with local tribal leaders, it rapidly became apparent that the coalition lacked detailed expertise in tribal history and dynamics. The Iraqi Governing Council (IGC)—the first national-level advisory body, established by CPA in July 2003—included very little tribal representation. In summer 2003, coalition forces launched a concerted outreach effort to Sunni Arab communities in the restive "Sunni Triangle" in central and north-central Iraq. On August 7, 2003, CENTCOM Commander General John Abizaid convened community leaders from throughout the region to urge them to cease all tacit support for insurgents, in exchange for future assistance with reconstruction needs, political representation, and other concerns. However, for most of the rest of that year, the very limited presence of coalition civilian experts in these provinces, and limited resources for reconstruction, made it difficult to fully implement the proposed "bargain." By early 2004, CPA established an outreach office, to engage directly with both tribal leaders and leaders of other disaffected groups, including some religious extremists. Also in early 2004, U.S. national leadership crafted a series of "Sunni engagement strategies" that included "carrots" such as greater political representation, economic assistance, and detainee releases. By 2005, coalition leaders in Iraq began to pursue more direct contacts with insurgents and their supporters—in coordination with, and often brokered by, Iraqi leaders. As a rule, those talks were reportedly based on a familiar theme—a cessation of violent action against Iraqis and the coalition, in exchange for benefits that might include amnesty for some detainees, and improved opportunities to participate politically or economically in Iraqi society. Some critics have suggested that "negotiating" with known or suspected perpetrators of violence is an ethically ambiguous practice that, moreover, is unlikely to succeed because it depends for its success on commitments by those who have violated the rule of law. Coalition leaders confirm that they understand who these interlocutors are. In December 2007, MNF-I official Major General Paul Newton, a UK officer leading the outreach effort, commented, "Do we talk to people with blood on their hands? I certainly hope so. There is no point in us talking to people who haven't." As an MNC-I senior official with considerable experience in Iraq described it in early 2008, "You reconcile with your enemy, not with your friend." In the view of some participants and observers, what may have distinguished the 2007 outreach from earlier efforts was a change in the perceptions of insurgents and would-be insurgents about their own prospects. As the MNC-I senior official added, "You can only reconcile with an enemy when he feels a sense of hopelessness." As MNF-I officials described it in 2008, "At some point, fatigue sets in, and expediency brings them to the table." By 2008, as described by senior MNF-I officials, the outreach effort included not only Sunni insurgents, the main focus, but also Shi'a extremists. The levers available to the coalition to offer included possible restoration of stipends, possible restoration of a post in the ISF, or agreements that the person agreeing to "reconcile" will not be killed. The GoI is "part of the management" of the reconciliation initiatives. One of the challenges to the effort, MNF-I officials note, is the possibility that some members of the Iraqi population will misinterpret the initiatives as signs of sectarian favoritism. Another challenge, officials report, is that coalition influence is simply diminishing—"Iraqis listen much less than in the past." Meanwhile, MND-North launched a similar but apparently separate reconciliation initiative, which started in the Sunni insurgent stronghold town of Hawija, in At Ta'amin province. The program's key targets were "economic insurgents"—those who were in it to make money, rather than ideologues. The program offers them "negotiated surrender," including being moved to a "no-target list," and participants must clear a Board that includes representatives of GoI civilian leadership, the ISF, and coalition forces. U.S. forces and PRT counterparts have used several funding sources to try to find civilian jobs for the program's "graduates." As of August 2008, the program had had over 2,100 participants across MND-North. MND-North officials have described participants as coming forward and saying effectively, "I don't want to fight anymore. I'm tired of running. I want to sleep in my own home at night." In the views of many practitioners and observers, "awakening" movements have powerfully reshaped the security climate as well as the political climate in many parts of Iraq. While they all have "ground-up" origins—and borrow from one another's experiences—they vary greatly in character, and in likely impact, by region. The movements got their start in Al Anbar province. As described by Multi-National Force-West leaders, in the aftermath of regime removal, Al Anbar was a "perfect storm": The region was traditionally independent-minded, and relatively secular, but dependent on the central government for key resources. After the old regime collapsed, the province's big state-owned enterprises closed, state pensions were not being paid, De-Ba'athification policies meant lost jobs, and many Anbaris felt disenfranchised and left out of national-level politics. That context provided fertile ground for Al Qaeda affiliates to infiltrate the region with promises to "rescue" the population, but their actions proved to be absolutely brutal—including swift and violent punishment, or even death, for perceived infractions. One observer has called it a "campaign of murder and intimidation," including the murders of prominent local tribal leaders. The first rising in Al Anbar took place in 2005—a movement that became known as the "Desert Protectors." Members of local tribes in al Qaim and Haditha volunteered to begin working with some U.S. Special Operations Forces and later with the Marines. The movement that became known as the "awakening" developed later, in Al Anbar's capital Ramadi, drawing on the model of the Desert Protectors—including the premise of an alliance among several key tribes. The initial leading figure of the awakening was Sheikh Abdul Sattar Buzaigh al-Rishawi, of the Albu Risha tribe, who was killed on September 13, 2007, by a roadside bomb. In late 2006, he had spearheaded the signing of a manifesto denouncing Al Qaeda and pledging support to coalition forces. According to MNF-West, by January 2008, of the eleven sheikhs who initially stood up to challenge Al Qaeda, six were dead. The movement, initially known as Sahawa al Anbar when it formed around a core from the Albu Risha tribe, changed its name to Sahawa al Iraq as more tribes joined the cause, and later to Mutammar Sahwat al-Iraq . According to MNF-West, leading sheikhs in the awakening movement describe their relationship with Al Qaeda as a "blood feud." The tribal leaders do not want coalition forces to stay forever—they simply want help killing Al Qaeda. During 2007, awakenings began to "spread" through the provinces of north-central Iraq—Ninewah, Salah ad Din, Kirkuk (At Ta'amin), and Diyala—drawing on the Al Anbar example. Several aspects of the northern "climate" may have encouraged some Sunni Arabs to self-organize to protect their interests. As in Al Anbar, there was an Al Qaeda affiliate presence in the north-central provinces. In the wake of successful surge operations in Baghdad, Al Qaeda affiliates took up residence in several parts of the region, including Mosul and the upper Diyala River Valley. Sunni Arabs in northern provinces, like those in Al Anbar, already had some grounds for feeling politically disenfranchised. In Ninewah, for example, Sunni Arabs, who constitute about 75% of the province's population, generally did not vote in provincial elections and were thus under-represented on the current Provincial Council. Across the north (and unique to the region), according to Multi-National Division-North leaders, de facto Kurdish expansion has extended across the Green Line that separates the Kurdistan Regional Government from the rest of Iraq, into parts of Mosul and oil-rich Kirkuk. In Kirkuk, in particular, many Kurds have taken up residence—or returned to live—in anticipation of a popular referendum that will decide Kirkuk's political future. Coalition officials judge that some Sunni Arabs in the region find this dynamic threatening. Both security conditions on the ground, and direct exposure to "awakenings" elsewhere in Iraq, helped generate nascent "awakening" movements among some tribal leaders in largely Shi'a-populated southern Iraq. These incipient initiatives shared with their Sunni Arab counterparts their ground-up impetus, based on a desire for security and opportunity for their families, and a disinclination to be imposed on by outsiders. The character of the southern movements, however, was distinctly different from those in north-central Iraq, due to a quite different political and religious backdrop, and thus quite different "targets" of frustration. The most prominent feature of politics in southern Iraq remains the power struggle between two major political groupings and the militias that back them: on one hand, the Islamic Supreme Council in Iraq (ISCI, formerly SCIRI) and its Badr militia; and on the other hand, the Office of the Martyr Sadr, led by Muqtada al-Sadr, and its militia, the Jaish al-Mahdi (JAM). Schisms in the Jaish al-Mahdi , in the wake of al-Sadr's declared ceasefire, produced violent splinter groups—"special groups"—apparently acting independently of al-Sadr but with reported ties to Iran. MNF-I leaders suggested that the southern "awakening" movements were motivated primarily by growing popular impatience with both of the leading contenders for political power in the south, and in particular, with their past or current Iranian connections. ISCI's Badr forces were trained in Iran, during the Iran-Iraq War. Muqtada al-Sadr has maintained personal ties with clerics in Iran, and JAM "special groups" reportedly enjoy Iranian training and support. Military commanders in Iraq have credited the "Sons of Iraq" (SoIs)—originally known as "concerned local citizens"—with playing an essential and substantial role in the improvement of security in Iraq, beginning in late 2007. One commander noted in August 2008 that the program was "a cost-effective way to buy security." While terminology and specific characteristics varied geographically and over time, in general, SoIs were local residents who stepped forward, in some organized way, to help protect and defend their communities. In late 2008, the SoI program entered a major transition phase, when the Government of Iraq took the first steps toward assuming full responsibility, including the paying of salaries, for the program. As of spring 2009, the transition of responsibility had been completed, but the integration of former SoIs into permanent ISF or civilian employment had made little headway. MNF-I noted that as of August, 2008, before the transition to Iraqi Government control began, there were 99,374 SoIs in Iraq altogether; 4,060 on 14 contracts in MNF-West's area, Al Anbar province; 29,177 on 275 contracts in MND-North's area, which includes the four provinces north and east of Baghdad; 28,754 on 182 contracts in MND-Baghdad's area; 35,381 on 267 contracts in MND-Center's area, which then included four provinces immediately south of Baghdad; 2,002 on 41 contracts in MND-Center South's area, which then included Qadisiyah province and has since been incorporated into MND-Center; and none in MND-Southeast's area, which included the four southernmost provinces. The majority of SoIs, but not all of them, were Sunni Arabs. The Department of Defense reported that as of March 2008, about 71,500 were Sunni and about 19,500 Shi'a. As of January 2009, MNC-I estimated the mix at about 85% Sunni, 15% Shi'a. Most groups of SoIs—who typically worked in the communities they live in—were relatively homogenous but some were mixed. For example, in January 2008, in the area of Multi-National Division-Center, a mixed region south of Baghdad, 60% of the SoI groups were Sunni Arab, 20% were Shi'a Arab, and 20% were mixed. U.S. commanders readily admitted that the SoIs include former insurgents. One Brigade Commander commented, "There's no doubt that some of these concerned citizens were at least tacitly participating in the insurgency before us," and one Division Commander stated more boldly: "80% of these guys are former insurgents." Other commanders noted, in early 2008, that the SoIs included not only "reformed" insurgents, but also some infiltrators currently affiliated with extremist groups. ISF commanders, too, harbored no illusions about the backgrounds of many SoIs, and they shared with their U.S. counterparts a concern about current infiltration. In August 2008, Major General Oothman, the Commanding General of the 8 th Iraqi Army Division, expressed concern that AQI could corrupt the SoIs. He noted that AQI had already infiltrated the SoIs and, he added, it could be the case that some SoIs may simply be "playing both sides." The SoI movement was not the product of a carefully crafted strategy by the Government of Iraq or by coalition forces. Instead, like the "awakenings," it began from the ground up—in this case, as a series of ad hoc , neighborhood watch-like initiatives by Iraqis who self-organized and "deployed" to key locations in their own communities, to dissuade potential trouble-makers. The response by coalition forces to the dynamic was also initially ad hoc , as some coalition units provided volunteers in their areas with equipment, or payments in kind for information, or other forms of support. Frequently, coalition forces named their new partners—with heroic-sounding names like the "Ghazaliyah Guardians," or with NFL team names. MNF-I leaders and commanders on the ground observed that SoIs initially came forward only after Al Qaeda affiliates and other threats were eliminated from an area. Some commanders also pointed out that SoIs volunteered to serve once a coalition forces presence had been established—they had to be convinced that coalition forces would actually remain in the area and not pull back to their FOBs. After its piecemeal beginnings, the SoI system was loosely standardized by coalition forces, in coordination with Iraqi security forces counterparts. Coalition forces paid the SoIs, with funding from the Commanders Emergency Response Program (CERP), based on 90-day renewable contracts. The money was paid to a single contractor, often a tribal sheikh or other community leader, who was then responsible for paying the SoIs' salaries and providing any uniforms, vehicles or other equipment that might be required. In practice, most SoIs earned about $300 per month, roughly equivalent to about two-thirds of the total income of a member of the Iraqi Police. The GoI reportedly agreed to continue to pay roughly the same salary as it assumed responsibility for the SoIs. SoI salaries varied somewhat by region. In August 2008, for example, Multi-National Division-Center noted that SoIs in their area each earned about $240 per month. In some cases, U.S. units established pay-for-performance systems. For example, in Kirkuk, SoI performance was reviewed daily. If they performed well, they received a bonus. If they did poorly—such as the SoI team that propped up a scarecrow at a checkpoint they were supposed to be manning—their collective contract was docked by $2,000. In many locations, U.S. division and brigade commanders on the ground reinforced the message that the SoIs "worked for" the ISF, while the coalition forces paid them. In other locations, the understanding on the ground was that the SoIs worked "with" the ISF. In practice, however, SoIs were intended to fill the gaps—to "thicken the ranks"—where ISF presence was limited, so they were more likely to have regular interaction with coalition forces counterparts than with the ISF. Most SoIs were hired to man check points or to protect critical infrastructure, and to provide information about suspicious activity. In August 2008, for example, Multi-National Division-Center noted that the SoIs in its area maintained 2,159 check points, and had turned in 668 IEDs between June 2007 and August 2008. MNF-I leaders and commanders on the ground stressed that SoI contributions have directly saved lives and equipment—as a rule, the level of IED attacks in a given area went down after an SoI group was established there. Some commanders wryly admitted that part of the reason may be that some SoIs themselves were formerly IED emplacers. One new development in 2008 was the formation of some groups of "Daughters of Iraq." Like the SoIs, they were security volunteers from local neighborhoods. Their job, after receiving training, was to work with the ISF to screen female Iraqis, to show respect for Iraqi culture and traditions. In late 2008, DOD estimated that about one-third of suicide bombers were female. As of March 2009, there were more than 600 "Daughters" working under coalition control in Anbar, Diyala, and parts of Salah ad Din provinces, and about 400 more working under Iraqi control through the Baghdad Operations Command; their incorporation is a separate process from that of the SoIs. In addition, in preparation for the January 2009 provincial elections, the GoI successfully recruited hundreds more temporary "Daughters" to search females. Multi-National Force-West leaders noted in the past that "'concerned local citizen' was not a term of art in Al Anbar province," where security volunteers were organized in several alternative ways. In Al Anbar, early tribal offers to provide volunteers were channeled into the formation of "provincial security forces" (PSF)—a gateway step to joining the Iraqi security forces in a more permanent capacity. Members of the PSF, who received 80 hours of training from the Marines, formally became personnel of the Ministry of Interior, and the MoI pays their salaries. Other local residents in Al Anbar self-organized into neighborhood watch-style organizations. From its inception, the SoI movement raised some concerns among both Iraqis and some outside observers. Some Iraqi Government officials, and representatives of official and unofficial groups in Iraq, who might otherwise have extraordinarily little in common, shared a concern that the SoIs could return to violence, form new militias, or otherwise pose a threat to the authority or influence they currently enjoy. Key Shi'a leaders of the Government of Iraq apparently had concerns about a potential ground-up challenge to their leadership, based on Shi'a tribal organizations, which could theoretically grow out of SoI groups in the south. Prime Minister Maliki named a very close associate, a Shi'a Arab, to head the Implementation and Follow-up Committee on National Reconciliation (IFCNR), the body responsible, among other matters, for facilitating the integration of SoIs into Iraqi government structures. In turn, neither supporters of Muqtada al-Sadr nor members of the Islamic Supreme Council of Iraq—or the militias that support them—were apparently eager to face competition for influence in Shi'a-populated southern Iraq. Meanwhile, a leading Sunni Arab political party, the Iraqi Islamic Party, reportedly viewed the SoIs and related awakening movements as potential organized competitors for support among Sunni Arab Iraqis. Some observers suggested that northern Kurds, in turn, might be reluctant to see the rise of more organized Sunni Arab constituencies, including armed potential fighters, in politically contested cities such as Kirkuk. In December 2007, at a session of the Ministerial Committee on National Security (MCNS), Iraqi government and coalition leaders reached an agreement confirming the ground rules for the SoI program. Those rules included a cap on the total number of SoIs nationwide, of 103,000, as well as a complete prohibition against SoI recruitment and hiring in Multi-National Division-Southeast's area—Iraq's four southernmost, largely Shi'a-inhabited, provinces. The rules also stipulated, for example, that SoIs could not represent political parties, that SoI groups must reflect the demographic balance in their area, and that coalition forces could not arm the SoIs. Following the December MCNS session, key Iraqi leaders—including Prime Minister Maliki, his National Security Advisor Mowaffaq al-Rubbaie, and ISCI leader Abdul Aziz Hakim—all publicly expressed support for the SoI program. Meanwhile, outside observers expressed concerns that the SoI movement might create an alternative—and a potential future challenge—to the national government's monopoly on the legitimate use of violence, by empowering new forces that may or may not support the central government in the future. "At worst," one observer commented, "it will perpetuate a fractured and fractious Iraq." From the outset, the Government of Iraq (GoI) and coalition forces shared the view that the SoI program would be temporary. The "way forward" agreed to in December 2007 included, in principle, integrating some SoIs—roughly 20%—into the Iraqi security forces, and facilitating employment for the rest in the public or private sector. In either case, the plans included getting the SoIs off of the CERP payroll; the initial goal was July 2008. As the GoI began to assume direct responsibility for the SoIs in late 2008, the basic goal of integration remained in force. By any measure, the transition of SoIs into permanent jobs proceeded slowly. Accurately recording the data sometimes proved difficult, since the SoI population was never static—new members were being recruited as some old members were "transitioned." MNF-I noted that between December 2, 2007, and August 16, 2008, 5,189 SoIs transitioned to the Iraqi Police, 53 SoIs transitioned into other Iraqi security forces, and 2,515 SoIs transitioned into "non-security" jobs. During that time, an additional 3,547 SoIs quit, were killed in action, went missing, or were dismissed for disciplinary reasons. Previously, in 2007 before the December 2, 2007, MCNS decision, approximately 3,900 "concerned local citizens" were hired by the Iraqi Police. For most of the SoIs interested in joining the ISF, the top choice was the Iraqi Police, which would allow them to continue to serve in their local communities. An application process was put in place for SoIs seeking to become IPs, but it was cumbersome. After the SoI declared his interest, local-level screenings were carried out by coalition forces, local civilian officials, local tribal sheikhs, and appropriate ISF representatives. The review process considered, among other issues, an applicant's background, proof of residency, and any special skills the applicant may have, as well as the area's demographic balance. Formal ISF requirements also included literacy, a physical fitness test, and a medical check. Those candidates who passed through these reviews were referred to the Implementation and Follow-up Committee on National Reconciliation (IFCNR), attached to the office of the Prime Minister, for approval. Candidates approved by IFCNR were forwarded to the Ministry of Interior for vetting, selection and—if successful—the issuing of hiring orders. Applications did not specifically state that a candidate is a SoI. One major constraint on the incorporation of SoIs into the Iraqi Police was that the MoI's personnel and training systems were overloaded and could not easily absorb a large influx of new personnel. Another constraint was the reported continuing reluctance on the part of some MoI officials to bring SoIs on board. For those SoIs not incorporated into the ISF, the broad intent was to facilitate their transition into civilian jobs—ideally, jobs that are both sustainable and actually productive. One major constraint was the absence of a thriving and diverse private sector, so most proposals and programs focused on potential state sector jobs. In 2008, the Coalition worked with several Iraqi ministries to establish the Joint Technical Education and Reintegration Program (JTERP), which was launched in two pilot locations on March 23, 2008. The program was designed to include vocational training, on-the-job training, and job placement, with priority to SoIs and recently released detainees. In August 2008, U.S. commanders on the ground reported that little progress had been made—that the program, in the words of one commander, had "stalled." Another initiative in 2008, launched by MNC-I based on the recommendation of commanders on the ground, proposed the creation of "Civil Service Departments" (CSDs), as part of a new Civil Services Corps, modeled loosely on the New Deal-era Civilian Conservation Corps. As planned, the CSDs would provide essential services such as electricity, sewage, and sports, to complement, not replace, those already provided by existing Iraqi government bodies. In early 2008, MNC-I launched a pilot CSD project in the Ar Rashid district of Baghdad, including 390 employees drawn in part from former SoIs, and in August 2008, a CSD with about 500 employees opened in Kirkuk. MNC-I planned to provide some initial funding for the project with the goal of transferring full funding responsibility to the Iraqi government during calendar year 2009. The theory, explained one Brigade Commander, was "build it and they will come"—that is, once the new structure demonstrated its worth, the Iraqi government would fully embrace the initiative. For its part, IFCNR expressed initial support, encouraging increasing both the size and number of the proposed CSDs, and reportedly agreeing to pay the salaries of CSD employees, while the coalition provided equipment and training costs. As of August 2008, however, MNC-I officials noted that progress on establishing the CSDs was very slow. One commander on the ground stated, "Frankly, we're not getting anywhere—there's no apparent way forward for the program." By late summer 2008, MNC-I officials began to consider alternatives, including a "rapid employment initiative," a temporary measure that would put people back to work—for example, cleaning the streets—and provide them with some income. In September 2008, the Government of Iraq announced that it planned to assume responsibility for the Sons of Iraq as of October 2008, far ahead of the long-standing timeline. At a press conference that month, Minister of Defense Abd al-Qadir explained that the Sons of Iraq were "our sons, our citizens," so it was perfectly natural for the GoI to assume responsibility for them. He noted that the SoIs had contributed to security, and the GoI would be "loyal" to them. He added, however, that all Iraqi citizens were subject to the law, and so "the government might arrest or detain some elements" of the SoIs. In that case, he noted, Iraqi ministries would be responsible for protecting the detained SoIs from attack or harassment by elements of AQI or the former ruling Ba'ath Party. U.S. civilian and military officials in Iraq initially expressed concerns about the precipitate GoI initiative, including the possibility that the GoI might use the assumption of responsibility to disband the SoIs without providing adequate follow-on employment. On October 1, 2008, the GoI assumed responsibility for the approximately 54,000 SoIs in Baghdad province. Reportedly, there were no immediate mass desertions of their posts by SoIs, or a higher level than usual of detentions of SoIs by Iraqi security forces. In November 2008, the GoI, through the Baghdad Operations Command, paid monthly salaries to approximately 95% of those SoIs. On January 1, 2009, the GoI assumed responsibility for SoIs in four more provinces—Diyala, Babil, Wasit, and Qadisiyah. The GoI assumed responsibility for SoIs in Anbar province on February 1, and for SoIs in Ninewah and Kirkuk Provinces on March 1, 2009. The final transition, of SoIs in Salah ad Din province, was scheduled for April 1, 2009. As of mid-March 2009, according to MNC-I, there were 81,773 SoIs under GoI control, and approximately 10,000 SoIs remaining under coalition control. The GoI's stated intent remained the integration of 20% of the former SoIs into jobs with the ISF. Since the GoI began to assume responsibility for the SoIs on October 1, 2008, approximately 5,000 SoIs had transitioned to permanent employment with the Iraqi police, and 500 to jobs with the Iraqi Army. For the rest of the SoIs, the GoI's stated intent remained to secure them civilian jobs, an effort spearheaded by IFCNR. Several GoI civilian ministries had indicated their readiness to create jobs for some former SoIs—including 10,000 positions at the Ministry of Education, and 3,000 positions at the Ministry of Health. In March 2009, Major General Michael Ferriter, MNC-I Deputy Commanding General, stated optimistically, "It'll take six to seven months to complete the job transition and I predict success." Meanwhile, a number of SoIs have reportedly expressed greater skepticism, voicing concerns about delays in the payment of salaries, the absence of prospects for permanent employment, and arrests of some former SoIs. By 2008, the broad "reconciliation" intent had extended to an additional subset of the Iraqi population—those who had been detained by coalition forces. Coalition detainee operations were adjusted substantially at the start of January 2009, as the new U.S.-Iraqi "SOFA" went into effect. By the beginning of 2008, coalition detainee operations had evolved markedly from the days of the formal occupation, when they were characterized by under-staffing, limited facilities, and—due to ongoing aggressive military operations—a large and quickly growing detainee population. In the early days, it was common to find local communities frustrated first by detentions they perceived to be groundless, and then by the difficulty of determining the location and status of those detained. One important, gradual change, according to coalition officials, was much better accountability, based on the introduction of biometrics, better information-sharing throughout the detention system, and simply better cultural familiarity with the multi-part names commonly used in the region. A second major change, introduced by MNF-I beginning in late 2007, was a set of "COIN inside the wire" practices, designed to identify and separate the true "irreconcilables" from the rest of the detainees. These approaches were based partly on a better understanding of the detainee population, which apparently includes far more opportunists than ring-leaders—for example, under-employed young men who agree to emplace an IED in exchange for a one-time payment. The pervasiveness of "opportunism" as a motive seems to be corroborated by the low recidivism rate—about 9 out of 100, as of January 2008. According to coalition officials, in the past, the coalition had used its theater internment facilities simply to "warehouse" detainees. Those facilities effectively served as "jihadist universities" where detainees with extremist agendas could recruit and train followers. As part of "COIN inside the wire," the coalition isolated the hard-core cases in higher-security compounds, removing their influence. Meanwhile, the coalition cultivated the majority of the detainee population by providing detainees with voluntary literacy programs, to the grammar school level, for illiterate detainees. Vocational training programs, including wood working, sewing and masonry, and opportunities to earn a small income during detention were introduced. These included a brick factory at Camp Bucca where detainees could earn money by making bricks, which were stamped with the inscription, in Arabic, "rebuilding the nation brick by brick." Imams visit the facilities to provide detainees, on a voluntary basis, with religious education. A family visitation program allowed about 1,600 visits per week. According to a senior coalition official, "Now detainees themselves point out the trouble-makers." A third initiative was a series of detainee releases, an effort given additional impetus in 2008 by negotiations over the new security agreement, which was expected to require the transfer of detainees from U.S. to Iraqi custody. TF-134 officials noted in August 2008 that for about 9% of detainees at that time, U.S. forces had "releasable evidence with legal sufficiency in Iraqi courts." Of concern to U.S. civilian and military officials are the members of the rest of the "legacy" population" of detainees, for whom no such evidence exists, but who might pose security risks to the Iraqi population or to U.S. forces in Iraq. To help streamline the problem—and to further the cause of reconciliation—MNF-I, through TF-134, launched an accelerated, targeted detainee release program. Releases were based on reviews by the MNF-I Review Committee. Detainees themselves were given the opportunity to present their side of the story, and good behavior during detention was taken into consideration. TF-134 noted in August 2008 that word had apparently got back to detainees that good behavior counted, and could accelerate the parole date. In the past, some U.S. ground commanders had expressed concerns about the practical implications of the program, wondering in particular how jobs would be found for the released detainees, and what would restrain them from low-level, opportunistic criminality if full-employment jobs were not found. Partly to help allay such concerns, representatives of the "battle space owners" were included as participants in the board deliberations and decisions about releases. The release program also made use of a guarantor system, in which tribal sheikhs and other local leaders could vouch for, and accept responsibility for, the future good conduct of detainees released back to their communities. Release ceremonies were formal events, and former detainees swear an oath to Iraq. During 2007, the detainee population grew from about 14,000 at the start of the year to a peak of 26,000 in November, due to surge operations and better incoming information from Iraqi sources. As of September 2008, there were about 19,000 detainees in coalition theater internment facilities, and by November the number had dropped to about 15,800. In the event, the security agreement required U.S. forces to turn over custody of detainees to Iraqi authorities; those for whom no warrants were issued would be released "in a safe and orderly manner." In January 2009, Iraqi and U.S. officials reached an agreement on a deliberate process by which the U.S. military would transfer 1,500 detainees per month to Iraqi authorities. Some observers expect that some detainees held by U.S. forces may benefit, upon transfer to Iraqi custody, from the February 2008 Amnesty Law, which allowed the granting of amnesty to Iraqis accused or convicted of certain categories of crimes. From the earliest days after major combat operations, civilian and military coalition leaders in Iraq recognized the central importance of the governance and economics "lines of operation"—indeed, military commanders have consistently viewed them as essential counterparts to security. The 2007 surge "theory of the case" adjusted the sequencing—improved security would now lay the groundwork for progress in governance and economics—but all three lines of operation remained essential to long-term success. The Iraqi government would have the lead role in governance and economics, but the coalition, including civilian and military personnel, would support their efforts. The key tension over time has centered on the balance of civilian and military roles and responsibilities in these areas. While all practitioners agreed that civilian agencies are best placed, by training and experience, to lead the governance and economics lines of operation, civilian efforts have been hampered by the relatively limited resources of their agencies, and by delayed and limited staffing. Military forces, with far greater numbers of "boots on the ground," have sometimes stepped in to spearhead these efforts, and have consistently played at least a supporting role. The 2007 surge included a revitalization of the civilian/military Provincial Reconstruction Team effort. At the same time, as security conditions on the ground improved, in 2007 and 2008, military units turned a greater share of their own attention to governance and economic activities. Current debates include future civilian and military roles in supporting Iraqi capacity-building, as the U.S. force presence in Iraq draws down. One critical limiting factor may be the diminishing appetite of Iraqi officials and practitioners to be "mentored," as the de facto exercise of Iraqi sovereignty expands. The idea to apply coordinated civilian and military capabilities at the provincial level in Iraq dates from before the start of the formal occupation. Throughout, that "coordination" has had two important aspects: coordination within civil/military teams assigned to the provinces, and coordination between those teams and their military unit counterparts. Early military operational-level post-war plans called for provincial-level "Governorate Support Teams," led by State Department personnel and including military Civil Affairs officers and representatives of the U.S. Agency for International Development. Under the Coalition Provisional Authority, those plans began to be realized, with some delays and in slightly modified form. The State Department (and some coalition partner countries) provided Foreign Service Officers to serve as "Governorate Coordinators," who were eventually supported by small, civil/military staffs. In August 2003—before most provinces were staffed—CPA and CJTF-7 launched what became a regular series of regional meetings, bringing Division Commanders and CPA Coordinators from Iraq's provinces to Baghdad, to share concerns and lessons learned. At the end of the formal occupation—and thus the tenure of the CPA—the new U.S. Embassy established several Regional Embassy Offices to provide consular services, but the provincially based "GC" system was disestablished. Provincial Reconstruction Teams (PRTs), per se, were established in Iraq in 2005, as provincially based offices led by State Department officials, with mixed civilian/military staffs. The term "PRT" was borrowed from Afghanistan, where PRTs, primarily military-staffed, take a wide variety of forms, depending in part on which coalition country leads them. As of 2008, the stated purpose of the PRTs in Iraq was as follows: "To assist Iraq's provincial and local governments' capacity to develop a transparent and sustained capability to govern, while supporting economic, political, and social development and respect for the rule of law." In 2007, as part of the surge, the PRT effort was expanded in scale, on the premise that increased security would create growing opportunities for meaningful economic and governance work at the provincial level. In June 2007, President Bush praised the effort, noting: "Much of the progress we are seeing is the result of the work of our Provincial Reconstruction Teams. These teams bring together military and civilian experts to help local Iraqi communities pursue reconciliation, strengthen moderates, and speed the transition to Iraqi self-reliance." PRTs are based on a Memorandum of Agreement between the Department of State and the Department of Defense, signed on February 22, 2007, and retroactively applicable to previously established PRTs. The Memorandum named PRTs "a joint DoS-DoD mission," which falls "under joint policy guidance from the Chief of Mission and the Commander of MNF-I." By mandate, the Department of State leads the PRTs, the PRTs report to the Office of Provincial Affairs (OPA) at the U.S. Embassy in Baghdad, and the Chief of Mission "provides political and economic guidance and direction to all PRTs." Brigade Combat Team commanders partnered with PRTs exercise authority only for "security and movement of personnel." As of January 2009, there were 28 PRT-like structures in Iraq, with about 800 total staff. These teams "cover" all of Iraq—but that coverage is uneven. The 28 teams included 14 full PRTs, 12 U.S.-led, one led by the UK (in Basra), and one led by Italy (in Dhi Qar); 10 smaller "embedded PRTs" (ePRTs) partnered with Brigade Combat Teams; and 4 non-self-sustaining "provincial support teams" which are based with a full PRT but cover another location—that is, personnel based in Irbil cover Sulaymaniyah and Dahuk in northern Iraq, and personnel based in Dhi Qar cover Muthanna and Maysan in southern Iraq. The size and composition of the various forms of PRTs varies substantially. The embedded PRTs may be as small as a four- or six-person core staff. In August 2008, for example, full PRTs sizes ranged from the streamlined staff of 16 in Najaf, to 53 in Mosul and about 70 in Kirkuk. While PRTs typically work closely with U.S. military Civil Affairs teams, those CA are not typically counted as working "for" the PRTs. Human Terrain Teams (HTTs) may also work closely with—but not for—PRTs; HTTs include highly trained social scientists recruited to help maneuver units map the cultural environment. In January 2008, the single largest group of PRT personnel was "locally engaged staff." Of the 798 personnel then on duty, 73 were State Department Foreign Service Officers, and 25 were USAID Foreign Service Officers. The U.S. Departments of Agriculture and Justice provided specific, critical expertise in small numbers—16 and 6, respectively. Contractors and Department of Defense personnel—civilian and military—filled many of the remaining slots. By August 2008, OPA noted that about "85% of the DoD civilians" who were sent in during the "surge" in 2007 to backfill vacant PRT positions, had been replaced by "Department of State hires"—either "3161's" or outside contractors. Some of those hires provided highly specialized skills. For example, the ePRT that covering the part of Baghdad that includes the zoo included an epidemiologist. The PRT in Najaf, where a new commercial airport opened in 2008, included a retired Air Force pilot who had run a commercial airport in Arizona. Also in August 2008, in addition to military individual augmentees provided by DOD, some maneuver units on the ground in Iraq had contributed personnel directly to their partner PRTs, to help shore up their efforts. MND-Baghdad officials noted that they had provided 20 personnel to the Baghdad PRT. An MNF-West official noted that, as of October 15, 2008, MNF-West itself was "getting out of the civil-military operations business," and would instead contribute 30 or 40 Marines to work directly for the PRT. "The time is right," an MNF-West official noted, "to transition the whole effort" to the PRT. As of January 2009, the total number of PRT personnel was still about 800, of whom 453 were staffed or managed by the Department of State – including personnel from State, AID and other civilian agencies, and 3161's. The remaining PRT staff included locally engaged staff, bilingual-bicultural advisors, and DOD personnel. Within PRTs, the civil/military balance of responsibilities varies by location. At the Baghdad PRT, for example, as of January 2008, members of the U.S. military had the lead responsibility for PRT operations, and for all infrastructure projects and half of the rule of law efforts (including police, detainees, and prisons). They shared responsibility with civilian counterparts for economics and governance initiatives. Perhaps more important in terms of impact than civil/military coordination within PRTs, is civil/military coordination between PRTs and the military units they partner with. Those arrangements have varied greatly over time and by location. Each ePRT is co-located and partnered with a Brigade Combat Team (BCT). Some ePRTs have their own transportation and force protection assets, and thus are able to operate independently. Others—including some of the smallest ePRTs in Baghdad—rely on their partner BCT to support their operations. In August 2008, the head of one particularly small ePRT noted that his usual practice is to accompany the BCT commander on his daily movements around the battle space. In August 2008, OPA confirmed that the ePRTs formally report up through their respective provincial PRTs to the Office of Provincial Affairs at the U.S. Embassy. The ePRTs have a "coordination" relationship with their partner BCTs. For example, members of one ePRT noted that when they write a cable, they show it to the BCT commander, not for "clearance" but simply for input. Anecdotal evidence suggests that in some cases, BCT commanders request information and point out areas where ePRTs could help. In August 2008, officials at one multi-national division noted that in practice, ePRT members "take direction from the BCT commander." Some ePRTs may thus function more like a BCT staff section than a partner organization. The much-larger full PRTs typically operate much more independently. There has been great variation in the type of military units PRTs are partnered with, which has ranged from a BCT that has responsibility for the same province, as in north central Iraq; to a single two-star headquarters, as in the partnership with MNF-West in Al Anbar province; to, in the case of the Baghdad PRT, two Division headquarters (MND-Baghdad, responsible for the city, and MND-Center, responsible for other parts of the province). U.S. military commanders on the ground typically praise their collaboration with the ePRTs. The staff of one BCT in Baghdad, pleased with their ePRT, reportedly praise them by saying, "You can't tell they're civilians!" U.S. military attitudes toward, and patterns of cooperation with, the full PRTs are more varied. In August 2008 in Kirkuk, leaders of the 1 st brigade of 10 th Mountain Division and its partner PRT unanimously underscored the closeness of their working relationship—their integrated organization and regular collaboration were evident in their descriptions of the shared challenges they faced and initiatives to meet those challenges. In another region in August 2008, a multi-national division official, asked about their relationship with PRT partners, replied with emphasis, "We like our ePRTs ...." In general, military commanders in Iraq have stressed the need for far more of the PRTs' expertise and presence, particularly once the security climate began to improve. Some commanders have asked, "Where's the civilian surge?" while some officials at MNF-I put it more bluntly: "Get State out here!" Looking ahead, one division commander noted in August 2008, "This is a window of opportunity with the lowest attack rates ever. Embassy people should be out more every day now, like we are." Another senior commander on the ground suggested that "ePRTs could become the main effort," and that even as some BCTs redeploy, their partner ePRTs could remain to continue their work. Civilian officials, however, have sought to temper such expectations. OPA officials stressed in early 2008 that the current PRT presence was the civilian surge. In August 2008, U.S. Embassy officials noted that the current PRT footprint would likely be the "high-water mark," and that—based on congressional direction—the Embassy had already begun a "PRT strategic drawdown plan." Some Embassy officials commented that in some locations, the PRT presence might already be too heavy and cumbersome—as one official observed, with 53 people in Mosul, "it's not clear there's a full day's work for everyone." Some suggested that for the future, as the number of civilian personnel diminishes, it would be helpful to target PRT efforts on particular areas of need, such as agriculture, public health, and local governance capacity. Some OPA and PRT officials, meanwhile, have expressed frustration with the military in Iraq for trying to do too much governance and economic work, instead of leaving those missions to far better qualified civilian experts. As one civilian official expressed in early 2008: "The military needs to start transitioning governance and economics to other agencies." Apparently most military commanders would agree—many have noted that they would readily transition responsibilities whenever civilians are available to receive them. As one division commander noted in August 2008, "We don't have the right expertise." Many practitioners and outside observers have noted that institutional cultural differences help shape the PRT/military relationships. One civilian official in Iraq commented, only partly tongue in cheek, that it is a case of "sit back and reflect" versus "take that hill!" For example, in 2007, one Division, frustrated by delays in the arrival of ePRTs, launched a campaign to "recruit" ePRT members from its own staff and subordinate units. Officials at OPA, at U.S. Embassy Baghdad, the office to which PRTs and ePRTs report, viewed that initiative as stepping on their prerogatives. Other practitioners stress that individual personalities play the key role. As one civilian official commented in early 2008: "It's mostly about personalities—it's not something you can just fix." Some civilian and military officials have suggested that more appropriately targeted training might better prepare civilians for PRT service, particularly those scheduled to work closely with military units. In 2008, some current civilian PRT members note that their pre-deployment visit to Ft. Bragg, and their counter-insurgency training at the Phoenix Academy at Camp Taji, Iraq, were invaluable, primarily for the exposure they provided to military culture and organization. By 2009, predeployment training for new PRT members had expanded to include exercising with U.S. BCTs also preparing to deploy, at the National Training Center at Ft. Irwin, California, or the Joint Readiness Training Center at Ft. Polk, Louisiana. Some civilian officials have expressed concern that as U.S. military forces in Iraq draw down, there might not be sufficient military resources to provide movement and force protection for PRTs. In August 2008, one division commander noted that if the security climate continued to improve, it would be possible to dedicate more military assets to directly supporting the PRTs—perhaps providing each one with a full Company. By January 2009, some civilian and military officials speculated that as the overall U.S. effort in Iraq shifts from counterinsurgency to stability operations, the PRTs might assume the overall lead role for capacity-building, with U.S. military forces in support. While civilian and military officials generally agree that governance and economics-related tasks might in theory be better performed by civilian experts, as of early fall 2008, coalition forces in Iraq continued to play significant roles in those fields. The Office of Provincial Affairs briefing materials state: "PRTs serve as the primary U.S. government interface between U.S., coalition partners, and provincial and local governments throughout all of Iraq's 18 provinces." It might be more accurate to say that PRTs play the "lead" role in governance, rather than the "primary" one, given the sheer magnitude of ongoing interaction by coalition forces with Iraqi provincial and local officials. In Baghdad, for example, the full Baghdad PRT interacts with the Governor, the Mayor, and the Provincial Council Chair, while ePRTs are tasked to work with the district- and neighborhood-level councils. A small ePRT, with responsibility for a given district, might work closely with that district council, but due to personnel and resource constraints, the ePRT might have difficulty working equally closely and frequently with all of the subordinate neighborhood councils within that district. Military units are likely to have far more frequent interactions with Iraqi officials. Battalion commanders meet regularly with neighborhood councils, Civil Affairs units and other military staff work continually with local officials on essential services and other public works projects, and Captains and their staffs at Joint Security Stations—and their ISF counterparts—meet often with local officials who use the JSSs as community meeting sites. In August 2008, for example, PRT and BCT officials described their division of labor: the BCT commander engages the provincial governor, battalion commanders engage the district councils, and company commanders engage sub-district councils and groups of local mukhtars . The PRT, in turn, focuses on the provincial government, helping tie it more closely into the national government. The PRT also mentors young military officers in governance work. A central and long-standing focus of coalition governance efforts is helping Iraqis achieve connectivity between the top-down national ministries and their appointed representatives for each province, on one hand, and the ground-up provincial and local governments chosen by local populations, on the other. Military commanders in every region have attested that provincial officials have no authority over—and little relationship with—the ministerially appointed representatives for their province. In August 2008, one division commander explained, "Where the military can help is in building informal bridges among tribal councils, the Iraqi Security Forces, and local government—and it still needs a forcing function at the national level." As described by Colonel Tom James, commander of the 4 th BCT of 3 rd Infantry Division, stationed south of Baghdad in early 2008, "One of the things we really focused on is linkages, making sure that local governments are representative of the people, and they they're linked to higher governments so that we can process, prioritize, and resource the people that need things." Current governance efforts by coalition forces include fostering connectivity among the levels of government by mentoring Iraqi interlocutors at each level. For example, in one town south of Baghdad, community leaders were apparently frustrated because they felt disconnected from the deliberations of the nearest local council. The Army Captain leading the JSS in the city started bringing local community leaders together regularly, helping them to articulate and prioritize their concerns. Coalition forces then connected that informal body with the Iraqi officials formally chosen to represent that area. That mentoring was then backed up by higher levels of the Captain's chain of command, on their frequent visits. In one area of Baghdad, a Brigade Commander and representatives of his subordinate units regularly reviewed the membership of all the local councils, based on the units' frequent interactions with them, checking for vacancies, for the presence of "outsiders" from outside a given neighborhood, and for roughly accurate reflections of the demographic balance. Where local councils fell short, the units that regularly engaged them pointed out the concerns to them and urged improvement. In the views of many commanders, PRTs and ePRTs are simply not robust enough to conduct the governance mission comprehensively. As one Division staff member framed the issue, in early 2008, "The Division needs to help the PRTs help establish governance." Military commanders in Iraq confirm that for U.S. personnel, economic policy guidance is provided by the U.S. Embassy, and that PRTs have the lead role in the economic line of operation. As in the field of governance, since the earliest post-major combat days, the U.S. military has played a role in the economic reconstruction of Iraq. The military role in economic reconstruction has typically focused on local-level initiatives. In 2008, one economic focus for the military was neighborhood economic revitalization—usually measured in terms of the number of small shops opened. The first shops to reopen in a neighborhood, as security improves, typically included fruit and vegetable stands, and shops selling convenience foods like bottles of soda. To facilitate that process, commanders sometimes sought a local Iraqi partner to serve as the primary contractor for reconstruction in a neighborhood, and to encourage other local entrepreneurs to come onboard. By January 2008, in addition, military commanders, were tasked to keep an eye open for potential "medium-sized businesses" to support. Commanders have also been able to make available micro-grants, through a Department of Defense program, which allowed them to provide fledgling Iraqi businesses with start-up funds ranging from several hundred to several thousand dollars, to purchase equipment or raw materials. For example, in early 2008, a micro-grant enabled one man in Baghdad to buy power saws and raw wood to jumpstart his furniture-making business. In August 2008, one BCT commander noted, "We've had great success reopening small businesses!" But both civilian and military officials in Iraq note that the number of open shops may be a better gauge of the security climate in a community—how safe the local population feels—than of economic revitalization. Longer-term, sustainable development, civilian and military officials note, requires not just local shops but also production—which in turn requires sustainable and secure systems of supply and distribution, as well as a customer base. Civilian development experts in Iraq caution that this will simply take time. In August 2008, U.S. Embassy officials explained that imposing economic policy discipline in the regions—among PRTs as well as military units—is a challenge. This may help explain what some called the "great poultry debate" of 2008. In mid-2008, as part of the search for sustainable economic activity, some military and PRT officials proposed supporting the development of domestic poultry and egg farming. Some argued that such a business required relatively low start-up costs, and would provide both employment and income for local families. Officials at the U.S. Embassy, and some civilian and military practitioners in the field, countered that such efforts stood little chance of being profitable—it cost $2 to buy a chicken to eat from Brazil, while a domestic Iraqi chicken would cost much more than that, given the costs of importing feed and cooling the chickens and their eggs. One BCT commander noted, "poultry farming is a big deal for us," while a senior Embassy official countered, "There's no business plan." Meanwhile, military commanders have continued to make use of the Commanders Emergency Response Program (CERP), which provides brigade commanders with discretionary funding for a wide array of projects. As of mid-2008, the majority of CERP funding was being used to support essential services, and other sustained initiatives such as the Sons of Iraq program. Anecdotally, in some instances, CERP may have lost some of its initial flexibility—in the accounts of several BCT commanders, who earlier had been free to spend CERP funds at their own discretion, they had recently been required to seek approval from their Division headquarters to spend CERP money. As of August 2008, there was no formal requirement for military units to coordinate CERP spending with Iraqi officials or with PRT or ePRT counterparts, and some OPA and PRT officials have raised concerns about insufficient civil/military coordination. Division, Brigade and Battalion Commanders have noted that most projects nominated for CERP support are initially put forward by local Iraqi officials and residents. Further, although it is not mandated, the military typically cross-walks proposed initiatives with the existing plans of local Iraqi councils. In Kirkuk, BCT and PRT officials noted that they share all project information and coordinate with Iraqis "at stage one of any project." In Baghdad, one PRT and its ePRT partner noted that they coordinate on all projects and select the most expedient source of funding, and that they coordinate all projects with the appropriate Iraqi body—the right Ministry, district council, or neighborhood council. In 2008, some Members of Congress expressed frustration with the extensive use of CERP on projects either that might not be necessary, or that the Iraqis might be able to pay for themselves. Some civilian officials in Baghdad shared the concern about the use of CERP. Too-liberal use of CERP funding, some have argued, could counteract the broad policy goal of encouraging Iraqis to solve as many problems as possible by themselves. As an example, one official, pointing to a summer 2008 proposal by one division to spend $62 million on an electrification project, noted, "We're getting out of that kind of business." The big problem, one official observed in August 2008, is that "we're not giving Iraqis the freedom to fail." Some military commanders on the ground shared that concern—one noted in August 2008, "We've wasted a lot of CERP money in the past." In September 10, 2008, testimony before the House Armed Services Committee, Under Secretary of Defense for Policy Eric Edelman noted that DOD was in the process of reviewing and refining the criteria for the use of CERP. Meanwhile, in 2008, some transitions in the use of CERP were underway, due in part to the GoI's introduction of Iraqi CERP (I-CERP)—GoI funds that U.S. forces may help Iraqi counterparts spend. Multi-National Force-West officials noted in August 2008 that they were "giving CERP money back," a conscious decision to help make the Iraqi system work. Instead of CERP, the Marines were spending I-CERP. MND-Baghdad officials suggested, meanwhile, that using I-CERP might be "teaching the Iraqis bad habits," that is, that when civilian channels are not fast enough, the military takes charge. Strategically based decision-making about the United States' next steps in Iraq and its future relations with that country requires a clear assessment of trends to date in security conditions, and a clear evaluation of the factors that produced those changes. Multi-National Force-Iraq leaders use a series of quantitative metrics to track and describe both snapshots of the security situation and trajectories over time. The qualitative significance of the metrics is open to some interpretation, but overall, as of early 2009, the metrics suggested that security gains achieved in 2008 had been maintained. The metric usually described first is "overall attacks"—including attacks against Iraqi infrastructure and government facilities; bombs found and exploded; small arms attacks including snipers, ambushes, and grenades; and mortar, rocket and surface-to-air attacks. According to MNF-I, overall attacks grew from a low point in early 2004, when records begin, to a peak of over 1,500 weekly attacks in June and July 2007, just as the final surge units arrived in Iraq and Operation Phantom Thunder was launched. That gradual growth was punctuated by sharp upward spikes at key Iraqi political junctures, including the January 2005 elections and the October 2005 constitutional referendum, and, less sharply, during Ramadan each year. After July 2007, the overall level of attacks declined sharply, punctuated by a spike during Iraqi and coalition operations in Basra and Sadr City, in March 2008. By late 2008, the level of attacks had fallen to well under 200 per week – levels last witnessed at the beginning of 2004 – and those gains held through February 2009. Commanders on the ground point out that a low level of attacks in a given geographical area does not necessarily mean that no adversaries remain there. It could also indicate that a place—such as Arab Jabour south of Baghdad, in late 2007—was being used as a sanctuary. In turn, a high level of attacks is generally expected, at least temporarily, during major operations in an area, as extremist groups attempt to push back. Another key metric tracked by MNF-I is the number of Iraqi civilian deaths due to the actions of extremists. The number of monthly deaths peaked in late 2006—at just over 1,500 per month according to coalition data, and about 3,750 per month according to combined Iraqi and coalition data. MNF-I reports that beginning in July and August 2007, after all the "surge" forces had arrived in Iraq, the level of civilian deaths fell sharply and then continued to decline through January 2008, a decline of over 72%. Iraqi sources record a spike in civilian deaths in late March 2008, during the military operations in Basra and Sadr City. Coalition data, and combined Iraqi and coalition data, both indicate a continued reduction to between 200 and 300 by January 2009. A further metric regularly recorded and tracked is the number of weapons caches found and cleared. That number skyrocketed from 1,884 in 2004 (the first year of full, available records), to 6,957 in 2007, and 9,154 in 2008, with 503 caches found and cleared in January 2009. The cache numbers alone, however, tell an incomplete story, first of all because the size and contents of the caches are not indicated. In addition, there is no way to confirm the discovery success rate by comparing the number of caches found with the total number of weapons caches in Iraq at any given point. Larger numbers of found caches could indicate that the problem is growing—for example, that more weapons are coming into Iraq. Larger numbers could also simply reflect more aggressive—and more successful—operations, based on better information from Iraqi sources about cache locations. MNF-I also tracks the category of "high profile attacks"—including explosions involving the use of car bombs, suicide car bombs, and individuals wearing suicide vests. In 2007, the monthly total reached a peak of about 130 in March before falling, unevenly, to about 40 in December 2007. MNF-I noted that erecting barriers and hardening sites, as well as kinetic operations against would-be perpetrators, had helped lower the total of vehicular attacks. After a gradual rise during the first two months of 2008, high-profile attacks spiked in March, during military operations in Basra and Sadr City. By the end of January 2009, the number had fallen considerably, to well below 20. MNF-I tracks improvised explosive devices (IEDs) based on two metrics—the number of IED explosions, and the total number of IED incidents including explosions, IEDs found and disarmed, and IED hoaxes. The second metric can be viewed as a broader measure of adversary intent. MNF-I reports that the number of IED explosions spiked in October 2006 during Ramadan; remained high until July 2007, just before the start of a series of surge-based Corps-level offensives; and fell sharply until October 2007. The number of total IED incidents followed a similar trajectory over that time period. The incidence of IED explosions, relatively level at the beginning of 2008, spiked in late spring during the offensive operation in Basra and Sadr City, and again in late summer during operations in Diyala and Ninewah provinces. By December 2008 the level of IED explosions had fallen to levels last seen at the beginning of 2004, of less than 50 per month. IED use can also be evaluated qualitatively, as well as quantitatively. In late 2007, one of the deadliest forms of IEDs in use was the explosively formed penetrator (EFP), supplied as a rule from Iran. EFP use declined in late 2007 but experienced a brief upsurge in early 2008, before declining again through early 2009. In November 2007, a new and very deadly threat appeared—improvised rocket-assisted mortars (IRAMs). Built from a rocket, a propane tank, and ball bearings, IRAMs are indiscriminate and powerful in their effects. In August 2008, MNC-I reported that 13 IRAM attacks had taken place altogether, most recently in July 2008. By the end of 2007, less sophisticated forms of IEDs—such as command wire- and pressure plate-detonated devices—had become the most common, possibly indicating a degradation in the supply networks or ability to coordinate and operate of the adversary. In August 2008, the most recent IED "innovation" was the use of building-borne IEDs, that is, buildings wired to explode, and the use of female suicide bombers increased markedly. Late 2008 saw the rise of "sticky IEDs"—small bombs attached magnetically to the under-sides of vehicles, and set off by remote control or timer. By early 2009, as security measures designed to prevent vehicle-borne attacks improved, the use of person-borne IEDs (PBIEDs) increased. In 2008, as consensus grew that security gains had been achieved on the ground in Iraq, some debates developed concerning which factors, or combination of factors, had contributed, or contributed most, to those improvements. From a social science perspective, the results are "un-testable"—the "experiment" cannot be repeated holding one or more variables constant. MNF-I leaders and commanders on the ground attributed the improvements in the security situation not just to one or two key factors, but to a compendium of factors. Moreover, commanders noted, those factors were made particularly effective by their interaction effects—for example, coalition personnel with previous service in Iraq, making use of more sophisticated technologies. The most fundamental factor may have been what former MNF-I Commanding General, General David Petraeus, has called a shift in the "intellectual construct" from an emphasis on transition—a quick hand-over to Iraqis—to a counter-insurgency (COIN) focus on achieving population security. Another key COIN component of that intellectual construct was recognizing the need to separate the irreconcilables from the reconcilables—as GEN Petraeus observed, "You're not going to kill your way out of an insurgency." Additional key factors frequently cited by commanders in Iraq include targeted operations by special operations forces; operations and much greater presence by conventional coalition forces; operations, presence, and greatly improved capabilities of Iraqi Security Forces; the rejection of extremists by the "awakening" movements; efforts by the Sons of Iraq and other security volunteers, and Muqtada al-Sadr's ceasefire and separation from the violent "special groups" wings of his organization. In addition, according to commanders, in recent years, far more intelligence assets became available in-country, and at lower levels of command, greatly improving commanders' ability to make decisions and respond in a timely way. New technologies—particularly rapidly fielded counter-IED equipment and approaches—helped coalition forces against the adversaries' deadliest weapons and saved lives. Not only did various components of force contribute to the fight, their efforts were far better integrated than they were several years ago, and that integration also helps explain security improvements to date. For example, commanders note that the air component increased the intelligence, surveillance and reconnaissance (ISR) assets available to ground commanders, to support and inform their operations. The greater ground forces presence, and the better information from Iraqis that it generated, in turn, made possible the more frequent and more effective use of air strikes. Commanders on the ground have noted that the increasingly sophisticated technologies available to SOF have strengthened their efforts to kill or capture high-value targets. Commanders have stressed, however, that "you can't get Al Qaeda by just using SOF." MNF-I officials have noted that coalition forces tried the SOF-only approach in Ramadi for four years, but it ultimately proved insufficient. They add that SOF is most effective when it draws on conventional forces' intimate knowledge of local communities, based on the close contacts conventional forces have with ISF, SOIs, and local tribes. Then, following SOF actions, conventional forces play the essential role of "holding" the area, with a strong, visible presence. Finally, as many practitioners on the ground have pointed out, by the time of the surge, force leaders, staff, commanders, and troops in the field typically brought significant previous Iraq experience to the mission. Most leaders and commanders have served at least one previous tour in Iraq, and their familiarity with Iraqi governing structures, basic laws, and customs, is markedly greater than the limited knowledge the first coalition teams brought to Iraq. Leaders also point out that they have had time to absorb the lessons from their earlier tours, including absorbing the 2006 COIN manual that captured lessons from recent operational experience. For further information about Iraq-related issues, see CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11 , by [author name scrubbed]; CRS Report RL34064, Iraq: Oil and Gas Legislation, Revenue Sharing, and U.S. Policy , by [author name scrubbed]; CRS Report RL33834, Defense Contracting in Iraq and Afghanistan: Issues and Options for Congress , by [author name scrubbed]; CRS Report R40011, U.S.–Iraq Withdrawal/Status of Forces Agreement: Issues for Congressional Oversight , by [author name scrubbed]; CRS Report RL31339, Iraq: Post-Saddam Governance and Security , by [author name scrubbed]; CRS Report RL31833, Iraq: Reconstruction Assistance , by [author name scrubbed]; and CRS Report RL34568, U.S.-Iraq Strategic Framework and Status of Forces Agreement: Congressional Response , by [author name scrubbed]. | Operation Iraqi Freedom (OIF), the U.S.-led coalition military operation in Iraq, was launched on March 20, 2003, with the immediate stated goal of removing Saddam Hussein's regime and destroying its ability to use weapons of mass destruction or to make them available to terrorists. Over time, the focus of OIF shifted from regime removal to the more open-ended mission of helping the Government of Iraq (GoI) improve security, establish a system of governance, and foster economic development. In 2009, the war in Iraq appears to be winding down, as security gains made since the height of the insurgency in 2006 and 2007 continue to be sustained, and as Iraqis increasingly seek management of their own affairs. A new U.S.-Iraqi security agreement that went into effect on January 1, 2009, which confirmed the Iraqis' responsibility for their own security, introduced a new era in OIF and in US-Iraqi bilateral relations. Secretary of Defense Robert Gates called the agreement a "watershed, a firm indication that American military involvement in Iraq is winding down." U.S. military commanders on the ground have indicated that in most parts of Iraq, the focus of U.S. military efforts has shifted from counterinsurgency (COIN) to stability operations, including advising the Iraqi Security Forces (ISF), and supporting security, economic, and governance capacity-building. On February 27, 2009, at Camp Lejeune in North Carolina, President Obama delivered a speech addressing "how the war in Iraq will end," in which he announced the drawdown of U.S. combat forces by August 2010 and the transition of the rest of the military mission to training and advising Iraq security forces, conducting counter-terrorism operations, and providing force protection for U.S. personnel. The United States begins this transition from a position of significant commitment – including some 140,000 U.S. troops deployed in Iraq, in addition to civilian experts and U.S. contractors, who provide substantial support to their Iraqi counterparts in the fields of security, governance, and development. Senior U.S. officials, including outgoing U.S. Ambassador to Iraq Ryan Crocker, and Secretary Gates, have suggested that lasting change in Iraq will require substantially more time, and that while the U.S. military presence will diminish, U.S. engagement with Iraq is likely to continue. The Government of Iraq (GoI), for its part, still faces challenges at the operational level, in countering the lingering strands of the insurgency; and at the strategic level, in achieving a single, shared vision of the Iraqi state, and in improving its capacity to provide good governance, ensure security, and foster economic development for the Iraqi people. Key policy issues the Obama Administration may choose to address, with oversight from the 111th Congress, include identifying how U.S. national interests and strategic objectives, in Iraq and the region, should guide further U.S. engagement; monitoring and evaluating the impact of the changes in the U.S. presence and role in Iraq; and laying the groundwork for a future, more traditional bilateral relationship. This report is intended to provide background and analysis of current developments and options, and will be updated as events warrant. |
The federal government requires the U.S. fleet of heavy-duty engines and vehicles—including commercial long-haul tractor-trailers—to meet various requirements, including those for safety, fuel economy, and air pollution emissions. The first federal emissions standards for heavy-duty engines and vehicles were introduced in 1974 and were gradually tightened in a number of steps. On January 18, 2001, the U.S. Environmental Protection Agency (EPA) set current emission standards for criteria air pollutants and their precursors, including nitrogen oxide (NO x ) and particulate matter (PM). Further, on October 25, 2016, EPA and the National Highway Traffic Safety Administration (NHTSA) jointly published the second (current) phase of greenhouse gas (GHG) emissions and fuel efficiency standards for medium- and heavy-duty engines and vehicles (Phase 2). The Phase 2 requirements set emission standards for commercial long-haul tractor-trailers, vocational vehicles, and heavy-duty pickup trucks and vans , and they phase in between model year (MY) 2018 and MY 2027. The rule expands on the Phase 1 standards (promulgated on September 15, 2011, for MYs 2014 through 2018) and introduces first-ever controls on trailers (i.e., the part of the vehicle pulled by the tractor) and glider kits and vehicles (i.e., a new chassis combined with a remanufactured engine). This report examines EPA's and selected other federal agencies' requirements on glider kits and glider vehicles and outlines the congressional response. A glider kit is a tractor chassis with a frame, front axle, interior and exterior cab, and brakes (see Figure 1 ). It becomes a glider vehicle when an engine, transmission, and rear axle are added. Engines are often salvaged from earlier model year vehicles, remanufactured, and installed in glider kits. The final manufacturer of the glider vehicle (i.e., the entity that assembles the parts) is typically a different entity than the original manufacturer of the glider kit. Glider kits and glider vehicles are produced arguably for purposes such as allowing the reuse of relatively new powertrains from damaged vehicles. Four original equipment manufacturers (OEMs) currently produce glider kits in the United States: Peterbilt, Kenworth, Freightliner, and Western Star. Numerous companies of varying sizes unassociated with the OEMs serve as the final manufacturers or assemblers of glider vehicles. These companies specialize in installing remanufactured main components from donor trucks (commonly Detroit, Cummins, and Caterpillar engine options) into new glider kits purchased from the OEMs. Representatives of the glider assembler industry assert that the benefit of a glider vehicle over a new truck is a more reliable and fuel efficient vehicle that requires less maintenance, yields less downtime, and yet offers a range of currently available safety features and amenities. Further, they report that a glider vehicle is approximately 25% less expensive than a new truck at purchase, which makes it popular with small businesses and owner-operators. The Phase 2 standards require, among other provisions, that all glider vehicles be covered by both vehicle and engine certificates. The vehicle certificate requires compliance with the GHG vehicle standards of 40 C.F.R. Part 1037. The engine certificate requires compliance with the GHG engine standards of 40 C.F.R. Part 1036, plus the criteria pollutant (i.e., NO x and PM) standards of 40 C.F.R. Part 86. Under the Phase 2 rule, used or rebuilt engines may be installed in glider vehicles, provided that they meet all standards applicable to the year in which the assembly of the glider vehicle is completed, or they meet all standards applicable to the year in which the engine was originally manufactured and also meet one of the following criteria: the engine is still within its original useful life in terms of both miles and years, the engine has less than 100,000 miles of engine operation, or the engine is less than three years old. Thus, the standards allow for installation of relatively newer engines in glider kits for purposes EPA deemed consistent with their original intended use—the salvaging of relatively new powertrains from vehicle chassis that have been damaged or have otherwise failed prematurely. The Phase 2 rule has a transitional program for glider manufacturers. For calendar year 2017, each manufacturer's combined production of glider kits and glider vehicles is capped at the manufacturer's highest annual production of glider kits and glider vehicles for any year from 2010 to 2014. Any glider kits or glider vehicles produced beyond this allowance are subject to all requirements applicable to new engines and new vehicles for MY 2017. Effective January 1, 2018, the permissible number of glider vehicles that may be produced without meeting the Phase 2 long-term requirements is limited as follows: Small businesses may produce a limited number of glider vehicles without meeting the long-term engine or vehicle requirements (or larger vehicle manufacturers may provide glider kits to these small businesses without the assembled vehicles meeting the long-term vehicle requirements) capped at the small vehicle manufacturer's highest annual production volume in 2010 through 2014 or 300, whichever is less. The 2018 allowances mostly continue after 2020, but effective January 1, 2021, all glider vehicles are required to meet the Phase 2 GHG vehicle standards. EPA cited its authority to regulate glider vehicles as Clean Air Act (CAA), Section 202(a), which authorizes standards for emissions of pollutants from new motor vehicles that cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. Regarding its statutory authority to regulate criteria pollutants under the CAA, EPA noted that it has broad authority to control all pollutant emissions from "any" rebuilt heavy duty engines (including engines beyond their statutory useful life) under CAA Section 202(a)(3)(D): Rebuilding practices.—The Administrator shall study the practice of rebuilding heavy-duty engines and the impact rebuilding has on engine emissions. On the basis of that study and other information available to the Administrator, the Administrator may prescribe requirements to control rebuilding practices, including standards applicable to emissions from any rebuilt heavy-duty engines (whether or not the engine is past its statutory useful life), which in the Administrator's judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare taking costs into account. Regarding its statutory authority to regulate vehicle-based GHG emissions, the Phase 2 rule defines the completed glider vehicle as a "motor vehicle" under CAA Sections 216(2 and 3): (2) The term "motor vehicle" means any self-propelled vehicle designed for transporting persons or property on a street or highway. (3) Except with respect to vehicles or engines imported or offered for importation, the term "new motor vehicle" means a motor vehicle the equitable or legal title to which has never been transferred to an ultimate purchaser; and the term "new motor vehicle engine" means an engine in a new motor vehicle or a motor vehicle engine the equitable or legal title to which has never been transferred to the ultimate purchaser. Thus, according to the Phase 2 rule, if a used engine is placed in a new glider vehicle, the engine is considered a "new motor vehicle engine" under CAA Section 216(3), because it is being used in a "new motor vehicle." In short, EPA argued that "it is reasonable to require engines placed in newly-assembled vehicles to meet the same standards as all other engines in new motor vehicles." Additionally, CAA Section 202(a)(1) not only authorizes EPA to set standards "applicable to the emission of any air pollutant from any … new motor vehicles" but states further that these standards are applicable whether such vehicles "are designed as complete systems or incorporate devices to prevent or control such pollution." Thus, according to the Phase 2 rule, the CAA not only contemplates but in some instances directs that EPA establish standards for "incomplete vehicles" and vehicle components for purposes of controlling emissions from the completed vehicle. With this interpretation, EPA adopted provisions in the Phase 2 rule stating that a glider kit becomes a vehicle when "it includes a passenger compartment attached to a frame with one or more axles." The Phase 2 rule contains no emission standards for glider kits in isolation, but the standards for glider vehicles reflect the contribution of the glider kit. However, manufacturers of glider kits are subject to production caps as discussed above and would be required to obtain certificates of conformity before shipping any glider kits based on EPA's interpretation that the kits are considered "incomplete motor vehicles." The production and use of glider vehicles has the potential to increase emissions of criteria pollutants—specifically NO x and PM—from heavy-duty vehicles. Current EPA emission standards for NO x and PM (which began in 2007 and took full effect in 2010) are at least 90% lower than previous standards (see Table 1 ). Thus, EPA estimated in the Phase 2 rulemaking that NO x and PM emissions of any glider vehicles using pre-2007 engines could be 10 times higher than emissions from equivalent vehicles being produced with new engines. Additionally, based on prior standards, EPA estimated that NO x and PM emissions of any glider vehicles using pre-2002 engines (i.e., before exhaust aftertreatment requirements) could be 20-40 times higher than those of current engines. These emission impacts are compounded by the recent increase in sales of glider vehicles. Estimates provided to EPA during the Phase 2 rulemaking indicate that production of glider vehicles increased by an order of magnitude since 2006—from a few hundred each year to several thousands. EPA noted during the rulemaking While the few hundred glider vehicles produced annually in the 2004-2006 timeframe may have been produced for arguably legitimate purposes, such as salvaging powertrains from vehicles otherwise destroyed in crashes, EPA believes (as did many commenters) that the more than tenfold increase in glider kit production since the MY 2007 criteria pollutant emission standards took effect reflects an attempt to avoid these more stringent standards and (ultimately) the Clean Air Act. The agency's regulatory analysis of the environmental impacts of glider vehicles assumes annual sales of 10,000 for 2015 and later, which is consistent with the comments received on the Phase 2 proposed rule. The modeling also assumes that glider vehicles emit at the level equivalent to the engines meeting the MY 1998-2001 standards, since most glider vehicles currently being produced reportedly use remanufactured engines of this vintage. The analysis shows that without the new restrictions, glider vehicles on the road in 2025 could emit nearly 300,000 tons of NO x and nearly 8,000 tons of PM annually. Thus, glider vehicles could represent 5% of heavy-duty tractors on the road, and their emissions could represent about one-third of all NO x and PM from the sector. Under the Phase 2 rule, EPA argued that by restricting the number of glider vehicles with high polluting engines on the road, excess NO x and PM emissions could decrease dramatically, leading to substantial public health benefits. Put into monetary terms (using PM-related benefit-per-ton values), EPA estimated that the removal of all unrestricted glider vehicle emissions from the atmosphere could yield between $6 billion and $14 billion in health benefits annually (in 2013 dollars). Subsequent to the rulemaking, EPA's National Vehicle and Fuel Emissions Laboratory (NVFEL) conducted dynamometric emissions tests comparing selected glider vehicles (with remanufactured engines originally certified in a MY between 1998 and 2002) to selected conventionally manufactured MY 2014 and MY 2015 tractors (with engines compliant with 2010 standards). The analysis finds that "under highway cruise conditions, NO x emissions from the [selected] glider vehicles were approximately 43 times as high, and PM emissions were approximately 55 times as high as the [selected] conventionally manufactured 2014 and 2015 MY tractors." Under transient operations, NO x emissions were four to five times higher, and PM emissions were 50-450 times higher in these selected cases. However, the production and use of glider vehicles currently has a positive impact on fuel efficiency and GHG emissions in the U.S. fleet of heavy-duty vehicles. Several studies, including the NVFEL 2017 study, find that GHG emissions from selected glider vehicles are actually "lower [by 10%-20%] than the conventionally manufactured vehicles when measured on the chassis dynamometer without taking into account the differences in the aerodynamic drag between the vehicles." These results are not unexpected given the known trade-off between NO x and GHG emissions regarding injection timing and similar engine calibration techniques. Further, many of the current aftertreatment technologies used to mitigate criteria pollutant emissions require energy to operate and thus cut into the engine's fuel efficiency. Finally, representatives of the glider assembler industry contend that glider vehicles reduce GHG and other air emissions on a "lifecycle basis" because of the savings created by using recycled materials, including the reuse of cast steel in the remanufacturing process. Other studies report more comparable GHG emission numbers. For example, the Union of Concerned Scientists (UCS) estimates GHG emissions at 7%-9% lower and 4% lower using estimates with on-road operating assumptions and more recently manufactured vehicles. The UCS comments argue that recent advancement in engine design "makes clear just how quickly any possible short-term fuel economy advantage for glider vehicles disappears." Following promulgation of the Phase 2 rule, EPA received from representatives of the glider vehicle assembler industry a joint petition requesting that the agency reconsider the application of the Phase 2 rule to glider vehicles, glider engines, and glider kits. The petitioners made three principal arguments. First, they argued that EPA is not authorized by CAA Section 202(a)(1) to regulate glider kits, glider vehicles, or glider engines. Second, they contended that in the Phase 2 rule EPA "relied upon unsupported assumptions to arrive at the conclusion that immediate regulation of glider vehicles was warranted and necessary." Third, they asserted that reconsideration was warranted under Executive Order 13783 of March 28, 2017, "Promoting Energy Independence and Economic Growth." In addition, the petitioners took particular issue with what they characterized as EPA's assumption that the NO x and PM emissions of glider vehicles would be increased significantly. They highlighted the findings of a Tennessee Tech University (TTU) study that analyzed NO x , PM, and carbon monoxide emissions from both remanufactured and OEM engines. The results of the study show that "remanufactured engines from model years between 2002 and 2007 performed roughly on par with OEM 'certified' engines" and "in some instances even out-performed the OEM engines." Since the proposal, TTU leaders and other stakeholders have raised questions about the accuracy of the TTU study, the role engineering experts at the university played in it, and the relationship between specific glider kit manufacturers and the university. TTU has since asked EPA to "withhold any use or reference to said study pending the conclusion of [an] internal investigation." Finally, the petitioners argued that the Phase 2 rule had failed to consider the significant environmental benefits that glider vehicles create. They noted that glider vehicle GHG emissions are less than those of OEM vehicles due to glider vehicles' greater fuel efficiency and that the carbon footprint of glider vehicles is further reduced by the savings created by recycling materials. On November 16, 2017, EPA (under Administrator Scott Pruitt) proposed a repeal of the emission standards and other requirements on heavy-duty glider vehicles, glider engines, and glider kits based on a proposed interpretation of the CAA. In the proposed repeal, EPA determined that its previous statutory interpretation of its authority to regulate glider engines, vehicles, and kits was "incorrect" and "not the best reading" of the CAA. EPA based the proposed repeal on a different interpretation of the CAA under which glider vehicles would be found not to constitute "new motor vehicles" within the meaning of CAA Section 216(3), glider engines would be found not to constitute "new motor vehicle engines" within the meaning of CAA Section 216(3), and glider kits would not be treated as "incomplete" new motor vehicles. Under this new interpretation, EPA said it lacked authority to regulate glider vehicles, glider engines, and glider kits under CAA Section 202(a)(1). To support its statutory interpretation, EPA stated that it has "inherent authority to reconsider, revise, or repeal past decisions to the extent permitted by law so long as the agency provides a reasoned explanation." Based on the agency's reading "of the structure and history" of the Motor Vehicle Air Pollution Control Act of 1965 and the Automobile Information Disclosure Act of 1958, EPA contended in the proposed repeal that it would seem clear that Congress intended, for purposes of Title II, that a "new motor vehicle" would be understood to mean something equivalent to a "new automobile"—i.e., a true "showroom new" vehicle. It is implausible that Congress would have had in mind that a "new motor vehicle" might also include a vehicle comprised of new body parts and a previously owned powertrain. In summary, EPA interpreted legislative history to conclude that "it seems likely that Congress understood a 'new motor vehicle' … to be a vehicle comprised entirely of new parts." Additionally, under EPA's proposed interpretation, the agency would not have the authority to regulate glider kits under CAA Section 202(a)(1). If glider vehicles are not "new motor vehicles" under CAA Section 216(3), then the agency said it would lack authority to regulate glider kits as "incomplete" new motor vehicles. Further, given that a glider kit lacks a powertrain, EPA stated that a glider kit would not explicitly meet the definition of motor vehicle , which is defined to mean "any self-propelled vehicle" under 42 U.S.C. 7550(2). EPA's proposed "Repeal of Emission Requirements for Glider Vehicles, Glider Engines, and Glider Kits" has not been finalized. The comment period for the proposal closed on January 5, 2018. The proposal received over 4,000 comments. Some commentators have supported EPA's efforts to reverse the standards and provide relief to the affected glider vehicle assembler industry. They have reiterated the arguments, as presented in the petitions for reconsideration, that EPA lacks the authority to regulate glider vehicles under the CAA because they could not be considered "new motor vehicles." They assert that the benefit of a glider vehicle over a new truck is a more affordable, reliable, and fuel efficient vehicle for purchasing that requires less maintenance, yields less downtime, and yet offers a range of currently available safety features and amenities. However, some commentators from the trucking sector—including original equipment manufacturers, large fleets, and advanced technology firms—have pushed back against the proposed repeal, arguing that EPA's legal justification could "effectively nullify" the agency's statutory authority over new vehicles and engines and disadvantage numerous OEM businesses that have invested in cleaner engine and emission control technologies. Several large truck manufacturers have expressly supported the limits on glider vehicles, including Volvo Group, Daimler Trucks North America, and Navistar International Corp (notably, some of the same manufacturers that sell glider kits). Also, comments from 12 attorneys general—from states including California, New York, Illinois, Pennsylvania, and North Carolina—argued that the "proposed repeal rests on a legally untenable reinterpretation of the Agency's duty to regulate harmful air pollutants from 'new motor vehicles' and 'new motor vehicle engines.'" Further, comments from state and local air quality agencies (e.g., the National Association of Clean Air Agencies) noted that the proposed repeal would likely force state and local regulators to place new requirements on stationary sources (e.g., power plants and factories) in their State Implementation Plans in order to meet National Ambient Air Quality Standards for ozone and PM. On February 8, 2018, the California Air Resources Board proposed to adopt the glider vehicle requirements into the state's broader rulemaking aligning California's GHG standards for medium- and heavy-duty trucks and trailers with the federal Phase 2 standards for MYs 2018-2027. The new California rule, when final, would allow only 2010 and later model year heavy-duty truck engines in glider kits. EPA has approved California's waiver request under Section 209(b) of the CAA to adopt its own MY 2014-2018 Phase 1 standards for heavy-duty vehicles. It is uncertain how California and the federal government would proceed with the adoption of the state's Phase 2 program and its glider vehicle provisions if changes are made at the national level. The Administration's 2018 Spring Regulatory Agenda projected a final rule to repeal the glider requirements by May 2018. However, as reported on May 2, 2018, the White House Office of Management and Budget (OMB) rejected EPA's draft final rule on the grounds that EPA had yet to craft a regulatory impact analysis detailing the pollution impacts of the plan. This analysis is required for deregulatory actions according to OMB Guidance, released April 5, 2017, which addresses the requirements of Executive Order 13771 of January 30, 2017, "Reducing Regulation and Controlling Regulatory Costs." On July 6, 2018, EPA issued an 18-month enforcement pause of the Phase 2 production limits on glider vehicles, giving the agency more time to formally revisit the provisions. According to a "no-action assurance" memorandum, the agency would exercise its "enforcement discretion" over production caps that apply to the vehicles if they do not meet modern emissions limits. The exercise of such discretion is one of two "interim steps" the agency planned to take to reduce adverse impacts on the industry. The memorandum states that the agency would also plan to formally extend the regulatory compliance date to December 31, 2019. In a July 13, 2018, letter, 13 states—led by California—urged acting EPA Administrator Andrew Wheeler to withdraw or stay the agency's no-action assurance regarding the production limits on glider vehicles, stating that EPA's enforcement discretion "circumvents the substantive and procedural requirements that EPA must meet in order to modify a rule." Further, on July 17, 2018, three environmental groups filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit seeking an emergency stay of EPA's enforcement discretion, citing the need for "urgent relief in order to avert" substantial and irreparable public health consequences while also urging that the court consider immediately vacating the no-action assurance memorandum. On July 18, 2018, in a 2-1 decision, the D.C. Circuit granted an emergency stay of the memorandum to give the court "sufficient opportunity" to consider the emergency motion. The court also ordered EPA to file a response to the emergency motion by July 25, 2018. Because of the emergency stay, EPA cannot implement the no-action assurance memorandum until the court resolves the merits of the motion or orders otherwise. On July 26, 2018, EPA withdrew the no-action assurance. In a memorandum to EPA assistant administrators, Wheeler noted that the agency suspends enforcement only in rare circumstances and that after consulting with EPA lawyers and policy experts, he "concluded that the application of the current regulations to the glider industry does not represent the kind of extremely unusual circumstances that support the EPA's use of enforcement discretion." However, the memo states that the agency would "continue to move as expeditiously as possible on a regulatory revision regarding the requirements that apply to the introduction of glider vehicles into commerce to the extent consistent with statutory requirements and due consideration of air quality impacts." Glider kits and glider vehicles have presented challenges to the interpretation and enforcement of other federal requirements. Some notable examples include safety standards and tax provisions. While representatives from the glider vehicle assembler industry stress that new gliders maintain "modern safety features and amenities," many glider vehicles are not required to do so under existing interpretation set by Department of Transportation (DOT) agencies. NHTSA and other DOT agencies consider a truck to be "newly manufactured" and subject to Federal Motor Vehicle Safety Standards when a new cab is used in its assembly "unless the engine, transmission, and drive axle(s) (as a minimum) of the assembled vehicle are not new, and at least two of these components were taken from the same vehicle." Thus, many glider vehicles may not be classified as "newly manufactured" for the purposes of federal safety standards. Such vehicles would only need to comply with the standards under 49 C.F.R. Part 571, Subpart B, that were promulgated prior to the date of manufacture for the engine, transmission, and drive axle(s) of the assembled vehicle. One example of a recent requirement from which such glider vehicles would be exempt is the standard for Electronic Stability Control promulgated in 2015, which promised to "prevent 40 to 56 percent of untripped rollover crashes and 14 percent of loss-of-control crashes" annually. Under NHTSA's existing definition, glider vehicles could also be exempt from future safety standards for emerging technologies. Safety technologies that could be left off future glider vehicles due to their exemption could include automatic emergency braking (now required in Europe on most new heavy-duty vehicles), lane departure warning and lane-keeping assist, and vehicle-to-vehicle electronic communication. Further, according to guidance published by the Federal Motor Carrier Safety Administration (FMCSA) in July 2017, vehicles equipped with pre-MY 2000 engines are not subject to the requirements for electronic logging devices. As this exemption is based on the model year of the engine—not the chassis—any glider vehicle equipped with a pre-MY 2000 engine would be exempt. The policy deviates from FMCSA's previous guidance, which emphasized the model year as determined by the Vehicle Identification Number on a truck's chassis. The logging device requirement is designed to help reduce fatigue-related crashes by improving enforcement of hours-of-service limits for truck drivers. For more information on truck safety issues, see CRS Report R44792, Commercial Truck Safety: Overview , by David Randall Peterman. Internal Revenue Code (IRC) Section 4051 imposes a 12% excise tax on the first retail sale price of certain heavy trucks, trailers, and tractors. Specifically, "articles" subject to tax under Section 4051 include (1) automobile truck bodies and chassis having a gross vehicle weight of more than 33,000 pounds, (2) truck trailer and semitrailer bodies and chassis suitable for use with a vehicle having a gross weight of more than 26,000 pounds, and (3) tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. A tractor with a gross weight of 19,500 pounds or less is not subject to the 12% tax if its weight when combined with a trailer or semitrailer is 33,000 pounds or less. One issue of confusion among taxpayers in recent years has been whether a glider kit modification or renovation of a heavy truck chassis triggers excise tax liability. According to IRC Section 4052(f)(1), "repairs or modifications" of a taxable article that do not exceed 75% of the retail price of a comparable new vehicle do not trigger excise tax liability, and this provision serves as a taxpayer safe harbor provision from excise tax liability. The safe harbor provision allowed some glider vehicles to avoid triggering the tax. However, in 2014, the IRS Office of Chief Counsel released an advisory memorandum on the tax treatment of chassis renovations in which a glider kit dealer, or "outfitter," combines components (i.e., glider kits) to produce a highway tractor or truck chassis in four hypothetical scenarios. According to the scenarios in the memorandum—which is not official or binding guidance—the first retail sale of vehicles refurbished using new parts from gliders kits can be treated as new vehicles subject to the 12% excise tax. The memorandum also explained that the constructed price of the glider kit vehicle subject to tax should be calculated as the price of the refurbished vehicle plus a 4% markup minus the value of used components provided by the customer. The advisory opinion was based on an interpretation that a glider kit vehicle triggers tax liability because it was effectively a "new vehicle" and that Congress's intent in enacting the Section 4052(f) safe harbor was to apply it only to "repairs" to an "existing vehicle." Some industry representatives and tax planning professionals saw this as a change in previous practice that such refurbishments would not trigger excise tax liability so long as they collectively did not exceed the 75% of price threshold. More recent IRS guidance seems to confirm an enforcement trend toward treating more glider kit vehicles as subject to excise tax. In 2016 and 2017, IRS issued interim guidance on defining what constitutes a "chassis" subject to excise tax under Section 4051. IRS defined a "chassis" as the frame and supporting structure and all those "components" that are attached to it, except for components specifically exempt from tax. The following is a nonexhaustive list of chassis components: engine, axles, transmission, drivetrain, suspension, exhaust aftertreatment system, and cab. Some tax professionals interpret the interim guidance as the IRS requiring that any components that are removed from a previously taxed chassis and are remanufactured or repaired must be put back into the same chassis in order to satisfy the Section 4052(f) safe harbor requirements. On April 24, 2018, the Department of the Treasury issued a press release indicating that it plans to issue final regulations on Section 4051 as part of the Trump Administration's "burden-reducing guidance" projects, but no date of completion or further details were provided. Members of Congress remain divided on EPA's glider vehicle regulations. Recent congressional actions regarding glider kits and vehicles include proposed legislation and agency oversight requests by committees, groups of lawmakers, and individual Member offices. Examples include Representative Diane Black sponsored two amendments in the 114 th Congress to Department of the Interior, Environment, and Related Agencies Appropriations bills ( H.Amdt. 1313 and H.Amdt. 630 ) to prohibit EPA from using funds to implement, administer, or enforce the agency's Phase 2 fuel efficiency and emissions standards or any other rule with respect to glider kits and glider vehicles. Both amendments were agreed to by voice votes, but neither spending bill was enacted. In a March 12, 2018, letter to EPA Administrator Scott Pruitt, Senators Tom Carper and Tom Udall—Ranking Members to the Senate Environment and Public Works Committee and the Senate Appropriations Committee, respectively—asked the agency to provide documentation on the proposed repeal and to "immediately announce plans to withdraw the proposal." In March 2018, 14 Republican Members of Congress—four Senators and 10 Representatives—sent letters to EPA Administrator Scott Pruitt asking the agency to discontinue efforts to repeal the emissions standards for glider vehicles because a repeal would undermine manufacturing industries in their home states. In a May 16, 2018, letter to DOT Secretary Elaine Chao, Representative Bill Posey asked DOT to defer to EPA's proposed repeal. In its response, DOT stated that it "does not currently impose fuel efficiency requirements on glider kits or glider vehicles" and did not plan to do so. At issue in EPA's Phase 2 standards for glider kits and glider vehicles—and in their proposed repeal—are requirements affecting criteria pollutants, not fuel efficiency. In a May 24, 2018, letter to OMB, 24 Members of Congress from both the House and the Senate "who represent manufacturers and/or users of glider kits" urged OMB to waive the requirement for a Regulatory Impact Analysis for the proposed repeal. In a June 21, 2018, letter, Subcommittee Chairman Greg Gianforte on the House Committee on Oversight and Government Reform asked EPA's Office of the Inspector General (OIG) to investigate the November 20, 2017, NVFEL study. The letter cites documents that show communications between EPA scientists and stakeholders in the trucking industry that compete with the glider vehicle assembler industry that may have impacted the "objectivity and legitimacy" of the study. On September 4, 2018, EPA's OIG announced plans to audit the agency's "selection, acquisition and testing of glider vehicles at the EPA's National Vehicle and Fuel Emissions Laboratory, as well as the EPA's planning for this testing." In a July 12, 2018, letter to EPA Acting Administrator Andrew Wheeler, Chairman Lamar Smith and other Members of the House Committee on Science, Space, and Technology asked EPA officials for documents pertaining to, and a briefing on, the NVFEL study, stating concerns similar to those listed in Chairman Gianforte's letter. On August 21, 2018, EPA Assistant Administrator William Wehrum responded to Chairman Smith stating that "relevant staff … have assured me that they designed the test program, performed the testing, and wrote the test report—all independent of any outside stakeholder input." The response stated that EPA would work with the committee to schedule a briefing on the NVFEL glider vehicle testing. In an August 29, 2018, follow-up letter to Acting Administrator Wheeler, Chairman Smith requested additional documents and information in order "to appropriately inform the Committee on the rationale to initiate a testing program and the overall independence of the testing program." The House Committee on Science, Space, and Technology's Subcommittee on Oversight and Subcommittee on Environment have scheduled a hearing entitled "Examining the Underlying Science and Impacts of Glider Truck Regulations" on September 13, 2018. | On October 25, 2016, the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration jointly published the second phase of greenhouse gas (GHG) emissions and fuel efficiency standards for medium- and heavy-duty vehicles and engines. The rule affects commercial long-haul tractor-trailers, vocational vehicles, and heavy-duty pickup trucks and vans. It phases in between model years 2018 and 2027. Under the rulemaking, EPA proposed a number of changes and clarifications for standards respecting "glider kits" and "glider vehicles." A glider kit is a chassis for a tractor-trailer with a frame, front axle, interior and exterior cab, and brakes. It becomes a glider vehicle when an engine, transmission, and rear axle are added. Engines are often salvaged from earlier model year vehicles, remanufactured, and installed in the glider kit. The final manufacturer of the glider vehicle (i.e., the entity that assembles the parts) is typically a different entity than the original manufacturer of the glider kit. Glider kits and glider vehicles are produced arguably for purposes such as allowing the reuse of relatively new powertrains from damaged vehicles. The Phase 2 rule contains GHG and criteria air pollution emission standards for glider vehicles. The rule sets limits for glider vehicles similar to those for new trucks, with some exemptions. Under the rulemaking, EPA and various commentators argued that glider vehicles should be considered "new motor vehicles" under the Clean Air Act (CAA) because of recent changes in the glider market. That is, in the decade leading up to the rulemaking, sales of glider vehicles increased by an order of magnitude—from several hundred annually to several thousand or more. EPA and various commentators interpreted this change to be more than an attempt to replace damaged chassis, seeing it instead as an attempt by glider vehicle assemblers to circumvent various federal regulations. At the time, the older model year engines being used in glider vehicles were not required to meet current EPA emission standards for nitrogen oxide and particulate matter (which began in 2007 and took full effect in 2010). Under the Phase 2 rulemaking, EPA estimated that NOx and PM emissions from glider vehicles using pre-2002 engines (prior to exhaust aftertreatment requirements) could be 20-40 times higher than current engines. Subsequent to the Phase 2 rulemaking, EPA received petitions for reconsideration for, among other provisions, the glider requirements. The petitioners argued that EPA lacks the authority to regulate glider vehicles under the CAA because they could not be considered "new motor vehicles." The petitioners asserted that the benefit of a glider vehicle over a new truck is a more affordable, reliable, and fuel efficient vehicle for purchasing that requires less maintenance, yields less downtime, and yet offers a range of currently available safety features and amenities. On November 16, 2017, EPA (under Administrator Scott Pruitt) proposed to repeal the emission standards and other requirements for heavy-duty glider vehicles, glider engines, and glider kits. On July 26, 2018, EPA (under acting Administrator Andrew Wheeler) stated that it would "move as expeditiously as possible on a regulatory revision regarding the requirements that apply to the introduction of glider vehicles into commerce to the extent consistent with statutory requirements and due consideration of air quality impacts." A rule has not been finalized. Some in Congress have supported the Trump Administration's efforts to reverse the standards and provide relief to the affected glider vehicle assembler industry. However, EPA's efforts to delay and repeal the rule have prompted criticism from some trucking industry officials, state air agencies, environmentalists, and other lawmakers who fear that increasing production of glider vehicles could result in a fractured vehicle market and significantly higher in-use emissions of air pollutants associated with a host of adverse human health effects, including premature mortality. |
I n the 111 th Congress, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) contained a tax cut for business: temporary 50% bonus depreciation (which allows half of the cost of business equipment investment to be deducted when incurred). That provision extended bonus depreciation, enacted for 2008 in the 2008 stimulus, through 2009. Subsequent legislation retroactively extended the provision through 2010 ( P.L. 111-240 ). At the end of December, 2010, a comprehensive tax bill, P.L. 111-312 , extended bonus depreciation through 2011 and increased the share expensed, as of September 8, to 100%. it provided for 50% bonus depreciation for 2012. Discussed but not enacted were proposals to extend the period of time a loss can be carried back (offsetting prior year taxes and resulting in immediate tax savings) from two to five years. A carryback provision was provided for small business (along with some other small business provisions. P.L. 111-312 also extended the Bush tax cuts, including lower rates on capital gains and dividends, which originated as part of a business-related economic stimulus. Most of these provisions were made permanent by P.L. 112-240 , the American Taxpayer Relief Act of 2012; bonus depreciation was extended through 2013. Bonus depreciation originated in 2002, when a variety of corporate tax cut proposals were considered as stimulus proposals. Increased interest in providing business tax cuts to stimulate the economy followed the terrorist attacks of September 11, 2001, which heightened concerns about an economic slowdown. Among the tax proposals that were discussed in the 107 th Congress were a corporate rate cut and an investment credit. An investment credit could be considered on either a temporary or a permanent basis. On October 24, 2001, the House passed H.R. 3090 , which included temporary partial expensing (for three years), a provision similar to an investment credit. The bill also contained some other provisions, including a repeal of the corporate alternative minimum tax and an extension of net operating loss carrybacks. Proposals developed in the Senate contained business tax cuts as well. The Finance Committee chairman's plan included several tax cuts for business: allowing 10% of investments placed in service to be expensed, an increase in expensing dollar limits for small businesses, and some other provisions. The Finance Republican's plan would have provided 30% expensing and repealed the corporate alternative minimum tax, but without refunding accumulated credits immediately as was the case in H.R. 3090 . The 10%, one year, expensing provision was included in the version of H.R. 3090 that was approved by the Senate Finance Committee on November 8, 2001. This bill did not pass the Senate; however, Majority Leader Daschle proposed a streamlined bill (using H.R. 622 as a vehicle) that would include a 30% one year expensing provision. A final version of H.R. 3090 approved in early March of 2002 included the House expensing provision (two years at 30%). This provision was referred to as bonus depreciation. Further action to address business (and investment) tax cuts occurred in the 108 th Congress. At the beginning of 2003, President Bush proposed corporate tax relief in the form of an exclusion for dividends and a step up in basis. This proposal would have provided tax reductions for corporate income to the investors rather than the firm. The effects would probably be similar to corporate rate cuts in the long run, but may have different effects in the short term. In particular, such cuts might be more likely to be translated into spending because they would be received directly by individuals. In H.R. 2 , enacted in May 2003, a provision allowing a 15% maximum tax rate on both dividends and capital gains was enacted; the provision was originally to be effective through 2008. The 2003 legislation also increased the bonus depreciation rate to 50% and extended it through 2004. Bonus depreciation expired at the end of 2004. As the economy recovered, interest in short run stimulus measures diminished. Short run stimulus again became a topic of concern in the aftermath of Hurricane Katrina. Dividend relief and lower capital gains rates were extended in legislation passed in 2006, through 2010, although not on the grounds of short-term stimulus. Recent problems in the mortgage markets and concerns about the economy prompted new interest in fiscal stimulus. The stimulus proposal adopted in February 2008 ( P.L. 110 - 185 ) included two major components: an individual income tax rebate and a temporary bonus depreciation similar to that enacted for 2002-2004 (at 50%). Bonus depreciation has been extended and expanded in recent legislation. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) extended bonus depreciation through 2010; provisions further extended bonus depreciation (in P.L. 111-240 and P.L. 111-315 ), expanded it to 100% for 2011 in P.L. 111-315 which returned to 50% expensing through 2012. As noted above, P.L. 112-240 extended bonus depreciation for an additional year. This report discusses issues associated with the use of business tax subsidies as a fiscal stimulus. First, is fiscal policy appropriate? Second, how successful are subsidies likely to be and what form might they take to be most effective? Finally, what other consequences might flow from the use of business tax subsidies, especially if they are to be permanent? Investment subsidies have typically been provided through an investment tax credit. 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 (within the limits of empirical estimates of depreciation) and repealed the investment tax credit while lowering tax rates. Investment subsidies can also be provided through accelerated depreciation, but these measures tend 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 2008 stimulus proposal ( P.L. 110 - 185 ) returned to bonus depreciation as a stimulus. Historically, corporate rate changes have tended not to be used for counter-cyclical purposes. The interest in corporate tax rate cuts in 2002 appears associated with arguments about the effects of tax changes on stock markets. (A similar argument was made for dividend and capital gains tax cuts.) The repeal of the corporate alternative minimum tax, included in an earlier version of H.R. 3090 in 2001, is similar to a corporate tax rate in some respects, but its effects on marginal investments are uncertain and could possibly discourage investment. A net operating loss carryback provides tax benefits in the same way as a rate cut, but does not stimulate investment, except to the extent it makes the firm able to use other stimulus provisions such as bonus depreciation. It benefits less profitable firms, while a rate reduction benefits more profitable ones (or at least firms with tax liability). Many economists expressed uncertainty about the desirability of an additional fiscal stimulus during the 2002-2003 period and while many economists supported a stimulus more recently in 2008, some uncertainty remained. Moreover, economists have, in general, become more skeptical of fiscal policy as a counter-cyclical tool, particularly through the mechanism of tax cuts. Because of lags in decision-making and administrative lags in getting tax cuts to individuals, a fiscal stimulus enacted through a tax cut can be poorly timed. Finally, in an open economy with flexible exchange rates some of the fiscal stimulus can be offset through a decline in net exports, as increased interest rates attract capital from abroad and bid up the price of the dollar. Concerns about the path of the economy in 2007 and 2008 led to proposals for a fiscal stimulus, including support from the chairman of the Federal Reserve Board, as long as the stimulus occurs quickly. Although the economy was not determined to be in recession at that point, slow growth was projected and investment incentives as well as individual tax rebates were under consideration. The final proposal included temporary bonus depreciation for 2008. The economy remained in recession at the beginning of 2009. The serious problems with the current economy led to much wider support among economists for a major fiscal stimulus, and a second, larger stimulus plan ( P.L. 111-5 ) was adopted, which included a provision to extend bonus depreciation through 2009. Although the economy resumed growing in mid-2009, unemployment has remained high. Some small stimulus proposals enacted during 2010 included, in September, a retroactive extension of bonus depreciation through 2010. As the Bush tax cuts were set to expire and concerns were raised about the effects on the economy; P.L. 111-312 extended the Bush tax cuts through 2012 and extended bonus depreciation through 2012. The share expensed was also increased to 100% for 2011, retroactive to early September 2010. Projections are for unemployment to remain relatively high, and there is some possibility of another slowdown; thus fiscal expansion, and business tax cuts, may continue to be an issue. The objective of a fiscal stimulus is to increase spending, and fiscal policies can differ in the extent to which they induce spending. Although a fiscal stimulus delivered through direct spending has a relatively straightforward effect, a fiscal stimulus delivered via a personal tax cut tends to have a more muted effect on the economy because only part of it will be spent. The smaller the share spent, the smaller the stimulus, although for most types of tax cuts, the presumption is that much of the tax reduction will be spent. There are, however, theoretical reasons to believe that higher-income individuals will spend a smaller fraction of a tax cut, and empirical evidence to support that view. Indeed the propensity to save makes capital gains tax cuts, which have been under discussion, questionable candidates for stimulating aggregate demand. There is also a fear that consumers who feel uncertainty about the future will not spend a tax cut. Note that there is a tension between short-run and long-run fiscal policy. Measures that increase consumption are expansionary in the short run, but may detract from growth in the long run because deficit finance causes aggregate savings to fall (unless the economy is at such a low rate of employment that the stimulus induces sufficient output to offset the loss in savings). That is, government spending and tax reductions financed by deficits tend to crowd out investment. However, if the policy could be in a form that would stimulate investment spending, this negative effect on long run growth might be avoided. Government investment spending, such as spending on infrastructure, is one possibility that could provide a short-run stimulus without detracting much from long-term growth (and can even enhance long-term growth if the productivity of the government investment is greater than the productivity of private investments). However, it is often difficult to enact and implement such spending in a timely fashion. Another policy aimed at expanding investment is a subsidy to private investment spending: if the revenue loss (which adds to the deficit) were spent on investment, there would be no crowding out. There is, however, a caveat: if the type of business subsidy is one that is permanent and not neutral in the long run, the economy will also sustain a permanent loss in efficiency from the misallocation of capital. The success of such a policy hinges on the effectiveness of investment subsidies in inducing spending. It is difficult to determine the effect of a business tax cut, and particularly 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. 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. Why, then, might a business tax cut be considered, and how might alternative tax cuts be evaluated? First, this report considers the empirical evidence, which might determine whether a business subsidy should be considered at all. It then discusses the "bang for the buck," which determines how much of each dollar of cost might be spent. Then it discusses other advantages or disadvantages. 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. This last estimate is a much 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 fast compared to a cut in personal taxes that stimulates consumption. 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 support for a significant effect. They suggest 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 suggests that firms may have found the provision costly to comply with, particularly because most states did not allow bonus depreciation. A 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 report the results of several surveys of firms, where from two-thirds to more than 90% of respondents indicated bonus depreciation had no effect on the timing of investment spending. A study by Hulse and Livingstone found mixed results on the effectiveness of bonus depreciation, which they interpret as weakly supportive of an effect. Overall, bonus depreciation did not appear to be very effective in providing short-term economic stimulus. It is possible, however, that a stimulus during current times could be more successful. This section considers several issues surrounding the optimal design of business tax subsidies. It follows from a principal rationale for choosing an investment subsidy (to prevent longer run loss of productivity due to deficit finance) that policymakers would seek the most powerful incentive per dollar of revenue loss. Three issues arise in evaluating the ratio of induced spending to revenue loss: the general type of tax incentive, whether policymakers can increase the incentive per dollar of revenue loss by making the subsidy temporary , and whether policymakers can be successful by restricting the subsidy to marginal investment. Generally, an investment credit (or other subsidy confined to investment, such as accelerated depreciation) has more "bang for the buck" than a corporate rate cut (or dividend relief) because it does not reduce taxes on the flow of income to existing capital assets. The size of both the absolute amount and the difference between an investment credit and a corporate rate cut depend on the durability of the investment. As derived in Appendix A , a corporate rate cut has an effectiveness compared with an investment credit, given economic depreciation, based on the ratio: (g+d)/(r+d) where g is the normal growth rate, r is the after tax rate of return, d is the economic depreciation rate. Setting g and r to 0.025 and 0.05, respectively, this measure suggests a 69% ratio for structures (assuming d equals .03) and a 88% ratio for equipment (assuming an average depreciation rate of 0.15). As d gets very large, the value approaches 100% and as it gets very small, the value approaches 50%. Thus, a corporate rate cut will stimulate from almost two-thirds to less than 90% as much investment per dollar of revenue loss as an investment subsidy directed at the same type of investment. Note also that the superior performance of the investment credit relative to the corporate rate cut is less pronounced for short-lived assets. This effect occurs because investment is larger relative to the existing capital stock because of the need to replace the stock more frequently. Corporate assets also include non-reproducible capital (e.g., land) that receives a tax reduction with no investment increase, which also reduces the stimulus per dollar of revenue loss. The relative size of the stimulus also depends on the ratio of growth to return and on pre-existing subsidies; at the extreme, with expensing, the corporate rate cut will have no effect. At the same time, short-lived assets may have a somewhat larger absolute "bang for the buck," for an investment credit since the size of the stimulus per dollar of revenue loss is e/(1-uz), where e is the investment demand elasticity and z is the present value of tax depreciation (which is larger for short-lived assets). For the typical equipment investment, if e is -0.25, each dollar of revenue loss from an investment credit produces 35 cents of investment. For structures (assuming the same elasticity), the increase is 28 cents. Even at the high elasticities estimated at -0.66 these increases would not be dollar for dollar: the equipment investment would increase by 92 cents and the structures by 74 cents. (Note, however, that the elasticities could vary across assets, and in particular could be smaller for structures.) Another aspect of an investment credit vs. a corporate rate cut is the degree of certainty about the subsidy. If businesses fear that lower corporate rates will subsequently be raised, they will have less of an incentive to invest. Indeed, a perception that corporate rates could be increased could actually have negative effects on investment (as discussed below). Investment credits, however, are allowed at the time of the investment and are certain, since tax benefits would be highly unlikely to be retroactively disallowed. Some other types of corporate tax changes can be likened more to an investment subsidy or to a rate reduction. An acceleration of depreciation (allowing costs of investments to be deducted more quickly), or allowing expensing (deducting the entire cost when the expenditure is made) for some fraction of investments is like an investment credit. A repeal of the alternative minimum tax provides a benefit for existing assets, but mixed effects on investment, since the marginal tax burden on investments under the minimum tax can be greater than or less than the burden under the regular tax. For firms permanently on the minimum tax, the tax burden on new investment is actually smaller than the tax burden under the regular tax, so that repealing the minimum tax would actually discourage investment in this case. A modification of the minimum tax by allowing accelerated depreciation methods (lives are already equated or virtually equated) would be like an investment subsidy for firms that remain under the alternative minimum tax but could have mixed effects if the change caused firms to switch to the regular tax. It would be less likely to discourage investment than a repeal of the tax. Expanding the net operating loss carry-back periods (or investment tax credit carry-back periods if such a credit were enacted) has a large cash flow effect which is like a corporate rate cut, but it would also allow more firms to benefit more fully from investment subsidies and existing accelerated depreciation. Note that dividend relief is similar to a rate cut in that it affects the return to current investment. If provided to individuals in the form of an exclusion or lower rate rather than to the firm as a deduction, the incentive may be lessened since there is no direct and immediate effect on the firm. Capital gains relief for individuals is even less effective because provides benefits for income accumulated in the past as well as current income. Because investment subsidies act through changes in price, there have been attempts to increase the "bang for the buck." Two methods have been proposed (and could be combined). The first is to make the investment tax credit temporary. Theoretically, a temporary investment subsidy, like the investment credit, would have a more pronounced effect on investment in the short run than a permanent one, and, of course, would cost much less. Like a temporary sale, demand should shift and firms should move planned investment spending forward. It is, however, very hard to find good empirical evidence of this effect, in part because the same problems that have plagued earlier empirical studies remain, among them the fact that temporary subsidies have been enacted during a downturn. And, assuming that investment is only shifted, the crowding out issue still remains. Another of the difficulties with temporary subsidies is that in order for them to have a more powerful effect that permanent subsidies, investors have to believe that such subsidies will, indeed, be temporary. Although the bonus depreciation enacted in 2002, was allowed to expire, it was extended and expanded in 2003, and historical experience teaches otherwise: temporary subsidies have a tendency to become permanent. As noted above, the empirical evidence suggests that even a temporary subsidy was not very effective as an economic stimulus, although the reasons for that are not entirely clear and studies face many difficulties. It is possible that such a stimulus would be more effective currently without the overhang of losses from a recession. Note that a temporary corporate rate cut will have the opposite effect relative to a permanent rate cut: it will have little effect on new investment. In fact, a temporary rate cut could discourage certain types of investment because, due to accelerated depreciation, deductions are larger in the early part of an investment's life than should be the case to reflect economic depreciation, where as they are too small in the later part. In the past, policymakers have also looked into the possibility of incremental investment subsidies that would focus more of the effect on the margin. Such a subsidy was discussed at the beginning of President Clinton's Administration. A subsidy could be more focused on the margin by applying it only to investment in excess of a fixed base. A temporary incremental subsidy is feasible, but it is virtually impossible to design a permanent incremental subsidy. This is a complicated issue, which is discussed in considerable detail in a CRS study written at that time. A final issue in choosing a subsidy is the potential effect on the allocation of capital. A lower corporate tax rate may (up to a point) increase economic efficiency because currently corporate income is taxed more heavily than other types of capital income. A corporate rate is also neutral across different types of assets. Moreover, a corporate tax rate reduction cannot go to the point that investments are subject to negative tax rates. An investment credit, however, has the potential for distorting investment (because it favors short lived assets and is generally applied only to certain categories of investment). It can also easily produce negative tax rates. Moreover, with the present value of depreciation so high because of low inflation rates, and the tax rate much lower than in the past, historical levels of investment credits will produce negative tax rates. Consider five-year property, which accounts for about 44% of investment. Depending on the time of year the investment is made, it is estimated that the present value of depreciation deductions assuming a 7% nominal discount rate (reflecting a 5% real return and a 2% inflation rate) is between 0.86 and 0.89 per dollar of investment. To avoid negative tax rates any investment credit that does not have a basis adjustment (that is, depreciation is allowed on the entire investment not just the cost net of the credit) cannot exceed 3.85% at the higher present value and 4.9% at the lower value. With a basis adjustment, the credit can range between 5.59% and 7%. The zero tax rate is reached when the present value of tax depreciation deductions multiplied by the tax rate plus the credit exceed the tax rate times the investment. If a 10% investment credit without a basis adjustment were enacted, these assets would have a marginal effective tax rate of -122% to -196%, that is, a negative effective tax rate. (The computation of effective tax rates is explained in Appendix B .) Accelerated depreciation methods can be designed to be more neutral, and there are several types of investment subsidies that are relatively neutral at least across the assets they apply to (including partial expensing, allowing credits only for investment in excess of depreciation, or varying credits with asset durability). However, the largest distortion that has typically occurred is between assets eligible for credits or accelerated depreciation and assets that are not eligible, primarily equipment in the former case and structures in the latter case. (Partial expensing in H.R. 3090 is restricted to equipment but is not permanent.) Some arguments have been made in the past that the effect of a business tax change might help the economy by raising the stock market price. It is not clear what consequences a rise in the stock market induced by tax changes might have as an independent influence on the economy, although such a rise might help to maintain consumer confidence in the economic outlook. Some simple calculations of this effect have been discussed based on comparing tax rates. For example, cutting the corporate tax rate from 35% to 25% (a very large cut), which would lead to an increase of around 15% based on the ratio of (1-t*)/(1-t), where t* is the new tax rate of 0.25 and t is the old tax rate of 0.35. This calculation is based on a rational expectations view of the world (rather than any empirical measures of the supply and demand responses in the stock market that some economists would prefer to use). Even so, this analysis is a partial equilibrium one that does not take account of three important effects: the expected adjustment of the capital stock in response to change, adjustment costs of such changes, and the possibility of higher interest rates. These are discussed in turn. Consider a simple adjustment process where a geometric adjustment path occurs. In that case, beginning at time zero, the rate of return t years into the future given a fixed after tax rate of return r will be: p(t) = r/(1-t*) +[ r/(1-t)-r/(1-t*)]e -g t and the after tax rate of return be: r(t) = p(t)(1-t*) If this expression is integrated (summed), after being discounted at rate r, from time zero to infinity (the same approach that produces the original 15% price increase), the increase in the stock market price will be [(1-t*)/(1-t)][r/(r+g)]. If g is, say, equal to r, then the initial effect on the stock market will be only half as big. This value will also begin to fall as time goes on until it returns to its original value. Secondly, the value will be reduced if the firm faces adjustment (temporary loss of productivity due to alteration of the productive processes). How quickly this adjustment path occurs and the magnitude of adjustment costs is something that relatively little is known about in an empirical sense, but it will clearly reduce, perhaps significantly, the initial increase in value. The second problem with the analysis of stock market effects is that it not only assumes no adjustment costs but assumes there are no other effects in the economy that might alter the rate at which earnings are discounted. But the interest rate will almost certainly rise. Indeed, in a simple world, with only one asset and a fixed savings rate (even ignoring the resource claims on the deficit by assuming the revenue is made up elsewhere), a tax cut simply increases the after tax rate of return, and raises the discount rate just enough to offset the rate cut. The result is that there would be no effect on the stock market. This criticism is perhaps a more serious one which could greatly reduce any potential effect on the stock market. But, without a general equilibrium analysis, such an effect cannot be estimated. Indeed, it could be argued that the future tax cuts are causing the stock market values to decrease by increasing future interest rates (and also discouraging investment for the same reason). Note that, according to this type of analysis, the effect of an investment credit on the stock market can either raise or lower stock prices. While profits rise in the short run, in the long run the value of financial assets relative to the physical value of the firm's assets falls. If the investment credit were 10%, for example, the asset value would fall by 10%. With two opposing forces in play, the initial effect on the stock market is uncertain according to rational expectations theory, which may be one of the reasons that some analysts have proposed a rate cut rather than an investment credit. For those economists who doubt that a rational expectations approach is the best method of predicting the effects on the stock market in the short run, however, the inclination would be to expect an initial rise in the stock market from either policy as more investors choose to buy stocks. The magnitude of these effects is, however, difficult to determine, but is likely not to be very large relative to the other short-run swings in the market. Such a view would suggest that considerations of the stock market not play an important role in evaluating alternative counter-cyclical tax instruments. 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, while more effective than corporate rate cuts in the short run, will distort the allocation of investment in the long run. Appendix A. Measuring "Bang for the Buck" The rental price of capital, with an investment credit (without a basis adjustment) is: (1) where c is the price of capital, r is the after tax rate of return to corporate investment, u is the corporate tax rate, d is the economic depreciation rate, z is the present value of depreciation deductions and k is the investment tax credit. Take logs and differentiate this expression with respect to k, assuming an initial rate of the credit of zero, the following expression for the percentage change in the cost of capital is obtained: (2) Denote the elasticity of investment with respect to the price of capital as (3) , where e is the elasticity and I is investment. By substituting (2) into (3) and rearranging, obtained is: (4) This incentive can also be related to the revenue cost, which is , hence the ratio of stimulus per dollar of revenue loss is . This stimulus is bigger for shorter lived assets (assuming the elasticities are the same). Compare the effect of a rate reduction. Differentiating (1) with respect to u we obtain, dividing by c and substituting into (4), the effect on investment of a rate reduction is obtained: (5) How does this compare with revenue? The only way to make a fair comparison between an investment credit that appears only in the first year and applies to new investment, and a rate reduction that lasts over the entire life of the investment but also benefits existing capital is to compare investment per present value of revenue cost. The present value of the cost of an investment credit if investment grows at rate g and is discounted at rate r is . The effect on today's investment per present value of revenue loss is therefore . Taxable income is the rental price of capital c (the marginal product of capital) times the capital stock minus the flow of depreciation. The flow of depreciation per unit of investment today, in a steady state, is the same as the present value of depreciation formula discounted at the growth rate rather than the rate of return. Thus the cost of a rate reductions is du (cK - Izg) where zg is the depreciation formula discounted at the growth rate g. Since I equals the effect on today's investment per present value of revenue loss is: Therefore the ratio of the cost of an investment credit to the cost of a corporate rate reduction is somewhat complicated, but when depreciation is economic depreciation, the ratio simplifies to: (5) [where CoIC = Cost of Investment Credit, CoCRC = Cost of Corporate Rate Cut]. Appendix B. Measuring Marginal Effective Tax Rates A marginal effective tax rate is determined by a discounted cash flow analysis, where the internal rate of return with and without taxes is compared. This type of measure can take into account all of the timing effects, which are the crucial features of certain tax preferences, including accelerated depreciation and deferral of taxes on capital gains until realization. In the case of a depreciating asset, the relationship between pre-tax return and after tax return in the corporate sector is determined by the rental price formula: (6) where is the pre-tax real return, is the after tax discount rate of the firm, d is the economic depreciation rate, u is the statutory tax rate of the firm (equal to the corporate tax rate for corporate production and equal to the individual tax rate for non-corporate production), z is the present value of depreciation deductions for tax purposes, k is the investment tax credit rate, and m is the fraction of k that reduces the basis for depreciation purposes. The value of depreciation is discounted at the nominal discount rate, , where is the rate of inflation. This formula applies to investments in equipment and structures that are subject to depreciation. The effective tax rate is measured as . | Business tax cuts were part of the economic stimulus, included in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), provisions that were subsequently extended (in P.L. 111-240 and P.L. 111-315) by the American Taxpayer Relief Act of 2012, P.L. 112-240. The most important provision is bonus depreciation, which extends to the end of 2013. Bonus depreciations provisions were enacted in 2002, as increased interest in providing business tax cuts to stimulate the economy followed the terrorist attacks of 2001, which heightened concerns about an economic slowdown. Among the tax proposals discussed at that time were a corporate rate cut and an investment subsidy. A March 2002 tax cut contained temporary partial expensing (bonus depreciation) for equipment. Interest in this issue continued, including proposals by President Bush for reductions in taxes on corporations through temporary dividend relief, which were enacted in May 2003. The temporary bonus depreciation expired at the end of 2004. Dividend relief was extended through 2010 in legislation passed in 2006. Temporary bonus depreciation was also part of a recent fiscal stimulus package adopted in 2008 (P.L. 110-185) and 2009 (P.L. 111-5) and has subsequently been extended and expanded. Some economists doubt the efficacy of fiscal policy in general even when a stimulus is needed, especially in an open economy and given the difficulties of achieving proper timing. Also, deficit financing of a tax cut has potential negative long run effects because it crowds out investment; a stimulus designed to increase investment spending (rather than consumption spending) would, if successful, reduce that negative effect. Investment subsidies had largely been abandoned as counter-cyclical devices over the last two decades, in part because of lack of evidence from statistical studies relating investment spending to the cost of capital. Some recent empirical evidence has found some larger effects, at least with some studies, although not enough to suggest that all of the tax cut is spent (especially with corporate rate reductions). Moreover, the average behavioral response identified in these studies may be larger than responses during a downturn when many firms have excess capacities, and planning lags may make investment responses poorly timed. Recent studies of the 2002 temporary investment stimulus tended to find it a relatively ineffective stimulus measure. An investment subsidy has more "bang-for-the-buck" than a corporate rate cut (or dividend relief), since the latter benefits existing as well as new capital. A corporate rate cut is estimated to produce as little as two-thirds of the investment induced by an investment credit with an equivalent revenue loss. The historically most common investment subsidy is the investment credit, although the same effect could be achieved with accelerated depreciation or partial expensing. A temporary investment credit should be more effective than a permanent one, and a temporary investment credit could also be made incremental. (It is not possible to structure a permanent incremental credit.) One disadvantage of a permanent investment credit is that it distorts the allocation of investment and can easily produce negative tax rates. A 10% investment credit would produce negative tax rates in excess of 100% for short-lived assets. Arguments were made for a corporate tax rate cut because of estimated large effects on the stock market. These calculations are overstated because they do not account for the adjustment process and of interest rate increases. Given the uncertainty about the size of stock market effects or their beneficial effect on the economy, there is a case for not considering stock market effects an important factor in choosing an investment subsidy. This report will be updated to reflect major legislative developments. |
Member-to-Member correspondence has long been used in Congress. For example, since early House rules permitted measures to be introduced only in a manner involving the "explicit approval of the full chamber," Representatives needed permission from other Members to introduce legislation. A common communication medium for soliciting support for this action was a letter to colleagues. For example, Representative Abraham Lincoln, in 1849, formally notified his colleagues in writing that he intended to seek their authorization to introduce a bill to abolish slavery in the District of Columbia. The use of the phrase "Dear Colleague" has been used since at least early in the 20 th century to refer to a letter widely distributed among Members. In 1913, the New York Times included the text of a "Dear Colleague" letter written by Representative Finley H. Gray to Representative Robert N. Page in which Gray outlined his "conceptions of a fit and proper manner" in which Members of the House should "show their respect for the President" and "express their well wishes" to the first family. In 1916, the Washington Post included the text of a "Dear Colleague" letter written by Representative William P. Borland and distributed to colleagues on the House floor. The letter provided an explanation of an amendment he had offered to a House bill. A "Dear Colleague" letter is official correspondence that is sent by a Member, committee, or officer of the House of Representatives or Senate and that is widely distributed to other congressional offices. These letters frequently begin with the salutation "Dear Colleague." The length of such correspondence varies, with a typical "Dear Colleague" running one to two pages. A "Dear Colleague" letter may be circulated in paper through internal mail, distributed on the chamber floor, or sent electronically. "Dear Colleague" letters are often used to encourage others to co-sponsor, support, or oppose a bill. "Dear Colleague" letters concerning a bill or resolution generally include a description of the legislation or other subject matter along with a reason or reasons for support or opposition. Additionally, "Dear Colleague" letters are used to inform Members and their offices about events connected to congressional business or modifications to House or Senate operations. The Committee on House Administration and the Senate Committee on Rules and Administration, for example, routinely circulate "Dear Colleague" letters to Members concerning matters that affect House or Senate operations, such as House changes to computer password policies or a reminder about Senate restrictions on mass mailings prior to elections. Congress has recently expanded its use of the Internet and electronic devices to facilitate distribution of legislative documents. Consequently, electronic "Dear Colleague" letters can be disseminated via internal networks in the House and Senate, supplementing or supplanting paper forms of the letters. Electronic communication has increased the speed and facilitated the process of distributing "Dear Colleague" letters. The House has developed a web-based distribution system—the e -"Dear Colleague" system. Unveiled in 2008, this system replaced an e-mail-based system. The e -"Dear Colleague" system allows Members and staff to attach issue terms to "Dear Colleague" letters, to send letters with graphics and hyperlinks, and to subscribe to "Dear Colleague" letters based on issue terms. Additionally, the e -"Dear Colleague" system contains a searchable archive of all letters. "Dear Colleague" letters may still be sent as a paper letter. For paper letters, the House has specific mailing requirements, including the number of copies required and the schedule for delivery to Member offices. This report first analyzes the volume of electronic "Dear Colleague" letters in the House of Representatives since 2003. The report then analyzes data from the e-"Dear Colleague" system to reveal what can now be known about the use of "Dear Colleague" letters in the House and explores some hypotheses that might explain the data. The report concludes with questions for potential future development of the e -"Dear Colleague" system. The existence of the e-mail "Dear Colleague" system and the web-based e -"Dear Colleague" system means that data on House "Dear Colleague" letters are available beginning in 2003. For the analysis in this report, these data were divided into two datasets. The first dataset, which contains the total number of "Dear Colleague" letters between January 2003 and December 2010, allowed examination of the volume of "Dear Colleague" letters sent. For "Dear Colleague" letters sent between January 2003 and December 2008, data were collected from the archive of e-mail letters collected in the Legislative Information System (LIS). The e -"Dear Colleague" system was used to obtain data on letters sent between January 2009 and December 2010. The second dataset comprises all "Dear Colleague" letters sent between January 2009 and December 2010 through the e -"Dear Colleague" system. This dataset was used to examine how the e -"Dear Colleague" system was used by Members, committees, and officers of the House. For each letter, the date sent, the letter's associated issue terms, the sending office, the letter's title, and any associated bills or resolutions were downloaded. These data were then coded by the Congressional Research Service (CRS) for the letter's purpose, the type of office that sent the letter (Member, committee, House officer, or congressional commission), the political party of the sender (if relevant), and the final disposition of legislation associated with the letter (if any). For the purpose of this report, all analyses were based on "Dear Colleague" letters sent electronically, including letters sent through the e-mail system or the web-based e -"Dear Colleague" system. Paper copies of "Dear Colleague" letters were not included in the analyses since there had been no consistent effort to collect or track these "Dear Colleague" letters. Overall, the number of "Dear Colleague" letters sent electronically between 2003 and 2010 increased each year. Using the first dataset to examine the volume of "Dear Colleague" letters sent electronically, Figure 1 shows the number of "Dear Colleague" letters sent annually from 2003 to 2010. In those years, a total of 78,279 "Dear Colleague" letters were sent electronically. In the 111 th Congress (2009-2010) alone, however, 31,768 "Dear Colleague" letters were sent. The overall increase in the number of electronic "Dear Colleague" letters between 2003 and 2010 might be explained in part by increased use of electronic communications tools in the House. E-mail and webpages are no longer the only electronic communication tools available to Members, committees, and officers. As congressional offices have become more comfortable using social media, such as Facebook, Twitter, and YouTube, to communicate with their constituents, their comfort level with using electronic "Dear Colleague" letters to communicate with other Members, committees, and officers might have also increased. Additionally, the ease of communicating electronically might have contributed to the large number of "Dear Colleague" letters, as this form of communication easily accommodates Washington schedules, rapid response to events, and other aspects of the congressional work environment. Examining the number of electronic "Dear Colleague" letters sent each year provides an overall picture of the increased use of e-mail and web-based distribution. Examining the average number of letters sent each month provides a more detailed look at the distribution of "Dear Colleague" letters over an entire Congress. Figure 2 shows (1) the average number of "Dear Colleague" letters sent each month over the four Congresses that occurred from 2003 to 2010 and (2) the average aggregate over the first and second sessions of each Congress. Between 2003 and 2010, an average of 831 "Dear Colleague" letters were sent each month. As Figure 2 shows, the pattern of "Dear Colleague" letters aligned with the overall congressional work schedule. Between January and September, the number of "Dear Colleague" letters sent in the first and second sessions was fairly similar. After September, however, the pattern in the number of "Dear Colleague" letter changed between the first and second sessions. The volume in September was relatively high in both sessions, but there was a drop-off beginning in October of the second session. For August, there was a significant reduction in the number of "Dear Colleague" letters sent. Primarily, this reduction occurred because of the month-long district work period (recess) that is normally scheduled. As a result of the district work period, Members are likely more focused on constituent service and reelection activities than on introduction of legislation and public policy. Following the August recess, there was an overall decline in the number of "Dear Colleague" letters sent. The decline, however, was more pronounced in the second session. In fact, in October of a first session, there was actually an increase in the number of "Dear Colleague" letters sent before the number of letters declines in November and December. For the second session, after approximately 1,000 letters sent in an average September, the number of "Dear Colleague" letters fell off dramatically for the remainder of the Congress. The drop-off in letters in the last months of the first session was likely the result of a declining workload in the fall of most Congresses. Additionally, the drop-off mirrors a traditional congressional recess at Thanksgiving and sine die adjournment before Christmas. During this time, generally the number of legislative decisions declines and fewer pieces of legislation are introduced. During the second session, the drop-off in "Dear Colleague" letters can likely be explained by the congressional election cycle. Beginning sometime in October, Congress adjourns for a period leading up to the November election, allowing Members to spend time in their district and campaign for reelection. Use of the "Dear Colleague" system during this time is limited, as Members are focused on electoral, not legislative, activities. Following the election, generally the overall congressional workload in any lame-duck session is reduced as Congress meets for brief periods on a limited agenda, the parties work to organize for the next Congress, Members who were reelected devise future legislative and representational strategies, and Members who were not reelected work on closing their offices. The data suggest that Members send "Dear Colleague" letters around the House's legislative calendar and around legislative opportunities to initiate new bills and to influence floor actions. Sending "Dear Colleague" letters during longer breaks and during the final months of the second session are not likely to be as effective as sending letters when the House is in session and during the most legislatively active months. "Dear Colleague" letters reach their target audience if they are sent when Members are in Washington. The analysis in this and subsequent sections uses the second dataset of "Dear Colleague" letters: those sent in the 111 th Congress (2009-2010). While Members, House officers, committees, and House commissions may send "Dear Colleague" letters, Members accounted for 94% (26,380) of all "Dear Colleague" letters sent in the 111 th Congress. Committees sent the next highest volume of "Dear Colleague" letters with 5% (1,396 letters), followed by House officers with 0.6% (158 letters), and House commissions with 0.5% (134 letters). That Members send an overwhelming majority of "Dear Colleague" letters is expected, as the majority of "Dear Colleague" letters are sent to request legislative co-sponsors. While committees only account for 5% of "Dear Colleague" letters, it is possible that the number of "Dear Colleague" letters dealing with committee activities is greater than 5%, since committee members may have sent "Dear Colleague" letters in their own name rather than under a committee's banner. In this case, a letter would have been counted as a Member letter. In the 111 th Congress, 82.5% of all Member letters were sent by Democrats and 17.5% were sent by Republicans. These numbers are not descriptively representative of the House membership for the 111 th Congress. Overall, the 111 th Congress was 59% Democratic and 41% Republican. The difference between the membership of the 111 th Congress and the party affiliation of "Dear Colleague" letter senders may result from one party having placed greater emphasis on using the e -"Dear Colleague" system than the other. It is also possible that, when Members from different parties co-sponsored legislation, only one majority party Member sent a "Dear Colleague" letter on behalf of his or her colleagues. Additionally, because the majority has more opportunities to schedule and direct legislation in the House, majority Members might have been more likely to use the "Dear Colleague" system to express their views and solicit support for their proposals. "Dear Colleague" letters are often used to encourage others to co-sponsor, support, or oppose a bill or resolution. "Dear Colleague" letters concerning a bill or resolution generally include a description of the legislation along with a reason or reasons for support or opposition. For example, a "Dear Colleague" letter sent during the 111 th Congress solicited co-sponsors for H.R. 483 , the Victims of Crime Preservation Fund Act of 2009, and H.R. 3402 , the Crime Victims Fund Preservation Act of 2009. The "Dear Colleague" letter asked for other Members to co-sponsor the bills and then explained why the issue was important. Additionally, "Dear Colleague" letters are used to inform Members and their offices about events connected to congressional business or modifications to chamber operations. The Committee on House Administration, for example, routinely circulates "Dear Colleague" letters to Members concerning matters that affect House operations, such as the announcement in the 111 th Congress of support for Apple iPhones on the House network. Other characteristics and purposes are described below. When a Member, officer, committee, or commission uses the e -"Dear Colleague" system to send a letter electronically, the sender may categorize the letter with up to three issue terms (see Table 1 for a list of categories). When the letter is sent, the categories are included with the "Dear Colleague" letter and are displayed in the subject line of the e-mail sent to subscribers. In the 111 th Congress, a majority of offices (52.6%) chose to assign three categories, the maximum, to their letters, while 26.6% of offices assigned two categories, and 20.8% assigned one category. The available categories were drafted by the Committee on House Administration and the House Chief Administrative Officer based on conversations with offices that used the earlier e-mail-based system and the categories that appeared most frequently on "Dear Colleague" letters sent through that system. The categories have not been updated or changed since they were initially approved by the Committee on House Administration in 2008. Table 1 shows that some categories were used more frequently by senders than others. If an office wanted to assign more than three categories to a letter, it may have sent the letter multiple times. Sending the letter multiple times with different issue terms assigned may have made it possible to reach a wider House audience. Table 1 lists the 32 available categories and the number and percentage of "Dear Colleague" letters associated with each category. In the 111 th Congress, the most popular categories were health care (8.8%) and foreign affairs (7.9%), followed by education (6.0%), family issues (5.8%), economy (5.6%), and environment (5.4%). When evaluating the data, it is important to note that the sender selects a category. While it is possible that some of the self-assigned categories do not accurately reflect the content of a "Dear Colleague" letter, the top six categories mirror the House's legislative focus during the 111 th Congress. To determine the purpose of each "Dear Colleague" letter sent during the 111 th Congress, the author of this report examined each letter for content and placed each letter into one of five categories that described the purpose of the letter. These categories were 1. elicited co-sponsors for legislation; 2. collected signatures for letters to executive branch officials or congressional leadership; 3. invited other Members and staff to events; 4. provided information or advocated on public policy, floor action, or amendments; and 5. announced administrative policies of the House. For letters that expressed multiple goals, the most prominent purpose (i.e., listed in the subject line, header, or first sentence of the letter) was coded. For example, a "Dear Colleague" letter that asked for co-sponsorship often also provided information on public policy or floor action. The author, however, by placing the word "co-sponsor" in the subject line and asking other Members to contact his or her office to co-sponsor a bill or resolution, highlighted co-sponsor solicitation over other goals. Table 2 lists the purposes of letters in the 111 th Congress and the number of letters associated with each purpose. Eliciting co-sponsors was the most common reason for sending "Dear Colleague" letters (53%) in the 111 th Congress. Overall for the Congress, 8,789 bills, resolutions, concurrent resolutions, and joint resolutions were introduced in the House. While the number of co-sponsors for any given piece of House legislation varied (from 0 to 425), the average number of co-sponsors was 17.9. In the 111 th Congress, 1,636 bills, resolutions, concurrent resolutions and joint resolutions were linked with a "Dear Colleague" letter. For this legislation, the average number of co-sponsors was greater than for legislation not associated with a "Dear Colleague" letter. For legislation linked with a "Dear Colleague" letter, the average number of co-sponsors was 38.2. Measuring the exact impact of a "Dear Colleague" on the outcome of any given piece of legislation is not possible. What the data can provide is a glimpse into any variance between the number of co-sponsors for enacted bills with an associated "Dear Colleague" letter and those without. In the 111 th Congress, 265 House bills became law. Of these public laws, 50 (19%) had "Dear Colleague" letters attached to the underlying legislation and 215 (81%) did not. For public laws that had a "Dear Colleague" letter, the underlying House legislation had a higher average number of co-sponsors (74) compared with the underlying House legislation that did not have an associated letter (16). For simple resolutions (H.Res.), the numbers are similar. Of the 1,784 simple resolutions introduced in the House in the 111 th Congress, 894 (50%) were agreed to, two failed to pass the House (0.11%), 836 (47%) were introduced and referred to a committee or subcommittee, and 35 (2%) were reported by a committee but not scheduled for consideration in the House. Additionally, 17 (1%) simple resolutions were tabled on the floor. For simple resolutions that were agreed to in the House, 155 were associated with a "Dear Colleague" letter and 739 were not. Resolutions associated with a "Dear Colleague" letter had an average of 50 co-sponsors, while resolutions not associated with a "Dear Colleague" letter had an average of 24. In addition to eliciting co-sponsors, "Dear Colleague" letters were also used to invite other Members or staff to a briefing or to join a caucus (18.3%). "Dear Colleague" letters provide an opportunity to promote events directly to fellow Members and their staff. For example, a Member sent a "Dear Colleague" letter in June 2010 inviting other Members and staff to a "special briefing" on food security with panelists from the United Nations and the United States Agency for International Development (USAID). "Dear Colleague" letters were often used to solicit other Members to co-sign letters to congressional leadership, committee chairs, and executive branch officials (20.8%). Sending letters to executive branch officials or congressional leadership can be an important tool for Members seeking to influence policymaking. A letter to congressional leadership, committee chairs, or the executive branch with multiple signers, can be used to express Members' opinion on legislation pending before the House or on executive branch policy implementation. For example, the House Committee on Foreign Affairs used a "Dear Colleague" letter to solicit signatures on a letter to President Barack Obama expressing the need for tighter sanctions against Syria. The "Dear Colleague" letter outlined the committee signer's beliefs on why sanctions were important and why other Members should consider signing on. Additionally, the "Dear Colleague" letter provided the text of the letter that would be sent to the White House. Members, committees, and commissions also used "Dear Colleague" letters to provide information to other Members (6.7%). Informational "Dear Colleague" letters included letters that shared newspaper articles, explained a Member's position on a bill, or encouraged support or defeat of measures being considered on the House floor. For example, in June 2010, a Member sent a "Dear Colleague" letter encouraging other Members not to support H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010. The letter shared a letter from the leaders of beer, wine, and sprits associations asking Congress "to preserve the effectiveness of the existing state-based alcohol regulatory system," and outlining the Member's position on the bill. Finally, officers of the House and committees used "Dear Colleague" letters to make administrative announcements (1.2%). These announcements in the 111 th Congress included a restatement of mileage reimbursement rates, special event procedures (e.g., ticketing for House gallery seating), or application of House rules to specific events (e.g., the use of official funds for travel to funerals). The current "Dear Colleague" distribution system provides Members with the option of linking a "Dear Colleague" letter to a specific bill or resolution. Approximately 59.3% of "Dear Colleague" letters were linked in the e -"Dear Colleague" system to legislation in the 111 th Congress. Table 3 shows the type of legislation linked to "Dear Colleague" letters and the overall percentage of legislation introduced in the 111 th Congress. The majority (78.1%) of "Dear Colleague" letters linked to legislation discussed a House bill. Typically, these "Dear Colleague" letters asked for co-sponsors, but they also advocated a position prior to a floor vote or solicited other Members to cosign letters to the administration on public law implementation. The same goals for sending a "Dear Colleague" letter was presumably true for House resolutions. Bills and resolutions associated with a "Dear Colleague" letter were referred to all House committees that have legislative authority. Table 4 shows the primary or sole committee referral for legislation linked to "Dear Colleague" letters and the primary or sole committee of referral for all bills and resolutions introduced in the during the 111 th Congress. The most common committee of referral for legislation linked to "Dear Colleague" letters were similar to the most common primary or sole committee of referral for all legislation. Since the adoption and implementation of the e -"Dear Colleague" system in August 2008, the number of "Dear Colleague" letters sent in the House has continued to increase. In light of the analysis of the volume, use, characteristics, and purpose of "Dear Colleague" letters, several possible administrative and operational questions could be raised to aid the House in future discussions of the e -"Dear Colleague" system. These questions can be divided into two broad categories: questions about the volume of letters and questions about the characteristics and purpose of letters. As the e -"Dear Colleague" system continues to process and archive a higher volume of letters on an annual basis, consideration of the capacity of the system to deliver and archive "Dear Colleague" letters may be necessary. Can the current software or infrastructure handle a continuing increase in the number of "Dear Colleague" letters? Can the current system handle the indefinite archiving of "Dear Colleague" letters? The ability for Members, committees, officers, congressional commissions, and researchers to access historic "Dear Colleague" letters is an invaluable addition of the e -"Dear Colleague" system. Ensuring that this form of internal communication continues to be available would provide a new dimension to research and analysis on past legislative and administrative actions in the House. Additionally, as the number of "Dear Colleague" letters increases, how Member and committee offices handle the receipt of letters could be important. Under the current system, individual staff can receive (by subscription) "Dear Colleague" letters of interest to them. As the number of letters increase and the number of letters with cross-listed categories grows, individual subscribers could begin receiving a single letter multiple times. Creating a process at the system level to help subscribers manage letters might alleviate problems associated with receiving multiple copies of a single letter. Examining the characteristics and purpose of "Dear Colleague" letters in the House raises several questions about additions to the current system that might aid subscribers. First, the addition of information on a letter's purpose could refine the targeting of letters to the correct audience. For example, if a letter was sent to generate bill or resolution co-sponsors, labeling the letter as such would allow subscribers to immediately identify the letter's purpose. Such a label has the potential to ensure that other Members see the request for co-sponsorship and the overall topic of the letter in an expedited manner. Second, creating a linkage between "Dear Colleague" letters discussing pending legislation and the Legislative Information System (LIS) might be useful for Member and committee offices. Such a linkage would allow Members and committees to identify "Dear Colleague" letters associated with specific legislation without searching the e -"Dear Colleague" website. Listing relevant "Dear Colleague" letters in LIS could also improve the visibility of letters and attract additional interest from individuals who had not received the letter through their subscriptions. Third, creating additional issue terms could help "Dear Colleague" letter senders better target their letters. Having additional issue term choices would allow interested subscribers to more narrowly refine the types of letters they receive, thus diminishing the overall number of potentially superfluous letters they receive. Creating additional issue terms, however, could also result in an additional influx of letters for subscribers. So long as a limit of three issue terms is placed on each letter, when a sender wants a letter in more than three issue terms the letter must be sent multiple times. Adding additional issue terms may increase the number of cross-posted letters, creating additional work for subscribers to sort through the "Dear Colleague" correspondence. Finally, since the majority of "Dear Colleague" letters are sent to request bill or resolution co-sponsors, an automated way of handling responses to co-sponsorship requests might be useful. Under the current e -"Dear Colleague" system, individual offices are responsible for fielding and processing requests for co-sponsorship. If a new feature could be developed to compile positive responses for co-sponsors, Member offices could be relieved of compiling co-sponsorship lists. The use of electronic "Dear Colleague" letters has increased since 2003. With the introduction of the e -"Dear Colleague" distribution system in 2008, the number of "Dear Colleague" letters sent on an annual basis continues to increase. In 2003, 5,161 "Dear Colleague" letters were sent, while in 2010, 14,531 letters were sent in the House. This report analyzed the number of "Dear Colleague" letters sent and showed that overall more letters were sent during the first session of a Congress than the second session. Additionally, the average number of "Dear Colleague" letters sent in the second session declined between September and December, which coincides with a decline in overall legislative activity at the end of a Congress. During the 111 th Congress, data from the web-based e -"Dear Colleague" system showed that Members sent the most letters (94%), and that the most popular topics were health care (8.8%), foreign affairs (7.9%), education (6.0%), family issues (5.8%), the economy (5.6%), and the environment (5.4%). The data demonstrated that the most frequent use of "Dear Colleague" letters in the 111 th Congress was to elicit legislative co-sponsors (53%). Finally, when examining "Dear Colleague" letters that were linked to a specific piece of legislation, the data showed that public laws with a linked "Dear Colleague" letter had a greater number of average co-sponsors (74) than public laws without an associated "Dear Colleague" letter (16). The same can also be said for House resolutions, where resolutions associated with a "Dear Colleague" letter had an average of 50 co-sponsors and resolutions not associated with a "Dear Colleague" letter had average of 24. | The practice of writing "Dear Colleague" letters—official written correspondence from one Member, committee, or office to other Members, committees, or offices—dates back to at least the 1800s. Yet until recently, it was almost impossible to track the volume or purpose of "Dear Colleague" letters because a centralized, searchable system did not exist. The creation of the web-based e-"Dear Colleague" system has made it possible to systematically examine "Dear Colleague" letters, thereby offering a clearer understanding of what are largely, but not exclusively, intra-chamber communications. In analyzing data on the volume of "Dear Colleague" letters sent between January 2003 and December 2010, several discernable trends can be observed. Overall, the total number of "Dear Colleague" letters sent continued to increase, from 5,161 "Dear Colleague" letters sent in 2003 to 14,531 letters sent in 2010. Additionally, the data show that overall more letters were sent during the first session of a Congress than the second session, and that the average number of "Dear Colleague" letters sent in the second session declined between September and December. This fall-off coincides with a decline in overall legislative activity at the end of a Congress. During the 111th Congress, data from the web-based e-"Dear Colleague" system showed that Members sent the most letters (94%), and that the most popular topics were health care (8.8%) and foreign affairs (7.9%), followed by education (6.0%), family issues (5.8%), economy (5.6%), and environment (5.4%). The data demonstrated that the most frequent use of "Dear Colleague" letters in the 111th Congress was to elicit bill and resolution co-sponsors (53%). Finally, when examining "Dear Colleague" letters that were linked to a specific piece of legislation, the data showed that public laws with a linked "Dear Colleague" letter had a greater number of average co-sponsors (74) than public laws without an associated "Dear Colleague" letter (16). The same can also be said for House resolutions, where resolutions associated with a "Dear Colleague" letter had an average of 50 co-sponsors and resolutions not associated with a "Dear Colleague" letter had an average of 24. In light of the analysis of the volume, use, characteristics, and purpose of "Dear Colleague" letters, several possible administrative and operations questions are raised to aid the House in future discussions of the e-"Dear Colleague" system. These include questions on handling the growth in volume of "Dear Colleague" letters sent per year, and the potential to create additional mechanisms within the e-"Dear Colleague" system to aid subscribers in managing the "Dear Colleague" letters they receive. For a brief explanation on how to send "Dear Colleague" letters, see CRS Report RL34636, "Dear Colleague" Letters: Current Practices, by [author name scrubbed]. |
The federal budget process involves both Congress and the executive branch. The Constitution provides in Article I that "no money shall be drawn from the Treasury but in consequence of appropriations made by law.... " Article II stipulates that the President "shall take care that the laws be faithfully executed." The practice of impoundment reflects this sharing of powers between the branches in the implementation of the federal budget. The term "impoundment" refers to executive actions to withhold or delay the spending of funds provided in law. The term "rescission" denotes one type of impoundment, that involving permanent cancellation of the funds. While instances of presidential impoundment date back to the early 19 th century, Presidents usually sought accommodation rather than confrontation with Congress. This changed during the Nixon Administration (1969-1974), when impoundment of funds developed into a major conflict, eventually involving the courts as well as Congress and the President. This report begins by reviewing the framework for handling rescissions established by the Impoundment Control Act of 1974 (ICA, 88 Stat. 332) and by amendments to it in 1987 (101 Stat. 786). A section with review and analysis of data on rescission requests and outcomes pursuant to the 1974 law follows, including comparisons among the respective Administrations. Attention then turns to actions which took place during the brief period that the Line Item Veto Act of 1996 (LIVA, P.L. 104-130 , 110 Stat. 1200) was in force. President George W. Bush sent no formal ICA rescission requests to Congress, but some controversy developed over his use of "cancellation statements" proposing spending reductions. The final section of the report provides some concluding observations. The Impoundment Control Act (ICA) was included as Title X of the Congressional Budget and Impoundment Control Act of 1974, signed into law on June 12, 1974 (88 Stat. 332). The act established two categories of impoundments: deferrals, or temporary delays in funding availability; and rescissions, or permanent cancellation of the designated budget authority. The ICA also established new reporting requirements that remain in effect. The 1974 law required the President to inform Congress of all proposed rescissions and deferrals and to submit specified information regarding each such action in a special message. The President may combine several rescission requests in a single impoundment message. Section 1014 of the 1974 law also stipulated that the President transmit to Congress each month a cumulative report on the status of impoundment actions. In 1975, various of these reporting duties were transferred from the President to the Director of the Office of Management and Budget (OMB) via Executive Order 11845. The ICA also required the Comptroller General of the General Accounting Office (GAO, now the Government Accountability Office), to oversee executive compliance with the law and report to Congress if the President fails to report an impoundment or improperly classifies an action. Both messages from the President and communications from the Comptroller General are published in the Federal Register and subsequently printed as House documents. The act further stipulated different procedures for congressional review and control of the two types of impoundment. With a rescission, the funds must be made available for obligation unless both Houses of Congress take action to approve of the rescission request within 45 days of "continuous session." Recesses of more than three days are not counted. In practice, this usually means that funds proposed for rescission not approved by Congress become available for obligation after about 60 calendar days, although the period can extend to 75 days or longer. The funds may be withheld from obligation until the 45-day period elapses or Congress disapproves the rescission. Congress may alter the amount proposed for rescission by the President, either increasing or decreasing it, as well as approving or disapproving the rescission request in toto. Section 1017 of the ICA establishes expedited procedures for congressional action on "any rescission bill introduced with respect to a special message" submitted by the President. In the fall of 1987, as a component of legislation to raise the limit on the public debt ( P.L. 100-119 ) that also included changes in the Gramm-Rudman-Hollings Act, Congress enacted several other budget process reforms as well. Section 206 effectively eliminated presidential deferrals for policy reasons. Section 207 involved the use of rescission authority. It provides a statutory prohibition against the practice, sometimes used by Presidents when Congress failed to act on a rescission proposal within the 45-day period, of resubmitting a new rescission proposal covering identical or very similar matter. By using such resubmissions repeatedly, the President might continue to tie up the funds even though Congress, by its inaction, had already rejected virtually the same proposal. The legislative history of the 1974 act suggests that prohibiting this practice of seriatim rescission proposals may be consistent with the original intent of Congress. The prohibition on seriatim rescissions in Section 207 applies for the duration of the appropriation, so that it may remain in effect for two or more fiscal years. The Impoundment Control Act has been in effect for over 35 years. According to an assessment of congressional power over impoundments since 1974, coauthored by a former director of the Congressional Budget Office (CBO), "Although the courts did much to curb presidential impoundments, through Title X of the new Budget Act, Congress also helped itself to recapture its influence over the impoundment of funds." In the first few years following enactment of the 1974 law, Congress approved presidential requests in a number of separate rescission bills. Subsequently, Congress tended to act upon rescission messages from the President in supplemental and regular appropriations measures, rather than in individual rescission bills. Under the ICA, unless Congress takes action to approve of a rescission request from the President within the 45-day period, the funds must be released. In practice, however, congressional action on rescission requests has often occurred after the expiration of the 45-day review period, so that funds are formally available for obligation for some time before being permanently rescinded. As noted previously, Congress may approve more or less than the amount requested by the President. In addition, absent a specific request from the President, Congress of its own accord may initiate rescission actions, by cancelling previously appropriated funds in a subsequent law. Such factors can create ambiguities in interpreting data on rescissions proposed by the President and congressional action on them. For example, are funds originally proposed for rescission in a special message, but which again become available for obligation before Congress permanently rescinds them, to be considered as "congressional approval of a President's request" or as a "rescission initiated by Congress"? Table 1 provides data on rescissions from FY1974 through FY2008 as compiled by GAO. According to GAO's methodology, eventual congressional action on a rescission proposed by the President is generally considered as "approval of a President's request" even if the 45-day period has elapsed. Data in Table 2 reflect the outcome of rescission requests of the Presidents since 1974, providing percentages of their respective requests approved by Congress, both in relation to total dollars requested for rescission and to the number of separate proposals, by year and by Administration. In the early months under the new framework, the number of presidentially proposed rescissions increased. In particular, President Ford attempted to rescind funding that Congress had added to the President's budget, mainly involving domestic social programs, but the effort met with limited success. As characterized by [author name scrubbed], "Instead of performing as a restriction on Presidential power, it [the new law] was interpreted by the [Ford] Administration as a new source of authority for withholding funds.... Rescission proposals came up by the bushel; wholesale they were rejected." As indicated in Table 2 , some 34% of President Ford's rescission proposals were accepted by Congress. In terms of the percentage of the total dollar amount requested during the Administration and approved by Congress, President Ford had less overall success (16%) than any of his successors. In contrast to the record in the Ford Administration, President Carter requested far fewer rescissions, but enjoyed much greater success in gaining congressional approval. During the Carter Administration, the same political party (Democrats) controlled both Houses of Congress along with the White House. Allen Schick has suggested that given the common party identity, President Carter was "reluctant to propose rescissions, and Congress [was] reluctant to disapprove those proposed." Some 90% of the rescissions proposed by President Carter involved defense programs, including the cancellation of the B-1 bomber. The Administration of President George W. Bush ( "Bush II") provides a special case with respect to the record of rescissions since 1974. The Republican Party maintained a majority in the House for the first six years of this Administration, and likewise in the Senate for over four years, but President Bush submitted no rescission requests to Congress. Although the figures of zero are duly entered in the accompanying Table 1 and Table 2 , comparisons in this section generally refer to the Ford through Clinton administrations. Developments during the "Bush II" Administration are addressed separately, below. The decline in rescission requests during the Carter Administration proved only temporary. During his first year in office President Reagan submitted more rescission proposals (133) than had President Carter during his entire administration. The largest number of rescission requests in any year (245 in 1985) occurred during the Reagan Administration, as did the greatest amount in terms of total dollars involved (more than $15 billion in 1981). Somewhat coincidentally, President Reagan saw the same percentage acceptance overall of his rescission proposals as the total dollar value—36% (see Table 2 ). While President Reagan's rescission requests focused almost exclusively on domestic programs, most of the Reagan proposals reflected program cuts rather than targeted terminations via rescissions as during the Nixon Administration. The aggregate percentage approval figure of slightly over a third for the Reagan Administration's requests masks substantial differences from year to year, however. As one assessment concluded, Although President Reagan was, nevertheless, reasonably successful in using this [rescission] device in fiscal years 1981-1982, obtaining congressional approval for almost 70 percent of the dollar value of his requested rescissions, the tool was essentially useless to the president in fiscal years 1983-87, when Congress approved less than 2 percent of the value of his rescission requests. The absence of any rescission requests in FY1988, for the first time since enactment of the ICA, reflected a special situation. In November of 1987 a compromise agreement was announced, resulting from the "Budget Summit" between the White House and Congress. The summit deal specified two-year limits on discretionary spending for domestic programs, international affairs, and defense. Provisions of the agreement were implemented as a part of an omnibus appropriations measure ( P.L. 100-202 , 101 Stat.1329-1) and a reconciliation bill ( P.L. 100-203 , 101 Stat. 1330). Apparently, President Reagan decided not to submit formal rescission requests for fiscal 1988, which might have been perceived in Congress as violating the spirit if not the letter of the agreement. He did, however, send a message to Congress identifying "wasteful items earmarked in the FY1988 full-year continuing resolution," with a transmittal letter stating the following: Accordingly, I am informally asking that the Congress review these projects, appropriations, and other provisions line by line and either rescind or repeal them as soon as possible. I reserve the option of transmitting at a later date either formal rescission proposals or language that would make the funds available for more worthwhile purposes, for any or all of these items. President Reagan refrained from using the rescission mechanism only temporarily. Before he left office, in January of 1989, the President transmitted a package of six new rescission proposals affecting FY1989. The Administration of George H.W. Bush had an approval rating for rescission requests considerably below that for President Reagan, and about the same overall as that of President Ford, with 20% of the total dollars requested approved, and 18% of the total proposals accepted. During the presidential election year of 1992, however, the use of rescissions became a controversial and highly partisan political issue to an extent not seen since the conflicts of the Nixon Administration. During the first four months of calendar year 1992, President Bush requested 128 rescissions, totaling almost $7.9 billion, while reportedly attempting to portray the Democratic-Party-controlled Congress as more interested in securing domestic "pork" projects for their constituents than in reducing the budget deficit. Over $7 billion of these proposed rescissions affected the Defense Department, mainly for weapons programs that the Administration wanted to terminate or items that Congress added to earlier defense budgets. Many of the nondefense rescissions were for small earmarked projects, added by Congress. In response to the four packages of rescissions requested by President Bush in 1992, the House and Senate Appropriations Committees devised their own alternative packages. A conference version with an $8.2 billion package of rescissions was signed into law on June 4, 1992 ( P.L. 102-298 ). Although the conference agreement contained over $7 billion in defense funds, only about $1.7 billion of that total came from programs that the Administration had wanted to rescind. In toto, the law approved less than $2.1 billion of the rescissions requested by President Bush, but added more than $6 billion in congressionally initiated cuts. As indicated in Table 2 , the Clinton Administration ranked at the top of the list of Presidents since 1974 with respect to the percentage of rescission proposals accepted (67%) and percentage of the total dollar amounts requested that were approved by Congress (54%). During his first two years (1993-1994) the Democratic Party controlled both houses of Congress as well as the White House, while in the remainder of his term, Republicans controlled the House and Senate. Yet President Clinton achieved his greatest success rate with rescissions, with respect to percentage of total dollar amount requested that was ultimately rescinded, in FY1995, when Congress was controlled by the opposition party. As reflected in columns on the right side of Table 2 , President Clinton submitted relatively fewer rescission requests per year than did his predecessors. In seven of his eight years in office, the number of rescissions requested by President Clinton was below the 1974-2005 average of 38 per year. Further, the ranking of the Administrations by average number of rescissions requested per year (to adjust for terms ranging from roughly two and a half to eight years), places President Clinton (annual average of 21 rescissions) only above George W. Bush (with zero). President Reagan not only submitted the most rescissions in toto (604), but was also number one with respect to a yearly average (76 rescission requests), followed by President Ford (61), President George H. W. Bush (42), and President Carter (31). Table 3 presents data on the total dollar amount of all enacted rescissions, and of the amounts, respectively, proposed by the President and initiated by Congress. During the Ford Administration, virtually all rescissions were congressionally initiated. In contrast, during the first three years President Carter was in office, a preponderance of enacted rescissions came from presidential messages (FY1977, 82.5%; FY1978, 88.5%; and FY1979, nearly 94%). Rescissions requested by President Reagan likewise predominated during the first two years of his term; in FY1981, over 74% of the total amount rescinded came from presidential proposals, and in FY1982, nearly 99%. The variations from year to year within administrations, as compared with the record of the respective Presidents overall, constitute a noteworthy feature of the data in Table 1 and Table 2 . Both the number and dollar amount of rescission requests submitted by the President have fluctuated widely in the 35 years of experience under the Impoundment Control Act. While President Clinton had the most success during a single year—86% of rescission proposals approved by Congress in 1995—none of his requests were approved in 2000. Reflecting on rescissions under the ICA from the perspective of the mid-1990s, Allen Schick concluded, Rescissions invite conflict between the President and Congress. Every one is a presidential demand that Congress cancel resources it had previously appropriated. By implication, rescissions tell Congress that it erred the first time around and that it wasted government funds. This is not a message that appeals to legislators, especially when it comes from a president who has different budget priorities. The experience during the 1992 election year provided a prelude to a very significant development in rescissions since 1974, the increase in number of congressionally initiated rescissions. By the end of FY1992, Presidents had proposed over 1,000 rescissions under the ICA, with Congress approving about a third of the Presidential requests, along with over 300 congressionally initiated rescissions. During the period from 1974-1992, the total amount rescinded came to nearly $107.7 billion, of which over 80% came from congressionally initiated rescissions. In 1993 testimony, Milton Socolar, from the GAO Office of General Counsel, called attention to this development: The data suggest an evolution in the use of rescissions as a budgetary tool.... (T)he share of total enacted rescissions originally proposed by the president has fallen and the share originating in the Congress has increased.... As the Congress has come to embrace an equivalent or greater amount of reductions than proposed by presidents, the debate has shifted from deciding whether to cut to deciding where to cut [emphasis in original]. According to Mr. Socolar, however, these enacted rescissions often had no effect in reducing total spending if an equivalent amount of budget authority was added to another program, thereby reflecting a shift in priorities rather than a reduction in total spending. The proportion of enacted rescissions initiated by Congress rather than by presidential request has continued to expand (see Table 3 ). The share of total dollars rescinded originating with Congress exceeded 91% in FY1992 and FY1993, and by FY1997 and FY1998, over 99%. Since FY1982, the percentage of total rescissions enacted included in presidential messages reached double digit figures in only three years: almost 17% in FY1991, nearly 36% in FY1994, and 16% in FY1996. Since FY2000, all rescissions enacted have been congressionally initiated. President George W. Bush submitted no rescission requests to Congress, nor has President Obama.. One factor that may have contributed to the growth of rescissions initiated by Congress relates to the limits on discretionary spending dating to the Budget Enforcement Act (BEA) of 1990. As noted previously, Congress came to include rescission provisions in regular or supplemental appropriations measures. An appropriations measure could include rescissions of previously appropriated funds in order to accommodate additional monies for other purposes. The rescission mechanism on occasion might have proved useful in efforts to avoid breaching a particular spending cap and possibly triggering across-the-board cuts. In the last three Administrations, other presidential actions relevant to the review of rescissions have occurred. For a brief period President Clinton had new authority to rescind funds under the Line Item Veto Act of 1996. President George W. Bush refrained from requesting rescissions under the ICA, but did issue presidential statements calling for "cancellation" of certain funding. The Line Item Veto Act of 1996 amended the ICA 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 (1) that such cancellation would reduce the federal budget deficit, and (2) it would not impair essential government functions or harm the national interest; and (3) he 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. Since the President would presumably veto the disapproval bill, a 2/3 majority in both the House and Senate ultimately would be necessary to override and disapprove of cancellations. The law became effective on January 1, 1997, but was subsequently overturned by the Supreme Court on June 25, 1998 ( Clinton v. New York City ). 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 , 111 Stat. 788) and one item of direct spending in the Balanced Budget Act of 1997 ( P.L. 105-33 , 111 Stat. 251). 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 , 111 Stat. 1142). On October 14, 1997, President Clinton vetoed 14 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 one last time by canceling a project in the Commerce-Justice-State appropriations measure. All together in FY1997, President Clinton issued 11 special messages containing 82 cancellations under the LIVA. The 38 cancellations in the Military Construction Appropriations bill, however, were rejected with the congressional override of the presidential veto of the bill disapproving the cancellations. The cancellation of the provision in the Treasury bill providing for an open season for federal employees to switch pension plans was held impermissible under the law, and a District Court judge ordered its reinstatement early in 1998. So slightly more than half of the original cancellations (43 of 82) remained in effect when the Supreme Court overturned the LIVA in June 1998. According to figures provided by the Congressional Budget Office (CBO), President Clinton's cancellations in FY1998 under the LIVA amounted to about $355 million out of a total budget of $1.7 trillion (less than 0.02%). Of this total, about $30 million came from the 39 cancellations overturned, leaving a net budgetary effect for FY1998 of $325 million. CBO estimated total savings over a five-year period from the FY1998 cancellations as less that $600 million. Table 4 presents data for FY1998 both from rescission requests under the Impoundment Control Act and from cancellation actions under the Line Item Veto Act. The figures are not entirely comparable, since cancellations under the LIVA included not only actions affecting items in appropriations acts, but also items of new direct spending and targeted tax benefit provisions. The combined totals are of course larger than those for the ICA or LIVA alone. Nonetheless, if the bottom line totals in Table 4 were substituted for the ICA-only data for FY1998 in Table 1 and Table 2 the most notable feature, arguably, is that the larger combined totals only marginally impact the broader picture of the data over the three decades. The number of rescissions/cancellations, total dollar amounts from the President, and total dollar amounts accepted by Congress would not become anywhere near the highest during the period. The percentage of the President's proposals accepted by Congress actually drops slightly when the LIVA cancellations are included (from 67% to 60%). Only the percentage of the combined total dollar amount called for by the President and accepted by Congress would set a new high of 90%, as compared with 80% for President Carter in FY1979, the prior record. With respect to comparing figures across administrations (see bottom of Table 2 ), the addition of the LIVA data would leave the percentage of President Clinton's proposals accepted by Congress unchanged, but increase the percentage of total dollar amount requested and approved by Congress to 56%. As noted previously, President Bush submitted no formal rescission requests under the ICA during his Administration. Some controversy occurred, however, regarding presidential statements calling for "cancellation" of certain funds. On October 28, 2005, President Bush forwarded to Congress a package of $2.3 billion in rescissions. As explained in an OMB press release, "Unused balances in 55 Federal programs would be rescinded in keeping with the President's pledge to reduce unnecessary spending elsewhere in the budget as hurricane recovery efforts continue." In a press briefing, OMB Director Joshua Bolten further explained: The unobligated balances that I referred to are—is money that has not been spent in programs which—into accounts into which it as appropriated. We have stepped in, and where the program was either a low priority, or where we believe it's clear that the amount of money in that account is not necessary to fulfill the purpose of the program, we've gone in and proposed to take that money out and use it as savings to the federal treasury. Congress eventually approved $400 million of the proposed $2.3 billion in cancellations forwarded by the President. According to OMB staff, the October package constituted a proposal for cancellations, not rescission requests under the ICA, and agencies were told not to withhold funds in anticipation of an impending rescission. The Comptroller General, however, deemed it necessary to contact each agency affected by the President's proposal, since GAO has responsibility under the ICA to monitor possible impoundments of budget authority. In a letter to then OMB Director Bolten, the Comptroller General "identified 12 instances where agencies withheld budget authority from obligation in direct response to the October 28 proposal totaling over $470 million," with an attachment table detailing each case in point. In what arguably amounted to an indirect admonishment of OMB, the letter closed with this advice: In the future, when the President chooses to propose cancellations of budget authority rather than rescissions of budget authority pursuant to the procedures specified in the Impoundment Control Act, your office should ensure that agencies appreciate the distinction and do not withhold budget authority from obligation in anticipation of a possible rescission. Agencies that withhold budget authority in this manner violate the Impoundment Control Act. In an apparent effort to avoid any further confusion, an OMB memorandum went out to all federal agencies the following month, emphasizing the important distinction between proposed cancellations like those contained in the FY2007 Budget and rescission requests identified in special messages from the President pursuant to the ICA. Under the ICA, funds requested to be rescinded may be withheld for 45 days of continuous congressional session. In contrast, cancellations such as those in the FY2007 budget "are proposals subject to the normal legislative process" and should not be withheld "pending congressional action on the President's proposed legislation." The revised version of OMB Circular A-11, "Preparation, Submission, and Execution of the Budget," issued on June 30, 2006, reiterated the differences between a rescission under the ICA and cancellation proposals by the President to reduce budgetary resources, with the latter such amounts not to be withheld from obligation and "subject to the normal apportionment instructions." Meanwhile, GAO found that agencies were not improperly withholding funds proposed for cancellation in the President's FY2007 budget submission. The Chairman and Ranking Minority Member of the Senate Appropriations Committee requested such an assessment from GAO in March 2006. In a letter sent in early August 2006, the Comptroller General reported that GAO identified proposed cancellations in the FY2007 Budget affecting 40 programs. According to GAO, in only one instance were funds "mistakenly" withheld by an agency, and the funds were released following GAO's inquiry about them. The George W. Bush Administration offered no public explanation as to why the President chose to propose cancellations rather than formal rescissions under the ICA. As noted already, an apparent advantage of the rescission request option is that under the ICA, the funds identified in a special message from the President typically may be withheld from obligation for a period of about two months. President Bush, while evidently reluctant to use existing rescission authority provided in the ICA, repeatedly called for enactment of a measure that would give the President greater authority to reject items of spending and that also would pass constitutional muster. 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 as H.R. 4890 and S. 2381 (109 th Congress). Title notwithstanding, the bills would have amended 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. In testifying on H.R. 4890 , Edward Lorenzen, Policy Director of the Concord Coalition, stated, "President Bush has never used his authority under current law to submit rescissions of earmarks or other spending he considers low priority, so it is unclear whether granting him this additional authority would have much of an impact at all." The House passed H.R. 4890 by vote of 247-172 on June 22, 2006, but floor action on a companion measure did not occur in the Senate before the 109 th Congress adjourned. On January 24, 2007, the Senate failed to invoke cloture in order to vote on similar expedited rescission provisions, offered by Senator Judd Gregg as a floor amendment to H.R. 2 , the Fair Minimum Wage Act of 2007. On January 20, 2009, Barack Obama became President. His campaign platform in 2008, The Change We Need in Washington , contained a section titled "Cut Wasteful Spending." Among the topics coming under this rubric, the presentation called for a line by line review of federal spending. According to the document, [if elected], "Barack Obama and Joe Biden will conduct an exhaustive line-by-line review of the federal budget and seek to eliminate government programs that are not performing and demand that new initiatives be selected on the basis of their merits...." President Obama has sent no rescission requests to Congress, but the Administration transmitted draft language for an expedited rescission measure titled the "Reducing Unnecessary Spending Act" on May 24, 2010. According to GAO data, from FY1974 to FY2009, Presidents requested 1,178 rescissions under the ICA, totaling somewhat over $76 billion. Close to a third of the proposals were approved by Congress, with approximately 40% of the total dollar amount of presidential rescission requests ($25 billion) enacted by Congress. The sum of rescissions requested by the President and subsequently enacted exceeded $1 billion in only four of the 30-plus years since the ICA was enacted (FY1981, FY1982, FY1992 and FY1994). During the same period Congress initiated 1,880 rescission actions amounting to nearly $197.1 billion, over eight times the total dollar amount of presidentially requested rescissions enacted. The trend toward an increasing number of rescissions being initiated by Congress has already been noted. Whether considering rescissions requested by the President, presidential rescission proposals enacted by Congress, and/or rescissions initiated directly in Congress, from FY1974 to FY2009, the totals appear modest compared with annual budget outlays at nearly $3 trillion and the federal budget deficit exceeding $458 billion in FY2008. Acting CBO Director Donald Marron provided this assessment at a 2006 hearing: Presidents have made very little use of the authority to recommend rescissions. From 1976 through 2005, Presidents proposed about $73 billion in rescissions, about one-half of 1 percent of the more than $15 trillion in total discretionary budget authority legislated in those years. At a Senate hearing in 2009, a GAO official concluded with respect to the ICA framework that experience over 35 years indicated that "the rescission process as designed has been used by presidents to advance their own priorities for spending cuts." Congress, however, has also used the rescission tool "as a vehicle to express its own view of changing priorities, especially in an era of tight discretionary spending caps." Supporters of changing the ICA framework to make it easier for the President's rescission proposals to prevail point to limitations in the current process as contributing to the low number of rescissions in the last 35 years. Under the ICA, there is no requirement that Congress even consider a President's rescission requests. Funds proposed for rescission by the President in a special message must be made available for obligation unless Congress acts to approve the President's requested rescission(s) within 45 days of continuous session. The ICA, moreover, allows the President to request rescissions only of discretionary spending, a portion of the budget which accounts for 38% of annual outlays, while 62% of outlays go to mandatory spending (controlled by law other than appropriations acts, including net interest). The record of cancellations during the brief time in FY1997 and FY1998 that the 1996 LIVA was in effect arguably serves to rebut such criticisms of the current ICA process. As discussed above, the LIVA reversed the burden of action regarding rescission proposals; cancellations of the President became permanent unless disapproved by Congress (ultimately requiring rejection by a 2/3 majority in both chambers to override a presidential veto of a disapproval bill). During this period the President also had authority to cancel new items of direct (mandatory) spending and certain targeted tax benefits as well as items of discretionary spending. CBO figures indicate that all the cancellations made by President Clinton in FY1998 (including those overturned) totaled some $355 million, with a projected five-year savings just under $1 billion. When the cancellations disapproved by Congress are excluded, the estimated amount to be saved over five years was less than $600 million. The brief experience in the Clinton Administration does not necessarily reflect how enhanced rescission authority might be exercised by other Presidents in other circumstances. Still, "President Clinton's use of the 1996 line-item veto statute is consistent with how little the 1974 law's rescission system has been used." Another concern, in terms of budgetary impact of rescissions under the ICA, is that funds rescinded do not necessarily reduce outlays; monies rescinded may simply allow for increased spending elsewhere. As Acting CBO Director Marron testified in 2006, "Under current practice, rescissions seem to have been used primarily to pay for other spending, rather than to reduce spending overall." Some proposals to modify the ICA framework have sought to avoid this outcome. The LIVA provided for a "lockbox" mechanism to ensure that deficit reduction would result from cancellations. In 2006 the Legislative Line Item Veto Act ( H.R. 4890 , 109 th Congress) as passed by the House and Title I of the Stop Over Spending Act ( S. 3521 , 109 th Congress) as reported in the Senate both specified that amounts rescinded would be dedicated only to deficit reduction and not be used as an offset for a spending increase elsewhere. Although many observers do not view modifying the ICA framework to give the President expanded rescission authority as an effective means to achieve significant savings or deficit reduction, a number of studies indicate that governors use the stronger item veto mechanism to favor executive priorities over legislative priorities. In 1995, during hearings on the Line Item Veto Act, then CBO Director Robert Reischauer testified that, rather than generating much budgetary savings, granting the President item veto or enhanced rescission authority would have a more important impact in giving presidential spending a preference over congressional spending. Presidents could use expanded rescission authority to redirect greater resources to their own spending agendas. A similar perspective on possible effects of proposals such as those to expand the President's rescission authority appeared in testimony by GAO Assistant Comptroller General Harry Havens in 1992. According to Mr. Havens, the most significant impact would likely be in the balance of power between the legislative and executive branches and not in budgetary savings. Various item-veto or rescission proposals "would represent a major shift of power from Congress to the President in an area that was reserved to Congress by the Constitution and which has historically been one of clear legislative primacy." The experiences in 1992 with the George H.W. Bush Administration's rescission proposals and the congressional response, as discussed above, arguably prove illustrative regarding the subject of competing spending priorities between the President and Congress. Using the existing ICA framework, President Bush transmitted four special messages proposing 128 rescission and totaling almost $7.9 billion. The House and Senate Appropriations Committees reviewed the President's request, and each chamber reported and passed substitute packages. A conference version totaling $8.2 billion was signed into law, but it contained less than $2.1 billion of the President's proposals and over $6 billion in congressionally initiated cuts. During Senate floor debate on its substitute rescission package in 1992, Senator Robert Byrd, Chairman of the Appropriations Committee, referred to the President's recent reference to the "wasteful spending" of Congress, and stated the following: So to hear the Chief Executive speak on that occasion, to the effect that only Congress is guilty of wasteful spending—and the President singled out some examples of what he considered to be wasteful spending, and the Senate has gone along with some of them, but the President did not say anything about wasteful spending in the executive branch. Let me bring a few examples of wasteful spending to the attention of my colleagues, and to the attention of the American people. Senator Byrd then proceeded to describe examples of what he termed "wasteful executive branch spending" included in the Senate substitute, such as a grant from the National Science Foundation to study sexual aggregation of fish in Nicaragua, or from NIH to study the incidence of dental fear in the population. Supporters of the existing ICA framework might note that in 1992 the President was able to gain public attention for his proposed rescissions. When Congress crafted an alternative package of rescissions, largely congressionally initiated and saving more than the President's requested rescissions, the spending priorities of Congress ultimately prevailed, arguably upholding the power of the purse. Reviewing the history of impoundments, a law review article in 1974 stated, "Every President from George Washington to Richard Nixon almost certainly has impounded appropriated funds." The framework established by the ICA in 1974 has provided the opportunity for greater accountability in reporting of rescissions and for increased congressional oversight and control of impoundment actions. Although budgetary savings realized from rescissions since 1974 appear modest, any budgetary tool that helps restrain spending, even in a small way, may prove useful in times of large budget deficits. Until the 1970s, accurate and systematic data concerning impoundments were often lacking. Congress first attempted to facilitate the availability of relevant data by stipulating reporting requirements in the Federal Impoundment and Information Act of 1972. However, there was an initial delay in OMB's compliance with the law, and subsequent concerns in Congress about the completeness of the information provided. On March 8, 1973, Congress sought to tighten up the requirements by requiring quarterly reports on impoundment actions from OMB. The Impoundment Control Act of 1974 established the current reporting requirements. As noted above, the law requires the President to inform Congress of all proposed rescissions and to submit certain information regarding each such action. The President may combine several rescission requests in a single impoundment message. The law also requires the Comptroller General of the Government Accountability Office (GAO) to oversee executive compliance with the law and report to Congress if the President fails to report an impoundment or improperly classifies an action. Both the messages from the President and the communications from the Comptroller General are to be printed in the Federal Registe r and issued as House documents. Section 1014 of the 1974 law also stipulated that the President transmit to Congress each month a cumulative report on the status of impoundment actions. In 1975 various of these reporting duties were transferred from the President to the Director of OMB via Executive Order 11845. Although President George W. Bush submitted no rescission requests to Congress, there were two deferral requests from the Administration in FY2001, and the monthly cumulative reports from OMB appeared through September, 2001. There have been no cumulative reports on rescissions and deferrals since June 17, 2002, because there have been no presidential messages. OMB stated in the last report that as of June 1, 2002, no funds were being deferred. Therefore, according to OMB, "Pursuant to P.L. 93-344 , until such time as the President transmits a special message on Congress on subsequent rescission proposals or deferrals no cumulative reports are required to be transmitted to the Congress." For a number of years OMB prepared informal reports at the end of each fiscal year, which provided a convenient resource for compiling aggregate data on rescissions. These year-end reports also proved useful as research reference documents, since the October cumulative report would commence with the new fiscal year and would not capture actions occurring during September, the final month of the previous fiscal year. These reports were apparently discontinued in the 1990s. The House Appropriations Committee also has compiled data on rescissions. In interpreting the respective sources, it is necessary to keep in mind that the Appropriations Committee includes in "rescissions approved by Congress" congressionally initiated actions to cancel funds previously appropriated, even in the absence of a rescission request by the President. The approach used by the Appropriations Committee makes sense from the perspective of tracking the status of appropriations law and any amendments thereto. On the other hand, OMB, in reporting rescissions pursuant to the 1974 law, only considers the outcome of rescissions proposed by the President—what was requested by the President and what action was taken by Congress, if any. From 1974 until 1992 GAO on occasion informally provided a variety of statistical data on rescissions proposed and enacted pursuant to the ICA. Following the increased level of interest in rescissions, GAO decided in 1992 to regularize the data collection and reporting processes with respect to rescissions. Beginning with a submission dated April 30, 1992, GAO has periodically provided to Congress updated rescission data in a standardized format. One table shows by fiscal year from 1974 to the present the aggregate number and amount of rescissions: proposed by the President, enacted by Congress, and initiated by Congress, with grand totals for each category. A second table indicates by fiscal year from 1974 to the present, by administration, the aggregate number and amount of rescissions proposed and enacted, as well as those congressionally initiated, with grand totals for each category. GAO acknowledged that the 1992 compilation reflected a number of revisions and adjustments to previously submitted historical tables. For example, we have added several rescissions which were not styled as such in the applicable legislation; credited certain rescissions to a different fiscal year than we had previously credited them; and added additional rescissions which our initial search, for various reasons, did not discover. In the letter accompanying the tables, GAO noted that should the need for further adjustments be identified, they would be included in future submissions. There was also a discussion of scope and methodology for the compilations by GAO of the historical data on rescissions. The most recent submission from GAO covered the period from FY1974-FY2008. Figures presented in this report are derived from that 2009 compilation. The apparent differences in total number of presidential rescission requests during the period covered (1,178; see Table 1 above) from the sum that is obtained when adding the total numbers per administration (1,21; see Table 2 above) reflect discrepancies in the GAO data as presented in different tables of the updated compilations. There are likewise discrepancies in the GAO data with regard to the total dollar amount of presidential rescission requests when totaled by individual years ($76,022,349,690) compared with the total dollar figure obtained from summing the total dollar amount for each administration ($77,164,713,690). GAO provided no explanation for these inconsistencies in the 2009 update. | The Impoundment Control Act (ICA) was included as Title X of the Congressional Budget and Impoundment Control Act of 1974, signed into law on June 12, 1974 (88 Stat. 332). Under the ICA, unless Congress takes action to approve a rescission request from the President within the 45-day review period prescribed by the law, the funds must be released. With respect to a presidential rescission message, Congress may approve more or less than the amount requested by the President. In addition, absent a specific request from the President, Congress on its own accord may initiate rescission actions, by cancelling previously appropriated funds in a subsequent law. According to data compiled by the Government Accountability Office (GAO), from FY1974 through FY2008, Presidents requested 1,178 rescissions under the ICA, totaling somewhat over $76 billion. Close to a third of the proposals were approved by Congress, with approximately 40% of the total dollar amount of presidential rescission requests ($25 billion) enacted by Congress. The sum of rescissions requested by the President and subsequently enacted exceeded $1 billion in only four of the 35-plus years (FY1981, FY1982, FY1992 and FY1994). During this period Congress initiated 1,880 rescission actions amounting to $197.1 billion, nearly eight times the total of presidentially requested rescission subsequently enacted, reflecting a trend toward an increasing number of rescissions being initiated by Congress. The Line Item Veto Act of 1996 (P.L. 93-344), in effect for less than eighteen months before being overturned by the Supreme Court in 1998, gave the President enhanced rescission authority by reversing the burden of action regarding rescission proposals; cancellations of the President became permanent unless disapproved by Congress (ultimately requiring rejection by a 2/3 majority in both chambers). During this time, the President also had authority to cancel new items of direct spending and certain targeted tax benefits as well as items of discretionary spending. Figures from the Congressional Budget Office indicate that the 82 cancellations made by President Clinton in FY1998 (including those overturned) totaled some $355 million, with a projected five-year savings just under $1 billion. President Clinton's use of the short-lived enhanced rescission authority thus was not notably different from the prior annual record of presidential rescissions under the ICA framework. During his two terms in office, President George W. Bush sent no formal ICA rescission requests to Congress, but some controversy developed over his use of alternative means to propose spending reductions. President Bush, while evidently reluctant to use existing rescission authority contained in the ICA, called repeatedly for enactment of a measure that would give the President greater authority to reject items of spending. Such a bill passed the House in the 109th Congress and was reported in the Senate. A contentious issue is whether such a measure might give preference to presidential spending priorities over congressional spending priorities, arguably affecting the legislative power of the purse. During his first year in office, President Barack Obama sent no formal ICA rescission requests to Congress. On May 24, 2010, however, the President transmitted to Congress a draft proposal, the "Reducing Unnecessary Spending Act," which would establish expedited procedures for congressional consideration of certain rescission messages. This report will be updated as events warrant. |
ATPA was created as part of a broader Andean initiative to address the growing drug trade fromLatin America. It provided zero or reduced tariffs on certain U.S. imports from Bolivia, Colombia,Ecuador, and Peru (see Appendix 1 for program details) to complement crop eradication,interdiction, military training, and other counternarcotics efforts. In 1992, when the program wasimplemented, supporters expected that ATPA-induced export diversification and growth wouldencourage economic alternatives to coca production and other drug-related activity, with oneestimate projecting as much as a three-fold increase in U.S. imports from ATPA countries over adecade. (1) Trade data alone, however, do not provide adequate measures of success, which should link a decline in drug activity with the expansion of ATPA supported industries. Indeed, there was somemovement on the drug front. For example, total coca cultivation fell by 13% from 1992 to 2000. This represented significant declines in Bolivia (68%) and Peru (74%), but an offsetting largeincrease in Colombia (267%). Little coca is grown in Ecuador. (2) Determining the role of ATPAtariff preferences in this trend, however, presents a difficult challenge because their effects must beisolated from other counternarcotics and economic development efforts. Studies by the U.S. International Trade Commission (USITC) of ATPA's trade effects suggest that overall, the program had a positive, but small influence on the volume and composition of U.S.imports from ATPA countries. For example, although total U.S. imports from ATPA countries ona dollar-value basis grew 85% through the decade 1990-99, this was much less than some had hopedfor and represented no growth of ATPA imports relative to U.S. import growth worldwide. Further,the composition of U.S. imports from Andean countries changed only slightly in favor of productsthat were ATPA eligible. This suggests that there was no major change in the production structureof ATPA economies, particularly in the biggest ATPA beneficiary, Colombia, which actuallyexperienced a large increase in coca production in the 1990s. One of the most telling indicators of ATPA's limited influence was that U.S. imports given preferential treatment exclusively under ATPA represented only 10% of total imports from the foureligible countries . (3) This constituted a smallpercentage of trade and did not grow through the lifeof the ATPA program. Without legislative change to the ATPA program, a larger response wasthought to be limited in the short run by the Andean export sector's dependence on a fewnatural-resource based products and simple manufactures, ATPA's program exclusion of manymajor Andean products (e.g. petroleum products, textiles, certain leather goods), and the fact thatmany products were already eligible for duty-free or preferential treatment under other tradearrangements. In short, as elaborated below, although there was a positive response to the ATPA preferential tariff provisions, the overall impact was small and operated at the margin of Andean trade. Similarly, the tariff preferences had little effect on the United States economy, suggesting the costof these preferences was low. Colombia and Bolivia qualified as ATPA first beneficiaries in mid-1992, with Ecuador andPeru following one year later. Despite ATPA, aggregate U.S. trade with beneficiary countriesremained small and grew in line, more or less, with the average for U.S. trade worldwide. For thedecade 1990 to 2000, U.S. exports to ATPA countries rose by 84%, less than total export growth (see Appendix 2 for aggregate trade data.) Relative to the rest of the world, U.S. exports to ATPAcountries declined slightly to less than 1% of total exports, although there was an upward trend inthe mid-1990s. U.S. imports from ATPA countries, although rising by 105% in dollar terms from1990 to 2000, also declined slightly on a relative basis to less than 1% of total U.S. imports from theworld. In addition to trade volume, another indicator of ATPA's possible effects is change in the composition of ATPA imports. Figure 1 contrasts the composition of U.S. imports from ATPAcountries between 1994 and 2000. Because 1994 was the first full year all four countriesparticipated, it provides a base for comparison since it is unlikely to reflect large changes in the tradecomposition due to ATPA given that insufficient time had passed for industries to have respondedfully. (4) A comparison of the two years suggests that on a broad product category basis, the composition of U.S. imports from eligible countries changed only marginally during the time thatthe original ATPA program operated. Most notable was the addition of Peru's refined coppercathode imports, which began in 1995 and were ATPA eligible. Petroleum products, which werenot eligible for ATPA tariff preferences, remained a large portion of imports, but camepredominantly from Colombia. There was a contrasting relative decline in seafood and coffeeimports. In general, the minimal change in U.S. import composition during this time period reflected three factors. First, most U.S. imports from ATPA countries were natural-resource based products(petroleum, gold, fish, coffee, bananas, cut flowers) or simple manufactures (knit apparel, sweaters,shirts, suits, copper cathodes), many of which were not ATPA eligible. This trend is likely tocontinue regardless of ATPA reauthorization. Second, the continuing large portion of oil importson a dollar-value basis in 2000 continued to skew import figures, reflecting in part the worldwidesurge in oil prices. Third, Colombia stands out as the dominant ATPA trade partner, accounting for62% of total U.S. imports from the group in 2000, followed by Peru and Ecuador, both with 18%,and Bolivia trailing with only 2%. (5) Given that the relative size and composition of ATPA imports, variables expected to reflect the program's effects, did not change during the course of the program, little trade effect seemsattributable to the ATPA provisions. A closer look at the trade data at the sectoral level supports thisconclusion, until the data are further disaggregated by duty treatment and product type. These trendsare in keeping with economic reasoning that would suggest a program such as ATPA would notaffect the overall structure of trade, but might alter the composition of ATPA imports at the marginand within very specific product categories. To determine which products were benefitting from ATPA, it was necessary to ascertain what portion would have entered duty-free exclusively because of their ATPA eligibility. Many importsqualified unconditionally as duty-free under general tariff rates (e.g. coffee) or through otherfavorable tariff arrangements, such as the Generalized System of Preferences (GSP), and could enterunder more than one of these arrangements. For example, some products eligible to enter under GSPcame in under ATPA. As shown in Table 1 , when these products are subtracted, it turns out thatimports eligible exclusively for ATPA preferences represented only 10% of total U.S. imports fromthe ATPA countries. (7) The table contrasts selectedAndean country import data in 1995 and 1999 toreflect changes that may have occurred during a time when the ATPA program was in full force. Duty-free imports rose from 59% of total imports in 1995 to 66% in 1999, but because theATPA-only category is unchanged, the increase appears to have been due entirely to non-ATPAtrade arrangements (general rates, GSP, production-sharing arrangements, or other smallerprograms). Table 1. Duty Status of U.S. Imports from ATPA Countries (1995 and 1999 in $ millions) The 10% figure is important because it shows first that the amount of imports that entered duty-free exclusively under ATPA was a small portion of trade and second that, over the life of theprogram, ATPA-eligible imports as a group did not grow any faster than U.S. imports from the fourAndean countries as a whole. This was unlikely to change in the short run without legislative actiongiven that many imports already entered the United States duty free, other big items, such aspetroleum and textile products, were not eligible for duty-free treatment, and economicdiversification into new (ATPA-eligible) areas was a slow process. The major products that entered the United States under ATPA appear in Table 2 in descendingorder of importance. Between 1995 and 1999, cut flowers, most of which came from Colombia,were the largest import item. Copper cathodes from Peru grew to become the second largest ATPAimport, rising in 1999 to nearly 19% of the total on a dollar-value basis. Precious metals, mostlyjewelry and gold products from Peru, were the third largest import group, comprising some 11% ofthe total. Colombian pigments (9%), Ecuadoran non-canned tuna (5%), and Peruvian zinc (5%)rounded out the major ATPA imports. Table 2. Major U.S. Imports Entering Under ATPA (1995 and 1999, in percent) The composition of ATPA imports changed some over the life of the program, but not in clearly predictable ways. Cut flowers, for example, which remained the largest U.S. import item on a dollarbasis, actually fell from nearly 40% to 25% of total ATPA imports. This trend reflected fallingdemand in the United States for cut flowers and growth in other ATPA imports such as coppercathodes and pigments, which represented new U.S. imports since the ATPA the program began. Although there was a large increase in zinc products coming in under ATPA, this growth waspartially due to a shift in duty treatment of zinc products, which previously entered the United Statesduty-free under the GSP provisions. (8) The benefits of ATPA fell in line with the overall trade importance of the countries. In 1999, Colombia and Peru benefitted most and had 45% and 36% of the dollar value of ATPA imports,respectively. Colombia's percentage fell slightly since 1995, reflecting a decline in cut flowerimports, offset some by an increase in U.S. pigment imports. Peru was the fastest growing exporterunder ATPA, reflecting its new copper cathode manufacturing industry. Ecuador accounted for 15%of ATPA imports in 1999, followed by Bolivia with only 4%. Ecuador accounted for most of thetuna imports and a small portion of cut flowers. Bolivia exported mostly gold jewelry items, whichis the only major ATPA item it produces. (9) Overall, the ATPA trade effects appear to be relatively small. Nonetheless, at the product level there was some indication of a change in trade composition when new products came on line, at leastin part to take advantage of ATPA's duty-free provisions. This reflects some level of Andeaneconomic diversification, but not a net growth in the amount of Andean exports eligible under ATPAon a relative basis. Given that total imports eligible exclusively under ATPA remained at 10% oftotal U.S. imports from these countries, it appears that gains in some industries or products offsetdeclines in others. An evaluation of ATPA should indicate how any changes in trade patterns affect the economiesof the Andean countries and the United States. Two studies required by the ATPA legislationtackled these questions. First, the U.S. International Trade Commission ATPA report evaluated boththe Andean and U.S. responses to ATPA. The U.S. Department of Labor produced a separatetargeted evaluation of ATPA's effects on U.S. workers. Both pointed to the marginal effects ofATPA on the economies of participating countries and the United States. Although the trade effects of ATPA were relatively small, there was some indication that the composition of trade changed and that, with a few products, a case can be made that ATPAcontributed to this change. It is possible that the altered composition of U.S. imports from ATPAcountries reflects broader change in what Andean countries were producing and that this in turnpoints to some indirect evidence that ATPA-eligible products were substituted for illicit coca. (10) It is difficult to gauge the effects of ATPA on national economies because the program has a small effect relative to other variables. National macroeconomic policies, particularly in countriesundergoing long-term economic reform, have a much larger effect on economic trends. DomesticAndean government policies also supported crop substitution, the effects of which were not easilydistinguishable from those of ATPA. In effect, they worked together. External shocks to theregion's economies, such as repeated El Ninos and other natural phenomena, had devastating effectson the agricultural sector that easily overshadowed incremental policy shifts like ATPA. Isolatingthe marginal effects of ATPA, therefore, was an imprecise exercise. (11) Bolivia and Peru. In its 2000 report, the USITC used Bolivia and Peru as case studies to explore the possibility of a link between ATPA programeffects and changes in economic production. Bolivia showed some diversification in exports to theUnited States that coincided with ATPA. In the mid-1990s, there was a marked expansion of jewelryand, to a lesser extent, leather and wood product exports that may have been related to the ATPAtariff reductions, but other domestic policy changes (e.g. the tax code) also affected productionincentives for these goods. In any case, after 1996 this export growth trend slowed. In Peru, abroader array of export growth was discernible over the past decade, with a noticeable increase incopper cathodes and agricultural products, especially asparagus, all of which benefitted from ATPA. Asparagus also stood out because it was grown near traditional coca cultivation areas and waspresumed to be an alternative cash crop, at least in part encouraged by ATPA provisions. (12) Colombia and Ecuador. In its 1999 report, the USITC evaluated ATPA's impact on Colombia and Ecuador. Of the ATPA-eligible products fromColombia over the past decade, cut flowers increased the most as a proportion of U.S. imports, butoverall, the composition of Colombia's exports to the United States did not change dramaticallysince ATPA began, in part because of the dominance of petroleum. Other nontraditional products,such as asparagus, presented some potential for increased benefits from ATPA, but overall itsbenefits were considered small. Ecuador had a similar profile, with little change in the compositionof exports to the United States, but some credited significant increases in the production of cutflowers and seafood, both of which benefitted from ATPA, with encouraging export diversification. The overall effect was still small given the myriad variables that affected production capabilities anddecisions. (13) Coca Eradication and Crop Substitution. Alternative crop production is a critical component of the coca eradication effort underway in theAndes. Although there was some indirect evidence to suggest that crop substitution has occurring,it was small overall and the effect of ATPA on this process was marginal at best. Whereas largersubstitution effects may be linked to the cut flower industry in Colombia, there were many factorsthat allowed such alternatives to exist before ATPA was even conceived. All the evidence pointsto ATPA's supportive, but relatively small effect, particularly given the magnitude of the problemand the comprehensive effort needed to address the drug trade. For example, numerous obstaclesimpeded the alternative development strategy including the high profitability of coca production,lack of physical infrastructure required to support alternative cash crops, and overt, often violent,guerrilla pressure to reject the program. (14) Although ATPA was created to influence the economic landscape of the Andean region, Congress also requested analysis of how changes in trade patterns related to ATPA might affect theUnited States. The USITC looked at three basic issues: 1) consumer welfare gains from lower-pricedimports; 2) the offsetting tariff revenue losses; and 3) producer welfare losses (productiondisplacement). The U.S. Department of Labor produced a separate report dealing only with ATPA'seffects on the domestic labor force. Changes in Trade Composition. Given that only a very small share of U.S. imports were involved in the ATPA program, its effects on the aggregateU.S. economy were negligible. Therefore, measuring the gains and losses to the U.S. economy mustbe done at the product/industry level. In 1999, copper cathodes, cut flowers (roses andchrysanthemums), tuna, and gold compounds together accounted for 83% of total imports thatbenefitted exclusively from the ATPA provisions. Copper cathodes and cut flowers each contributedto approximately one-third of the ATPA-exclusive imports. Hence, an analysis of the benefits anddisplacement costs related to these products covers most of the effects ATPA had on the U.S.economy. (15) Consumer Welfare and Tariff Effects. USITC market share data showed that ATPA-imported copper cathodes, although growing briskly, stillaccounted for only 7.4% of the U.S. market in 1999 and imported gold compounds claimed only6.7%. Cut flowers, by contrast, accounted for up to 75% of the U.S. market. Based on an partialequilibrium analysis, the USITC estimated that the consumer welfare effects in all three cases were,nonetheless, small. In the first two, market penetration was simply too small, but even in the caseof Colombia's dominance of the U.S. cut flower market, the USITC suggested that U.S. consumerswould have paid only 5.5% more for flowers than they would have in the absence of ATPA. Inaddition, the consumer benefits were offset, in many cases, by reduced tariff revenues. The netwelfare effects for the United States as a whole, therefore, were considered small. (16) Producer Welfare Effects. Of greater concern tomany were ATPA's effects on U.S. producers. To the extent that ATPA encouraged a marginalincrease in imports, those industries in the United States that produced competing products werepotentially "displaced" from the market. Given market share figures, the USITC found that only cutflowers and asparagus caused "displacement" of over 5% of the market. Asparagus imports weresmall and entered during the late summer and fall months when domestic crop production was lowand so had a clear benefit to U.S. consumers. Because they did not directly compete with the U.S.growing season, however, they were not a primary target for concern over displacement. (17) Cut flower imports have been a greater concern, but as the USITC points out, Colombia, the major flower exporter, had established its market dominance before ATPA, and the U.S. growershad already responded by differentiating their products. The overall impact of ATPA flower importswas deemed small given domestic industry adjustment. One indication that U.S. flower growers areno longer seriously concerned with competition from Andean imports is their decision to discontinuepursuing antidumping and countervailing duty remedies as of May and October 1999, respectively. In short, should ATPA tariff preferences be eliminated, it appears there would be little effect on thedomestic cut flower industry. (18) The U.S. Department of Labor (DOL) report targeted ATPA's impact on the domestic work force. It concluded that the overall effects of ATPA in 1998 were negligible given the strong U.S.economy and employment picture, and the fact that ATPA-eligible imports were so small that theireffect on aggregate U.S. employment was virtually unmeasurable. (19) Based on an analysis of productsthat entered the United States duty free exclusively from ATPA provisions, the Department of Laborsuggested that only the cut flower industry was likely to have presented any adjustment problem. U.S. cut flower production had fallen by 11% in 1998 as ATPA imports rose, perhaps indicating thatATPA may have had some effect on the industry's contraction, but the Department of Labor reportwas quick to note that other factors may have affected cost competitiveness of the U.S. cut flowerindustry, such as complying with worker protection standards, and that in any case, their estimateswere not precise. (20) Of the workers potentially affected by layoffs in the flower industry, the DOL noted that all were seasonal agricultural workers who often experience periods of unemployment, have a very lowwage level, and live predominantly in poverty. Some 43% were estimated to be of "illegal,temporary, or unknown legal status." DOL did not estimate the "degree of adjustment difficulty,"but noted that the strong U.S. economy should have been able to minimize any employmentdislocation that might have occurred. Adjustment costs faced by other industries from increasedimport competition from ATPA were considered insignificant. (21) ATPA was only a small part of the larger Andean counternarcotics effort. Coca production wasthe primary target of these efforts and because it is a highly profitable undertaking and particularlyenticing for poor areas of the world, a key element of the strategy was supporting the cultivation ofalternative cash crops. (22) ATPA's supportersargued that reduced tariffs conceivably played a partof the "alternative development" strategy by providing an additional financial incentive to substitutelegal crops for coca cultivation. The increase in non-agricultural exports (e.g. copper cathodes), itwas argued, may also have reflected, in part, ATPA's preferential tariff treatment. Testimony before congressional committees expressed the desire by groups in the United States and the Andean countries to reauthorize ATPA and consider expanding the tariff preferences to moreproducts and countries. These views were summarized before Congress by representatives of theBush Administration as well, who stated that ATPA was achieving its goal of promoting "exportdiversification and broad-based economic development that provides sustainable economicalternatives to drug-crop production in the Andean region." (23) In considering the merits of ATPA, it is important to understand that the benefits it provided were quantitatively small. ATPA's influence should have been visible in the changing compositionof U.S. imports, which was marginal. Because many imports were not eligible by law for ATPAduty-free treatment or entered the United States under other preferential trade arrangements, only10% of ATPA country imports entered the United States exclusively under the ATPA provisions. This did not change over time, suggesting that ATPA's effect on trade was unlikely to increase,unless the program's parameters were modified. Because the trade response has been small, so too have been ATPA's likely effects on the Andean economies. Still, indirect evidence suggests that it may have supported economicdiversification into products such as copper cathodes and asparagus. Asparagus, for example, hasbeen cultivated in larger quantities near traditional coca producing regions. Although anencouraging sign, given the high profitability of coca and active resistence by both armed guerrillagroups and peasants, there were limits to what ATPA may have been expected to accomplish andit was not clear that there is a strong direct link between increased ATPA-eligible exports and anyverifiable diminished drug-related activity. In addition to the economic analysis, the debate over ATPA considered more intangible policy benefits. For example, supporters argued that ATPA was an expression of direct U.S. support forthe regional counternarcotics efforts with potentially positive side benefits in the area of economicdevelopment. They also noted that it was a less expensive and invasive counter-drug optioncompared to the large financial and military commitment of Plan Colombia. Supporters of ATPA proposed at least three program initiatives. First, reauthorize ATPA for an extended period of time to reinforce the U.S. commitment to the alternative developmentcounternarcotics strategy. Second, extend duty-free treatment to other Andean exports, such astextile and apparel products, to broaden the program effects, particularly in Colombia, which remainsthe most problematic country. Third, include Venezuela as a beneficiary country, which althoughnot currently a major coca producer, is part of the larger drug trafficking problem. On December 4, 2001, ATPA expired and U.S. tariffs were reimposed on affected Andeanexports. On February 15, 2002, the Bush Administration deferred collection of these tariffs for 90days in expectation that the 107th Congress would either reauthorize ATPA or provide a short-termextension of its trade preferences. In part because the ATPA legislation was eventually linked to thelarger debate on trade promotion authority (TPA), Congress was unable to complete work on the billbefore the deferral expired. The ATPA program was reauthorized in the Andean Trade Promotionand Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act of 2002 ( H.R. 3009 ), which was signed into law by President Bush on August 6, 2002 ( P.L. 107-210 ). All dutyreductions that were in place prior to ATPA's expiration were made retroactive to December 4, 2001and presumably all those duties collected are reimbursable. In the House, H.R. 3009 , the Andean Trade Promotion and Drug Eradication Act was introduced on October 3, 2001 by Representative Crane (for himself and Ways and MeansChairman Thomas). Hearings were held by the House Ways and Means Committee on October 5,2001. Chairman Thomas offered an amendment in the nature of a substitute and the committeeordered the bill favorably reported, as amended, by voice vote. On November 14, 2001, the bill wasreported to the House ( H.Rept. 107-290 ). On November 16, 2001, the House Rules Committeereported ( H.Rept. 107-293 ) the rule (H. Res. 289) for consideration of H.R. 3009 by avote of 225 to 191. H.R. 3009 was passed by the House the same day by voice vote. In the Senate, S. 525 , the Andean Trade Preference Expansion Act (ATPEA) was introduced by Senator Graham on March 13, 2001 and referred to the Committee on Finance. TheSubcommittee on International Trade held hearings on August 3, 2001. The amended House-passedversion of H.R. 3009 was sent to the Senate on November 16, 2001, where it wasreferred to the Committee on Finance. Full committee consideration and mark up occurred onNovember 29, 2001, and by voice vote, the language of S. 525 , with somemodifications, was offered in the nature of a substitute for H.R. 3009 , which wasadopted, along with three amendments, and reported to the full Senate ( S.Rept. 107-126 ). The Andean Trade Preference Expansion Act passed the Senate as Title XXXI of the Trade Act of 2002. The Senate action was controversial because it adopted the ATPA provisions by agreeingto S.Amdt. 3401 , a substitute amendment for H.R. 3009 , which alsoincluded a broader trade legislation package covering trade promotion authority (TPA), tradeadjustment assistance (TAA), and the Generalized System of Preferences (GSP), among others. OnJune 26, 2002, following a heated debate, the House voted 216 to 215 to agree to the Senateamendment with an amendment incorporating House versions of the broader provisions added in theSenate, and requested a conference. (24) The conference report was filed on July 26, 2002 ( H.Rept. 107-624 ). It was agreed to in the House (215-212) on July 27, 2002 and in the Senate (64-34) on August 1, 2002. President Bushsigned the bill into law on August 6, 2002 ( P.L. 107-210 ). As passed into law, the Andean Trade Promotion and Drug Eradication Act (ATPDEA) expresses the findings of Congress that extending and expanding trade preferences to beneficiarycountries continues to be an effective part of a broader U.S. foreign policy to counter illicit drugtrafficking from the Andean region. To enhance the effects of the expired ATPA, it extendspreferential treatment through December 31, 2006 and expands it to cover many exports previouslyexcluded. In general, the provisions provided treatment similar to that received by Caribbeancountries under the Caribbean Basin Trade Promotion Act (CBTPA) and incorporates customsprocedures, including more relaxed certificate of origin rules, similar to those found in the NorthAmerican Free Trade Agreement (NAFTA). ATPDEA also tightens transshipment and safeguardprovisions to address concerns of U.S. textile and apparel manufacturers. Changes in Tariff Treatment. The major changes to the ATPA provisions that were at the heart of much of the congressional debate involvedconsideration of altering the tariff treatment of eight categories of goods that were excepted frompreferential treatment under the original ATPA legislation. To summarize: selected textile and apparel articles, as defined in the next subsection, now enter duty-free; footwear (not eligible under the GSP preferences) enter duty-free; tuna harvested by a U.S. or ATPDEA beneficiary country that is prepared or preserved byan ATPDEA beneficiary country in an airtight container weighing not more than 6.8kilograms, enters free of duty and quantitative restriction; petroleum products under HTS headings 2709 or 2710 enter duty free; watches previously excepted if they included material from HTS column 2 countries enterduty free; selected leather goods (e.g. handbags, luggage, apparel) that previously received reducedduty treatment, enter duty free; sugars, syrups, and sugar products subject to over-quota duty rates remain exceptions topreferential treatment; rum and tafia classified in subheading 2208.40 of the HTS also remain exceptions toduty-free treatment. Treatment of Textile and Apparel Articles. Thenumber of apparel articles that receive duty-free treatment has been expanded based on variousproduct categories differentiated by origin of fabric, yarn, and components used. Provided the articleis imported from an ATPDEA beneficiary country, it enters free of duty and quantitative restrictionif it qualifies under any of the following categories: Apparel articles assembled from products of the United States or and ATPDEA country,or products not available in commercial quantities - Apparel articles sewn or otherwiseassembled in 1 or more ATPDEA beneficiary country or the United States, or both,exclusively from any one or any combination of the following: �fabrics or fabric components wholly formed, or components knit-to-shape, in theUnited States, from yarns wholly formed in the United States or 1 or more ATPDEAcountries (including felts and nonwovens if formed in the United States). But, if thefabrics are knit or woven fabrics , the apparel articles shall qualify under thissubclause only if all dyeing, printing, and finishing of the fabrics from which thearticles are assembled is carried out in the United States; �fabrics or fabric components formed, or components knit-to-shape, in 1 or morebeneficiary countries, from yarns wholly formed in 1 or more beneficiary countries,if such fabrics (including fabrics not formed from yarns if classified as felt ornonwovens) or components are formed in chief value of llama, alpaca, or vicuna; �fabrics or yarns, to the extent that apparel articles of such fabrics or yarns would beeligible for preferential treatment, without regard to the source of the fabrics or yarns,under the North American Free Trade Agreement (NAFTA) short-supply provisions(Annex 401). Additional Fabrics - at the request of any interested party, the President is authorized toproclaim additional fabrics and yarns as eligible for preferential treatment under theimmediately preceding paragraph if: �the President determines that such fabrics or yarns cannot be supplied by thedomestic industry in commercial quantities in a timely manner; �the President has been properly advised by a committee established under Sec. 135of the Trade Act of 1974 and the USITC; �within 60 days after the request, the President has submitted a report to the HouseCommittee on Ways and Means and Senate Finance Committee that sets forth theaction, the reasons for such action, and the related advisory committee findings; �a period of 60 calendar days has expired , beginning with the first day on which thepresident has met the congressional notification requirements; and �the President has consulted with such committees regarding the proposed actionduring the notification period. Regional Fabrics - apparel articles sewn or otherwise assembled in 1 or more beneficiarycountries from fabrics or from fabric components formed or from componentsknit-to-shape, in a beneficiary country, from yarns wholly formed in the United States orin 1 or more beneficiary countries, including felts and nonwovens, whether or not theapparel articles are also made from any of the fabrics, fabric components formed, orcomponents knit-to-shape as defined in 1) above (page 14), unless the apparel articles aremade exclusively from any of the fabrics, fabric components, formed, or componentsknit-to-shape described in 1) above. �this preferential treatment begins October 1, 2002 for a limited quantity equal to 2%(measured in square-meter equivalents) of all apparel articles imported into theUnited States during the previous 12 months for which data are available. Thispercentage increases to 5% over the next 4 one-year periods in equal increments. Handloomed, handmade, and folklore articles - if certified as such by the ATPDEAcountry in consultation with the United States. Certain Other Apparel Articles - any article classified under HTS subheading 6212.10(brassieres), except for articles entered under sections 1), 2), 3), or 4) above, if the articleis both cut and sewn or otherwise assembled in the United states, or one or more ATPDEAcountry, or both, with limitations. Special Rules - � Findings and Trimmings - an article that is otherwise eligible for preferential treatmentshall not be considered ineligible so long as findings and trimmings (buttons, zippers, lace,etc.) of foreign origin do not exceed 25% of the cost of the components; � Interlinings - identical rule for selected interlinings of foreign origin. Rule may beterminated if President determines that U.S. manufacturers are producing such interliningsin the United States in commercial quantities; � De Minimis Rule - an article that otherwise would be ineligible for preferential treatmentbecause it contains yarns not wholly formed in the United States or an ATPDEA countryshall not be ineligible if the total weight of such yarns does not exceed 7% of the totalweight of the good; � Special Origin Rule - articles otherwise eligible for preferential treatment under sections1) and 3) above shall not be ineligible because the articles contain nylon filament yarn(other than elastomeric yarn) that is classifiable under various HTS 5402 subheadings(synthetic filament yarn) from a country that is a party to an agreement with the UntiedStates establishing a free trade area, which entered into force before January 1, 1995. Textile Luggage - assembled in an ATPDEA country from fabric wholly formed and cutin the United States from yarns wholly formed in the United States that is entered undersubheading 9802.80 of the HTS (Mexico production sharing/maquiladora provisions), orassembled from fabric cut in an ATPDEA country from fabric wholly formed in theUnited States from yarns wholly formed in the United States. The 107th Congress developed a compromise position on ATPA reauthorization that appeared to have broad support, although not all constituent concerns were resolved. Expanding the tariffreduction provisions is expected to serve multiple purposes: 1) provide similar tariff treatment toATPA, NAFTA, and CBTPA countries, thereby eliminating the relative competitive disadvantageof ATPA countries; 2) deepen coverage of the tariff program to include products that compose alarger portion of Andean exports and hence improve the chances for greater impact on the region'strade diversification, economic development, and counterdrug activity; 3) encourage increased U.S.investment in ATPA countries; and, 4) address possible negative repercussions to domestic appareland textile manufacturers. (25) Although it is possible that the beneficiary countries will respond more to these additional incentives, they will not benefit equally. In dollar terms, Colombia may benefit the most becauseit has the largest share of U.S. apparel imports from beneficiary countries (49% in 2000). Peru,which constituted 46% of U.S. apparel imports from these countries, uses mostly non-U.S. materialsand so has lobbied for removing restrictions on use of local fabrics and yarns. It should benefitsignificantly. Ecuador and Bolivia have small apparel export industries, each accounting for only2% of the ATPA country apparel exports to the United States. (26) Ecuador is a major tuna exporterand so will benefit from new tariff reductions on canned tuna. Concerns of U.S. domestic apparel and textile groups were critical aspects of the debate to loosen tariff restrictions. Many of these concerns were addressed in the detailed language relatedto these articles. In addition, it is worth reiterating that apparel products accounted for only 7% ofU.S. imports from ATPA countries in 2000, although this percentage doubled since 1994 (see Figure1 ). Also, ATPA apparel imports accounted for less than 2% of the total sector's U.S. imports in2000. Still, the United States is the primary market for Andean apparel, capturing 93% of theregion's apparel exports. (27) For this reason alone,although reauthorized ATPA program may still beonly a small part of a large and long-term U.S. counternarcotics effort, expanding duty-freeprovisions to a larger portion of the region's exports, including its growth industries, may have apositive effect on the program's effectiveness. The original ATPA program had two major facets. First, each nation had to be designated a"beneficiary country" by meeting legislated standards. (28) Beneficiary status could be denied if acountry: 1) is a Communist country; 2) unfairly nationalizes or expropriates U.S. property, tangibleor intellectual, without due recourse or commitment for compensation; 3) fails to act in good faithin recognizing arbitral awards in favor of U.S. citizens or companies; 4) affords preferentialtreatment to products from other developed countries that may have a significant impact on U.S.commerce; 5) has a government entity that fails to follow copyright agreements for broadcastmaterials; 6) is not a signatory to an agreement providing for the extradition of U.S. citizens; or 7)is not taking steps to afford internationally recognized workers rights as in the Trade Act of 1974. All conditions, except 4 and 6, may be waived by the President if conferring beneficiary status isdeemed in the economic or security interests of the United States. The President is also required toconsider other factors, among them the prospective beneficiary country's: 1) interest in ATPA; 2)economic conditions and development policies; 3) trade policies and practices complying with rulesdefined in the World Trade Organization (WTO) agreement; and 4) efforts to meet the narcoticscooperation certification criteria. Second, eligible articles must be imported directly from a beneficiary country. The content of materials and processing costs originating in CBTPA or ATPA beneficiary countries, Puerto Rico,the Virgin Islands and up to 15 percentage points of U.S. origin value must sum to at least 35% ofthe value of the article when it enters the United States. Many products are denied duty-freetreatment, including textile and apparel products subject to textile agreements, crude and refinedpetroleum products, canned tuna, and certain footwear, watches, sugars, syrups, molasses, and rumproducts. Selected import sensitive products are eligible for only a 20-percent reduction in duties,including certain handbags, luggage, flat goods, work gloves, and leather wearing apparel. ThePresident may suspend duty-free treatment under title II of the Trade Act of 1974 (safeguard actions)or the national security provision (sec. 232) of the Trade Expansion Act of 1962, as amended (19U.S.C. 1862). Other trade regulations apply, such as quotas and food-safety requirements. (29) ATPA operated in addition to the Generalized System of Preferences (GSP), a program in place since 1976 giving duty-free treatment to certain developing country imports to promote economicdevelopment. Where the two programs overlap, many Andean exporters preferred to use ATPAbecause it covered more tariff categories, tended to be more liberal and easier to qualify under, andhad a ten-year authorization and so until recently, had not expired as had the GSP multiple times inthe 1990s. (30) | Following passage by the 102nd Congress, President George Bush signed into law the Andean Trade Preference Act (ATPA) on December 4, 1991( P.L. 102-182 , title II), making it part of amultifaceted strategy to counter illicit drug production and trade in Latin America. For ten years,it provided preferential, mostly duty-free, treatment to selected U.S. imports from Bolivia, Colombia,Ecuador, and Peru. ATPA's goal was to encourage growth of a more diversified Andean exportbase, thereby promoting development and providing an incentive for Andean farmers and otherworkers to pursue economic alternatives to the drug trade. On December 4, 2001, ATPA expired and U.S. tariffs were reimposed on affected Andean exports. On February 15, 2002, the Bush Administration deferred collection of these tariffs for 90days in expectation that the 107th Congress would either reauthorize ATPA or provide a short-termextension of its trade preferences. In part because the ATPA legislation was eventually linked to thelarger debate on trade promotion authority (TPA), Congress was unable to complete work on the billbefore the deferral expired. The ATPA was eventually reauthorized as the Andean Trade Promotionand Drug Eradication Act (ATPDEA), Title XXXI of the Trade Act of 2002 ( H.R. 3009 ), which was signed into law by President Bush on August 6, 2002 ( P.L. 107-210 ). All dutyreductions that were in place prior to ATPA's expiration were made retroactive to December 4, 2001and presumably all those duties collected are reimbursable. In evaluating the ATPA program, its trade effects were shown to have been relatively small, although there was some indication that the composition of trade changed and that, with a fewproducts, a case could be made that ATPA supported this change. It is possible that the slightlyaltered composition of U.S. imports from ATPA countries reflected broader change in what Andeancountries were producing and that this in turn pointed to some indirect evidence that resources onceused for drug-related activity were being redirected toward ATPA-eligible products. IsolatingATPA's role from other counternarcotics and economic diversification programs, however, has beena difficult challenge, producing imprecise estimates. Supporters of ATPA argued that its effects were evident and proposed that it be reauthorized to reinforce the U.S. commitment to the "alternative development" counternarcotics strategy and thatpreferential treatment be extended to other Andean exports to broaden the program's effects. Ingeneral, the 107th Congress appeared to accept this position. To enhance the effects of ATPA, thereauthorization legislation provides for an extension of trade preferences through December 31,2006, extending them to cover exports previously excluded, including certain textile and apparelarticles, canned tuna, watches and parts, petroleum, footwear, and selected leather bags and goods. Congress was also careful to consider, and in many cases preserve, the interests of domesticproducers. ATPA may be only a small part of a large and long-term counternarcotics effort, butCongress reasoned that expanding duty-free provisions of ATPA to include more exports in growthindustries may have a positive effect on the region. |
Most federal offshore oil and gas production leases contain royalty provisions that require the lessee to pay a certain percentage of revenue on the value of oil and natural gas production to the federal government as the lessor. In 1995, Congress passed the Deep Water Royalty Relief Act (DWRRA), which provides an incentive for exploration of oil and natural gas reserves in "deep water," which might otherwise be uneconomic, by providing that a certain initial volume of production from deep water wells would be exempt from royalty obligations. Section 302 of the DWRRA provides a mechanism by which holders of existing leases can apply for royalty relief, which is to be granted by the Secretary of the Interior if the lease would otherwise be uneconomic. However, Section 302 also provides that these lessees will not be eligible for royalty relief if the price of oil or natural gas exceeds a certain threshold level. While Section 302 of the DWRRA addresses royalty relief for holders of leases in existence at the time of the enactment of the act, Sections 303 and 304 address post-enactment lease sales. Section 303 amends the bidding system to allow Interior to offer leases going forward with royalty relief at the discretion of the Department, while Section 304 carves out an exception to that royalty payment requirement for deep water leases that were entered into within five years of the date of enactment of the DWRRA. Pursuant to Section 304, the standard royalty requirement is to be suspended for lessees holding these leases until a certain volume of oil or natural gas is produced by the lessee. The volumetric limitation on royalty relief varies based on the water depth of the leased tract. Once the volumetric threshold is exceeded, a lessee may be required to make royalty payments. Section 304 sets a statutory minimum for the volumetric threshold for royalty relief—the Secretary of the Interior is authorized to grant a higher volumetric threshold at his or her discretion. In 1998 and 1999, MMS issued deepwater offshore leases that were eligible for royalty suspension but did not include a price-based limitation on that eligibility. As a result, holders of these 1998 and 1999 deepwater leases have no obligations to make royalty payments up to the suspension volumes, regardless of the market price of oil or natural gas; the leases do not contain a price threshold on royalty relief. On August 4, 2007, the House passed H.R. 3221 . Included in this omnibus energy bill is the proposed Royalty Relief for American Consumers Act of 2007. One section of this proposed act bars the Secretary of the Interior from issuing any new leases to holders of "covered leases" unless said leaseholders either renegotiate their "covered leases" to include price thresholds or pay a "conservation of resources" fee as established in the proposed act. The statute defines a "covered lease" as "a lease for oil or gas production in the Gulf of Mexico that is ... issued by the Department of the Interior under Section 304 of the Outer Continental Shelf Deep Water Royalty Relief Act ... and ... not subject to limitations on royalty relief based on market prices that are equal to or less than the price thresholds" described in the DWRRA. Any holder of a "covered lease" is forced to decide between three options: (1) the lessee can keep the lease under its current terms (i.e., without a price threshold) and lose the right to bid on future offshore lease sales in the Gulf of Mexico; (2) the lessee can pay a newly created "conservation of resources" fee, as established elsewhere in the proposed act; or (3) the lessee can renegotiate the covered lease to include royalty relief price thresholds. Many observers interpret the proposed act as a legislative attempt to correct the perceived oversight in the 1998-1999 leases that lack price thresholds. Around the same time that the perceived oversight in the 1998 and 1999 leases described above was brought to the public's attention, Kerr-McGee Oil & Gas Corp. (Kerr-McGee) initiated litigation that challenged the authority of the Department of the Interior (DOI) to impose price thresholds on leases sold between 1996 and 2000 (i.e., the effective period of section 304 of the DWRRA). According to Kerr-McGee, section 304 of the DWRRA, which addresses lease sales during the five-year period between 1996 and 2000, barred the inclusion of royalty relief price thresholds to these leases, and therefore the collection of royalties resulting from the imposition of price thresholds contradicted section 304 of the DWRRA. Kerr-McGee brought its claim in the U.S. District Court for the Western District of Louisiana after the DOI issued an Order directing Kerr-McGee to pay royalties on oil and natural gas produced in 2003 and 2004 under eight leases operated by Kerr-McGee under the DWRRA. On October 30, 2007, the court issued a ruling that essentially confirmed Kerr-McGee's position and found that an Order issued by the DOI directing Kerr-McGee to pay royalties based on a price threshold was in error. The court based its ruling on a decision issued by the U.S. Court of Appeals for the Fifth Circuit in 2004 that interpreted the relevant sections of the DWRRA. According to the court: The Fifth Circuit interpreted Sections 303 and 304 of the DWRRA as they pertain to new production requirements for Mandatory Royalty Relief leases. Section 303 added a new bidding system that gave the Interior the authority to lease any water depth in any location with royalty relief fashioned according to the Interior's discretion. The [Fifth Circuit] found that this power, however, was tempered by the next section, where Congress replaced the Interior's discretion to fashion royalty relief with a fixed royalty suspension scheme based on volume and water depth. Thus, the royalty relief for Mandatory Royalty Relief leases is automatic and unconditional. Based on the Fifth Circuit's previous ruling, the district court found that Section 304 mandates royalty relief up to a certain minimum volume of production, regardless of the market price of oil or natural gas. Therefore, the court concluded that the DOI had "exceeded its Congressional authority" when it sought to collect royalties on Kerr-McGee's oil and gas production that did not exceed these volumetric minimums, regardless of whether the oil and gas produced could be sold at prices in excess of the price thresholds for royalty relief that had been included in the lease terms. Since the Kerr-McGee ruling was issued on October 30, 2007, there has been extensive congressional interest in the impact of the ruling on the proposed Royalty Relief for American Consumers Act of 2007, as described above. Specifically, there is confusion as to how the ruling might affect the restrictions that section 7504 seeks to impose on holders of "covered leases." As discussed above, section 7504 requires that persons who hold "covered leases" either: (1) renegotiate their leases to include price thresholds; (2) pay a "conservation of resources" fee as set forth in the section; or (3) forfeit eligibility for future oil or gas production leases in the Gulf of Mexico. Section 7504 and the legislative efforts that preceded it have generally been described as efforts to remedy a perceived "error" or "oversight" in the 1998 and 1999 deep water leases by forcing renegotiation of those leases to include royalty relief price thresholds, or by using the "conservation of resources" fee structure to recover from these leaseholders amounts that had previously been calculated to be roughly the same amount as would be owed if price thresholds had been in place. The recent ruling by the U.S. District Court for the Western District of Louisiana, if upheld, would effectively eliminate the distinction between the 1998 and 1999 deep water leases, which do not include price thresholds, and the 1996, 1997 and 2000 deep water leases, which contain price thresholds that are not enforceable because they are in violation of congressional intent in enacting section 304 of the DWRRA. If none of the leases issued pursuant to section 304 of the DWRRA contains royalty relief provisions that are subject to price thresholds, then it appears that all of these leases ( i.e. , all deep water leases issued between 1996 and 2000) would be "covered leases" as that term is defined in the proposed act. As noted above, section 7504(d)(1) defines a "covered lease" as "a lease for oil or gas production in the Gulf of Mexico that is ... issued by the Department of the Interior under Section 304 of the Outer Continental Shelf Deep Water Royalty Relief Act ... and ... not subject to limitations on royalty relief based on market prices that are equal to or less than the price thresholds" described in the DWRRA. It is important to note that the definition of "covered leases" is not restricted to leases without price thresholds in their terms, or any other definition that would be contingent upon the language in the leases. If this were the case, then only the 1998 and 1999 leases would be "covered leases," because the 1996, 1997 and 2000 leases contain price threshold language. However, the definition of "covered leases" in section 7504(d)(1) encompasses any lease that is not "subject to limitations on royalty relief" based on oil or natural gas market prices. Thus, if the Western District of Louisiana decision is affirmed on appeal, then it appears that none of the leases issued between 1996 and 2000 would be "subject to limitations on royalty relief based on market price," and thus all of these leases may be "covered leases" under the proposed act. As a result, any entity that holds a deep water lease issued between 1996 and 2000 may be ineligible for future oil or natural gas production leases in the Gulf of Mexico pursuant to section 7504(a) of the proposed act until that entity either renegotiates the lease in question or pays a "conservation of resources" fee. If Congress does wish to encourage recovery of royalties on all leases issued pursuant to section 304 of the DWRRA between 1996 and 2000 that are limited by both price and volumetric thresholds, it could likely do so by passage of the proposed Royalty Relief for American Consumers Act of 2007 as it is currently worded in sections 7501-7505 of H.R. 3221 . This option could affect most companies operating in the deep water OCS area. If Congress wishes to restrict the scope of the proposed act to the 1998 and 1999 leases that did not contain price thresholds, it might consider amending the definition of a "covered lease" accordingly. | On October 30, 2007, the U.S. District Court for the Western District of Louisiana issued a ruling in Kerr-McGee Oil & Gas Corp. v. Allred that rebuffed efforts of the U.S. Department of the Interior (DOI) to collect royalties from offshore oil and gas production leases based on so-called "price thresholds" for previously granted royalty relief. There has been considerable interest in the impact of this ruling on ongoing congressional efforts related to certain "missing" royalty payment requirements in leases issued by the Minerals Management Service (MMS) of the DOI in 1998 and 1999, including the proposed Royalty Relief for American Consumers Act of 2007, as found at sections 7501-7505 of H.R. 3221. The House of Representatives passed H.R. 3221 on August 4, 2007. This report (1) provides background on the Outer Continental Shelf Deep Water Royalty Relief Act (DWRRA), pursuant to which royalty-free leases, including the controversial 1998 and 1999 leases, were issued; (2) summarizes relevant portions of the proposed Royalty Relief for American Consumers Act, which attempts to encourage the renegotiation of the controversial 1998 and 1999 leases; (3) summarizes the recent ruling in the Kerr-McGee matter; and (4) analyzes the potential impact of that recent ruling on the proposed Royalty Relief for American Consumers Act and any similar legislative efforts. This analysis is restricted to a discussion of the potential impact of the recent ruling on section 7504 of H.R. 3221, which would place restrictions on holders of leases that lack price thresholds. It does not address section 7503 of H.R. 3221, which seeks to "clarify the authority" of the Secretary of the Interior to include price thresholds on royalty relief in offshore leases pursuant to section 304 of the DWRRA. |
International medical graduates (IMGs) are foreign nationals or U.S. citizens who graduate from a medical school outside of the United States. In 2007, the most recent year for which data are available, there were 902,053 practicing physicians in the United States, and IMGs accounted for 25.3% (228,665) of these. The use of foreign nationals remains a means of providing physicians to practice in underserved areas. This report focuses on those IMGs who are foreign nationals, hereafter referred to as foreign medical graduates (FMGs). Many FMGs first entered the United States to receive graduate medical education and training as cultural exchange visitors through the J-1 cultural exchange program. While there are other ways for FMGs to enter the United States, including other temporary visa programs as well as permanent immigration avenues, this report focuses on FMGs entering through the J-1 program. As exchange visitors, FMGs can remain in the United States on a J-1 visa until the completion of their training, typically for a maximum of seven years. After that time, they are required to return to their home country for at least two years before they can apply to change to another nonimmigrant status or legal permanent resident (LPR) status. Under current law, a J-1 physician can receive a waiver of the two-year home residency requirement in several ways: the waiver is requested by an interested government agency (IGA) or state department of health; the FMG's return would cause extreme hardship to a U.S. citizen or LPR spouse or child; or the FMG fears persecution in the home country based on race, religion, or political opinion. Most J-1 waiver requests are submitted by an IGA and forwarded to the Department of State (DOS) for a recommendation. If DOS recommends the waiver, it is forwarded to U.S. Citizenship and Immigration Services (USCIS) in the Department of Homeland Security (DHS) for final approval. Upon final approval by USCIS, the physician's status is converted to that of an H-1B professional specialty worker. Prior to 2004, J-1 waiver recipients were counted against the annual H-1B cap of 65,000. An IGA may request a waiver of the two-year foreign residency requirement for an FMG by showing that his or her departure would be detrimental to a program or activity of official interest to the agency. In return for sponsorship, the FMG must submit a statement of "no objection" from the government of his or her home country, have an offer of full-time employment, and agree to work in a health professional shortage area or medically underserved area for at least three years. According to USCIS regulations, the FMG must be in status while completing the required term and must agree to begin work within 90 days of receipt of the waiver. If an FMG fails to fulfill the three-year commitment, he or she becomes subject to the two-year home residency requirement and may not apply for a change to another nonimmigrant, or LPR status until meeting that requirement. Although any federal government agency can act as an IGA, the main federal agencies that have been involved in sponsoring FMGs are the Department of Veterans Affairs (VA), the Department of Health and Human Services (HHS), the Appalachian Regional Commission (ARC), and the United States Department of Agriculture (USDA). Under the "Conrad Program" discussed below, state health departments may also act as IGAs. HHS has begun accepting waivers to primary care physicians only relatively recently. Historically, HHS had been very restrictive in its sponsorship of J-1 waiver requests. HHS emphasized that the exchange visitor program was a way to pass advanced medical knowledge to foreign countries, and that it should not be used to address medical underservice in the United States. HHS' position was that medical underservice should be addressed by programs such as the National Health Service Corps. Prior to December 2002, HHS only sponsored waivers for physicians or scientists involved in biomedical research of national or international significance. In December 2002, HHS announced that it would begin sponsoring J-1 waiver requests for primary care physicians and psychiatrists in order to increase access to healthcare services for those in underserved areas. HHS began accepting waiver applications on June 12, 2003, but suspended its program shortly after for reevaluation. On December 10, 2003, HHS released new program guidelines, and reinstated their program. Established by Congress in 1965, ARC is a joint federal and state entity charged with, among other things, ensuring that all residents of Appalachia have access to quality, affordable health care. The region covered by ARC consists of all of West Virginia and parts of Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia. ARC will submit a request for a waiver at the request of a state in its jurisdiction. The waiver must be recommended by the governor of the sponsoring state. In return, the FMG must agree to provide primary care for at least 40 hours a week for three years at a health professional shortage area facility. The facility must be a Medicare or Medicaid-certified hospital or clinic that also accepts medically indigent patients. The facility must also prove that it has made a good faith effort to recruit a U.S. physician in the six months preceding the waiver application. In addition, the physician must be licensed by the state in which he or she will be practicing, and must have completed a residency in family medicine, general pediatrics, obstetrics, general internal medicine, general surgery, or psychiatry. The physician must sign an agreement stating that he or she will comply with the terms and conditions of the waiver, and will pay the employer $250,000 if he or she does not practice in the designated facility for three years. On May 17, 2004, the DRA officially began accepting applications for its new J-1 visa waiver program. The DRA includes 240 county or parish areas in Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri and Tennessee. The goal of the Authority is to stimulate economic development and foster partnerships that will have a positive impact on the economy of the eight states that make up the Authority. Under the DRA's waiver program, physicians must submit an application processing fee; agree to practice in DRA designated shortage areas for a period of at least three years; and agree to pay $250,000 to the sponsoring facility if they do not fulfill any portion of their commitment, or $6,945 per month for each month they fail to fulfill their requirement. In 1994, Senator Kent Conrad sponsored the provision establishing the J-1 visa waiver program at the state level. The program is commonly referred to as the "Conrad State Program" program after him. Under the original program, participating states were allowed to sponsor up to 20 waiver applications for primary care physicians annually. To date, this provision has been extended several times. In 1996, the program was extended until 2002. Once again in 2002, the program was extended until 2004 and the number of waivers allowed per state was increased to 30. In 2004, Congress extended the Conrad program until June 1, 2006, and expanded the program to allow states to recruit primary care and specialty physicians. Other provisions of the law exempted waiver recipients from the H-1B annual cap, and allowed the states to place up to five physicians in facilities that serve patients living in designated shortage areas without regard to the facility's location. Previously, physicians could only serve in facilities located in designated shortage areas. In 2007, the program was extended through June 1, 2008. The waiver process for states is the same as other IGAs, however administration of the program varies by state. FMGs who are sponsored for a J-1 visa waiver by a state agree to practice medicine in designated shortage areas in the sponsoring state for a period of three to four years. FMGs working in these areas are not only required to meet the general requirements for medical licensing in the United States, but they are also required to meet state-specified licensing criteria. According to a 2006 Government Accountability Office (GAO) report on the J-1 program, states accounted for 90% of waiver requests, and had requested more than 3,000 waivers between 2003 and 2005. Several bills were introduced in the 110 th Congress that would have extended or expanded the Conrad Program. Ultimately, P.L. 110-362 extended the program through March 6, 2009. In an effort to extend the state J-1 waiver program for physicians, Representative Zoe Lofgren introduced H.R. 1127 on February 23, 2009, and it became public law on March 20, 2009. This law extends the waiver provision until September 30, 2009. On July 8, 2009, Senator Orrin Hatch introduced S.Amdt. 1428 to the Department of Homeland Security Appropriations Act ( H.R. 2892 ). The amendment, which passed unanimously on July 9, 2009, would extend the program through September 30, 2012. H.R. 2892 passed the Senate on July 9, 2009. | The Educational and Cultural Exchange Visitor program has become a gateway for foreign medical graduates (FMGs) to gain admission to the United States as nonimmigrants for the purpose of graduate medical education and training. The visa most of these physicians enter under is the J-1 nonimmigrant visa. Under the J-1 visa program, participants must return to their home country after completing their education or training for a period of at least two years before they can apply for another nonimmigrant visa or legal permanent resident (LPR) status, unless they are granted a waiver of the requirement. To qualify for a waiver, a request must be submitted on behalf of the FMG, by an Interested Government Agency (IGA), or a state Department of Health. In exchange, the FMG must agree to work in a designated healthcare professional shortage area for a minimum of three years. The ability of states to request a waiver is known as the "Conrad State Program," and was added temporarily to the Immigration and Nationality Act (INA) in 1994. The "Conrad State Program" has been extended by the past several Congresses. Most recently, the program was extended until September 30, 2009, by P.L. 111-9. This report will be updated as warranted by legislative developments. |
H.R. 3962 , Affordable Health Care for America Act, was introduced in the House of Representatives on October 29, 2009. H.R. 3962 is based on H.R. 3200 , America's Affordable Health Choices Act of 2009, originally introduced on July 14, 2009, and reported separately on October 14, 2009, by three House Committees—Education and Labor, Energy and Commerce, and Ways and Means. H.R. 3962 was further modified by the manager's amendment posted on November 3, 2009. On November 7, 2009, H.R. 3962 , as amended, was passed by the House. A Republican alternative amendment in the nature of a substitute, dated November 3, 2009, is addressed in a separate CRS report. On November 6, the Congressional Budget Office (CBO) released an updated estimate of the direct spending and revenue effects of H.R. 3962 , incorporating the manager's amendment proposed on November 3, and enactment of H.R. 3548 (the Worker, Homeownership, and Business Assistance Act of 2009, signed into law on November 6. This estimate projects the bill would reduce federal deficits by $109 billion over the 10-year period of 2010-2019 and, by 2019, would insure 96% of the non-elderly, legally present U.S. population. The gross 10-year cost of the Exchange subsidies ($610 billion), increased federal Medicaid expenditures ($425 billion), and tax credits for small employers ($25 billion) would total $1.052 trillion. Taking into account employer and individual tax penalties and other issues pertaining to coverage, the net cost of the coverage provisions, according to the CBO analysis, would be $891 billion over 10 years. "Over the 2010-2019 period, the net cost of the coverage expansions would be more than offset by the combination of other spending changes, which CBO estimates would save $427 billion, and receipts resulting from the income tax surcharge on high-income individuals and other provisions, which JCT [the Joint Committee on Taxation] and CBO estimate would increase federal revenues by $574 billion over that period." The Office of the Actuary, within the Centers for Medicare and Medicaid Services (CMS), has issued an alternative estimate of the financial effects of H.R. 3962 as passed by the House on November 7, 2009. On November 13, 2009, CMS's Office of the Actuary approximated potential monetary and coverage impacts of the non-tax provisions in H.R. 3962 . According to the CMS report, the cost of H.R. 3962 , ignoring the tax offsets, is $935 billion. This is only slightly higher than CBO's estimate of $891 billion, which includes the tax provisions. In addition, the CMS memorandum projected that H.R. 3962 would insure an additional 34 million legal residents, or 93 % of the U.S. population. The Office of the Actuary also estimated possible impacts on the health care system as a whole. H.R. 3962 proposes sweeping reforms of the U.S. health insurance and health care system. The three major components of the bill are designated Divisions A, B, and C. Division A, "Affordable Health Care Choices," focuses on reducing the number of uninsured, restructuring the private health insurance market, setting minimum standards for health benefits, and providing financial assistance to certain individuals and, in some cases, small employers. Division B, "Medicare and Medicaid Improvements," proposes modifications to the largest two public health insurance programs to make them consistent with the changes proposed in Division A and to amend other provisions in existing federal statute. Division B also introduces a number of technical changes intended to improve quality of care, reduce federal and state expenditures, and address coverage gaps for both Medicare and Medicaid. For Medicaid, among other major proposals, Division B would expand Medicaid eligibility for traditional and non-traditional beneficiary categories up to 150% of the federal poverty level (FPL). Division C, "Public Health and Workforce Development," would amend and expand existing health professions and nursing workforce programs. This report provides a discussion of the Medicaid and CHIP provisions contained in H.R. 3962 , and is divided into seven major categories: Eligibility. Benefits. Financing. Waste, Fraud, and Abuse. Payments to Territories. Demonstrations and Pilot Programs. Miscellaneous. Each topic contains a brief summary of existing Medicaid law and related background to provide context for the description of changes proposed by H.R. 3962 . Medicaid is a means-tested entitlement program operated by states within broad federal guidelines. To qualify, an individual must meet both categorical (i.e., must be a member of a covered group such as children, pregnant women, families with dependent children, the elderly, or the disabled) and financial eligibility requirements. Medicaid's financial requirements place limits on the maximum amount of assets and income individuals may possess to participate in Medicaid. Additional guidelines specify how states should calculate these amounts. The specific asset and income limitations that apply to each eligibility group are set through a combination of federal parameters and state definitions. Consequently, these standards vary across states, and different standards apply to different population groups within states. Of the approximately 50 different eligibility "pathways" into Medicaid, some are mandatory while others may be covered at state option. Examples of groups that states must provide Medicaid to include pregnant women and children under age six with family income below 133% of the federal poverty level (FPL), and poor individuals with disabilities or poor individuals over age 64 who qualify for cash assistance under the SSI program. Examples of groups that states may choose to cover under Medicaid include pregnant women and infants with family income exceeding 133% FPL up to 185% FPL, and "medically needy" individuals who meet categorical requirements with income up to 133% of the maximum payment amount applicable under states' former Aid to Families with Dependent Children (AFDC) programs based on family size. "Childless adults" (nonelderly adults who are not disabled, not pregnant and not parents of dependent children), for example, are generally not eligible for Medicaid, regardless of their income. H.R. 3962 makes several changes to Medicaid eligibility. Among the provisions that would impact eligibility, the bill would add four new mandatory eligibility groups, and add two new optional eligibility groups. In addition, it would make several modifications to existing eligibility groups, and add provisions to facilitate outreach and enrollment in Medicaid, CHIP, and the Health Insurance Exchange. H.R. 3962 would add four new mandatory eligibility groups to the Medicaid statute (i.e., one "non-traditional" eligibility group and three "traditional" eligibility groups) beginning in 2013: 1. Individuals under age 65 who are (1) not otherwise eligible for Medicaid under existing mandatory eligibility categories (e.g., childless adults), (2) not entitled to Medicare Part A, and (3) have family income up to 150% of the federal poverty level as determined using methodologies and procedures specified by the Secretary of the Department of Health and Human Services (the Secretary) in consultation with the Health Choices Commissioner. (The Commissioner is primarily in charge of enforcing new private health insurance standards and would oversee the Health Insurance Exchange, as described in Sec. 142 of H.R. 3962 ). Full Medicaid benefits would be available to these "non-traditional" individuals, and would be fully financed by the federal government (i.e., the applicable federal medical assistance percentage would be 100%) for the periods before 2015, decreasing to 91% beginning in 2015. 2. Individuals over age 18 and under age 65 who (1) would otherwise be eligible for Medicaid as an individual who would qualify for the Supplemental Security Income for the Aged, Blind and Disabled program, the former AFDC program, and the Foster Care or Adoption Assistance (Title IV-Part E) program; or (2) would be a member of certain low-income families eligible under Section 1931 (based on the income standards, methodologies, and procedures in effect as of June 16, 2009). For both groups, the upper income limit would not exceed 150% of the FPL. Full Medicaid benefits would be provided to these "traditional" eligible individuals and would be fully financed by the federal government (i.e., the applicable federal medical assistance percentage would be 100%) for the periods before 2015, decreasing to 91% beginning in 2015. 3. Children through age 18 who (1) would otherwise be eligible for Medicaid as an individual who would qualify for the Supplemental Security Income for the Aged, Blind and Disabled program, the former AFDC program, and the Foster Care or Adoption Assistance (Title IV-Part E) program, (2) are infants with family income between 133% and 150% of the FPL, (3) are children age 1 through age 5 with family income between 133% and 150% of the FPL; or (4) are age 6 through age 18 with family income between 100% and 150% of the FPL (based on the income standards, methodologies and procedures in effect as of June 16, 2009). Full Medicaid benefits would be available to these expanded "traditional" child populations and would be matched at the CHIP enhanced matching rate beginning with 2014. 4. Other children not described above under the age of 19 who would be eligible as CHIP targeted low-income children under Medicaid as of June 16, 2009. Full Medicaid benefits would be available to these "traditional" child populations and would be matched at the CHIP enhanced matching rate beginning with 2014. All of the new mandatory eligibility groups would include individuals covered under Medicaid waivers and those receiving coverage paid for with state only funds. The Medicaid statutory language that deems certain newborns to be eligible for Medicaid for up to one year would be extended to include children born in the U.S up to the first 60 days of life who do not have acceptable coverage upon birth. Full Medicaid benefits would be available to such children and would be fully financed by the federal government (i.e., the applicable federal medical assistance percentage would be 100%) for the periods before 2015, decreasing to 91% beginning in 2015. States would not be permitted to enroll "non-traditional" Medicaid eligibles in a managed care entity unless the state demonstrates that the entity has the capacity to meet the health, mental health, and substance abuse needs of such individuals. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage (except for Medicare cost-sharing assistance), and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010-FY2019 period. As a condition of continued availability of federal Medicaid matching funds, states would not be permitted to adopt eligibility standards, methodologies, or procedures in their Medicaid or CHIP programs (including waivers) that would be more restrictive than those in effect as of June 16, 2009. States would also not be eligible for federal matching funds for the application of an asset or resource test in determining (or re-determining) eligibility for individuals in specified Medicaid eligibility groups (e.g., the former AFDC program, and the Foster Care or Adoption Assistance (Title IV-Part E) program; certain first-time pregnant women who would be eligible for Temporary Assistance to Needy Families (TANF) if the child was born; pregnant women and children under age six with family income below 133⅓% of the federal poverty level (FPL); families who meet the requirements of the former AFDC programs in effect in their states on July 16, 1996; or any of the new mandatory eligibility groups added under this bill). Medicaid benchmark or benchmark equivalent coverage must meet the minimum benefits and cost-sharing standards of a basic plan offered through the Health Insurance Exchange (the Exchange). With regard to the CHIP program, the CHIP maintenance of effort (MOE) requirements would prohibit states from having in effect eligibility standards, methodologies, or procedures that are more restrictive than what was in effect on June 16, 2009. This MOE requirement would terminate on December 31, 2013, after which CHIP eligibles would receive coverage through the Exchange. The bill would also prohibit the Congress from appropriating or authorizing to be appropriated federal CHIP funds beyond the program's current authorization period (i.e., 2013). The CHIP MOE provision would not prevent a state from imposing limitations (e.g., limiting acceptance of applications or imposing a waiting list) in order to limit expenditures under dental-only separate CHIP programs (per Section 2105 of the Social Security Act) for that fiscal year. No later than December 31, 2011 the Secretary would be required to submit a report to Congress that compares the benefits packages offered under an average State children health plan in 2011 to the benefit standards initially adopted for plans available under the Exchange. The report would be required to include recommendations to ensure that such coverage is at least comparable to the coverage provided to children under an average State child health plan, and there are procedures in effect to enroll CHIP enrollees at the end of 2013 into qualified health benefits plans, or into other acceptable coverage without interruption or a written plan of treatment. Finally, in case of a state with a Medicaid or CHIP waiver under Section 1115 in effect on June 16, 2009, that permits childless individuals to be eligible solely to receive a premium or cost-sharing subsidy for individual health insurance coverage, effective for coverage provided in 2013, the Secretary may permit the state to amend such waiver to apply more restrictive eligibility standards, methodologies, or procedures with respect to such individuals under the waiver without regard to the Medicaid and CHIP maintenance of eligibility requirements specified above. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage, and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010- FY2019 period. Supplemental Security Income (SSI) is a means-tested program that provides cash benefits to aged, blind and disabled individuals. A person's eligibility for SSI benefits is based on his or her countable income and resources and the amount of an SSI recipient's monthly benefit is based on his or her countable income. Under current law, compensation received for participation in a clinical trial is counted as both income and resources under SSI program rules. Generally, an SSI recipient is also eligible for Medicaid, either automatically or through a separate application based on state law and policy. In addition, SSI's income and resource counting rules are used to determine eligibility for persons age 65 and older and persons with disabilities under Medicaid's SSI-related eligibility pathways. H.R. 3962 would disregard, from the income and resources counted to determine SSI eligibility and benefit levels, the first $2,000 earned in a year in exchange for a person's participation in a clinical trial to test a treatment for a rare disease or condition, as defined by Section 5(b)(2) of the Orphan Drug Act. This provision may allow additional clinical trial participants to become or remain eligible for the SSI program. Since SSI eligibility generally results in eligibility for Medicaid, this provision may also result in increased Medicaid participation. This provision would be required to become effective for calendar months beginning after the earlier of the date the Commissioner of Social Security promulgates regulations or a 180-day period that begins with this bill's enactment. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. H.R. 3962 would add two new optional categorically needy eligibility groups to Medicaid. One new group would be comprised of (1) non-pregnant individuals with income up to the highest level applicable to pregnant women covered under a Medicaid or CHIP state plan, and (2) certain individuals eligible for existing Section 1115 waivers that provide family planning services and supplies. Benefits for such individuals would be limited to family planning services and supplies and also would include related medical diagnosis and treatment services. The provision also would allow states to make a "presumptive eligibility" determination for individuals eligible for such services through the new optional eligibility group. (Under current law, presumptive eligibility determinations can be made for children, pregnant women, and certain women with breast or cervical cancer.) That is, states may enroll such individuals for a limited period of time before full Medicaid applications are filed and processed, based on a preliminary determination by Medicaid providers of likely Medicaid eligibility. (Such individuals would then be required to formally apply for coverage within a certain timeframe to continue receiving benefits.) In addition, states would not be allowed to provide Medicaid coverage through benchmark or benchmark-equivalent plans, which are permissible alternatives to traditional Medicaid benefits for some Medicaid beneficiaries under current law, unless such coverage includes family planning services and supplies. This provision would be effective upon enactment. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. The second new optional eligibility group under H.R. 3962 would be comprised of individuals who have HIV infection with income and resources that do not exceed the income and resource levels for that state's SSI-related Medicaid eligibility group. The federal government's share of expenditures for this new eligibility group would be based on the enhanced federal medical assistance percentage (FMAP) applicable to CHIP. The medical expenditures associated with this group in the territories would be matched without regard to the existing Medicaid spending caps. CBO estimates that this provision would cost $1.1 billion over the FY2010-FY2019 period. States are required to continue Medicaid benefits for certain low-income families who would otherwise lose coverage because of changes in their income. This continuation is called transitional medical assistance (TMA). Federal law permanently requires four months of TMA for families who lose Medicaid eligibility due to increased child or spousal support collections, as well as those who lose eligibility due to an increase in earned income or employment hours. However, in 1988, Congress expanded work-related TMA (under Section 1925 of the Medicaid statute), requiring states to provide at least six, with the option to provide up to 12, months of coverage. Since 2001, these work-related TMA requirements have been funded by a series of short-term extensions. In the latest Congressional action, the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) extends work-related TMA through December 31, 2010. H.R. 3962 would further extend work-related TMA under Section 1925 through December 31, 2012. CBO estimates this provision would cost $2.4 billion over the FY2010-FY2019 period. Certain low-income Medicare beneficiaries who are aged or have disabilities, as defined under the Supplemental Security Income (SSI) program, are eligible for Medicaid coverage of some or all of their Medicare Part B premiums, deductibles, and coinsurance under the Medicare Savings Program (MSP). Other Medicaid covered services are not covered for these individuals unless they qualify for Medicaid through other eligibility pathways (e.g. via SSI, medically needy, or the special income rule). Medicare Savings Program groups include Qualified Medicare Beneficiaries (QMBs), Specified Low-Income Medicare Beneficiaries (SLMBs), and Qualifying Individuals (QIs). QMBs have incomes no greater than 100% of the FPL and until December 31, 2009, assets no greater than $4,000 for an individual and $6,000 for a couple. Beginning on January 1, 2010, individuals will be able to qualify as a QMB with assets up to $11,010 for an individual and $22,010 for a couple. Medicaid pays the Medicare premiums, coinsurance and deductibles for QMBs. SLMBs meet QMB criteria, except that their income is greater than 100% of FPL and does not exceed 120% FPL. Medicaid pays Medicare premiums on behalf of SLMBs. QIs meet the QMB criteria, except that their income is between 120% and 135% of poverty and they are not otherwise eligible for Medicaid. Medicaid covers Medicare premiums for QIs. For QMBs and SLMBs the federal government currently contributes at the State's regular FMAP, and for QIs the federal government pays 100% of the costs up to each state's allocation. The QI program is currently slated to terminate December 2010. H.R. 3962 would expand the upper income eligibility threshold for QMBs to 150% of poverty. As under current law, QMBs with income up to 100% of poverty would continue to receive Medicaid coverage of their Medicare premiums, coinsurance, and deductibles. For QMBs with income from 100% up to 150% of poverty, H.R. 3962 would require Medicaid to pay Medicare coinsurance and deductibles for such individuals. CBO estimates this provision would cost $7.2 billion over the FY2010-FY2019 period. Regarding the asset test for the Medicare Savings Program, the bill would delay the increase currently scheduled to begin on January 1, 2010, to begin on January 1, 2012 and set the new asset test levels to $17,000 for an individual and $34,000 for a couple. These amount would be indexed annually by the Consumer Price Index (CPI). CBO's estimate of the cost for this provision is bundled into an estimate of a set of provisions impacting the Medicare Savings Program and Low-Income Subsidy Programs. The bill would also extend the QI group through December 2012. The federal government would continue to pay 100% of the cost of the QI group. State allocation limits would no longer apply. CBO estimates this provision would cost $1.5 billion over the FY2010-FY2019 period. Outpatient prescription drugs are an optional Medicaid benefit, but all states cover prescription drugs for most beneficiary groups. Under Medicaid law, states must cover certain categories of low-income individuals. These "categorically eligible" individuals include low-income pregnant women, children, families with dependent children, the elderly, and certain people with disabilities. States have the option to extend coverage to other individuals that meet these categorical requirements, but who have higher income levels. Federal law also gives states the option of allowing certain individuals with high medical expenses to qualify for Medicaid through so-called "spend-down" groups. Under these groups, people qualify only if their medical expenses (on such things as nursing home care, prescription drugs, etc.) deplete, or spend down, their income and assets to specified Medicaid thresholds. For most beneficiaries and services, state Medicaid programs are allowed to establish "nominal" service-related cost-sharing requirements. Nominal amounts are defined in regulations and are generally between $0.50 and $3 (adjusted annually for medical inflation), depending on the cost of the service provided. As an alternative to these traditional, nominal cost-sharing rules, the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) provided states the option to increase beneficiary cost-sharing. Total aggregate cost-sharing cannot exceed 5% of monthly or quarterly family income. Certain groups and services are exempt from the nominal and the DRA cost-sharing rules. Under H.R. 3962 , states would have the option to disregard family income when re-determining eligibility for individuals with extremely high prescription drug costs, but individuals would need to otherwise qualify for Medicaid without the benefit of this special disregard. Individuals would be considered to have extremely high prescription drug costs for a 12-month period if (1) they have health insurance coverage, including prescription drug coverage, that has at least a maximum lifetime limit of $1 million; (2) they have exhausted all available prescription drug coverage; (3) their anticipated annual orphan drug costs will be in excess of $200,000; and (4) their annual family income does not exceed 75% of the amount incurred for such orphan drugs. States also would have the option to apply family income disregards in determining individuals' Medicaid eligibility for the extremely high prescription drug benefit at any level so long as the income disregard did not exceed $200,000 in 2009 or 2010 (adjusted for medical inflation in subsequent years). For otherwise eligible individuals with income exceeding this ceiling, states may disregard income equal to the cost of the orphan drugs used by the beneficiary. States would be required to at least apply Medicaid's nominal cost-sharing rules to these beneficiaries, and would have the option to apply additional cost-sharing up to DRA cost sharing rules. CBO estimates this provision would cost $0.5 billion over the FY2010-FY2019 period. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ) limited access of noncitizens (aliens) to certain federal benefits including eligibility for non-emergency Medicaid, food stamps, Supplemental Security Income (SSI), and TANF to only those categories of aliens considered "qualified aliens" (e.g., legal permanent residents, asylees, and refugees). Citizens of the Freely Associated States (i.e., citizens of the Republic of the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau) are not considered qualified aliens under PRWORA. Prior to PRWORA, citizens of the Freely Associated States were not barred from Medicaid. In addition, under current law with some exceptions, qualified aliens arriving in the United States after August 22, 1996, are barred from full-Medicaid coverage for the first five years after entry. Coverage of such persons after the five-year bar is permitted at state option if such individuals meet other eligibility requirements. H.R. 3962 would make citizens of the Freely Associated States eligible for full Medicaid (without regard to the five-year bar) if they are (1) lawfully residing in the United States, (2) lawfully residing in the territories and possessions of the United State in accordance with the Compacts of Free Association between the Governments of the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau and at the options of the Governors of each such territory (as communicated in writing to the Secretary of HHS), and (3) are otherwise eligible for such coverage. CBO estimates this provision would cost $0.2 billion over the FY2010-FY2019 period. H.R. 3962 includes a provision that would require state Medicaid agencies to enter into a Medicaid memorandum of understanding (MOU) with the Health Choices Commissioner, acting in consultation with the Secretary, to coordinate implementation of the provisions on private health insurance, the Health Insurance Exchange, and health insurance premium credits with the Medicaid state plan to ensure the enrollment of Medicaid eligible individuals in acceptable coverage. Pursuant to this MOU, states would be required to accept without further determination the enrollment of traditional and non-traditional Medicaid eligible individuals (defined above) who are determined eligible by the Exchange. The state may conduct redeterminations of eligibility for these individuals consistent with the periodicity outlined in the MOU. If the Commissioner determines that a state Medicaid agency has the capacity to make determinations of eligibility for health insurance affordablity credits, then the MOU would provide for the following: (1) the state Medicaid agency must conduct such determinations for any Exchange-eligible individual who requests such a determination; (2) in the case that a state Medicaid agency determines that an Exchange-eligible individual is not eligible for affordability credits, the agency must forward the information on the basis of which such determination was made to the Commissioner; and (3) the Commissioner must reimburse the state Medicaid agency for the costs of conducting such determinations. In the case of an individual that applies for health insurance affordablity credits but based on the MOU the state does not have the authority to make such an eligibility determination, the state would be required to refer the individual to the Commissioner for an eligibility determination. In the case of a child born in the United States who at the time of birth is not otherwise covered under acceptable coverage, the child would be deemed to be a "non-traditional" Medicaid eligible and enrolled in Medicaid. For such children, the state would provide for a Medicaid eligibility determination not later than the date the child otherwise is covered under acceptable coverage (or, if earlier, the end of the month in which the 60-day period, beginning on the date of birth, ends). For such children who still do not have acceptable coverage at the end of the above defined period, the child would be deemed to be a traditional Medicaid eligible individual until such time as the child obtains acceptable coverage or the state otherwise determines the child to be eligible for the state Medicaid plan. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage, and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010-FY2019 period. H.R. 3962 would establish a publicly administered voluntary LTC insurance program within the Community Living Assistance and Supports (CLASS) provisions. The CLASS program would pay benefits to eligible persons who would require long-term care services. Such benefits would include cash payments set at a minimum of $50 a day, but amounts would vary based on the degree of the beneficiary's functional or cognitive impairment. Other benefits of the CLASS program would include advocacy services and advice and assistance counseling on accessing and coordinating LTC services. Under H.R. 3962 , employed individuals aged 18 and older or individuals who are non-working non-institutionalized spouses of workers could voluntarily enroll in the CLASS program. Regarding Medicaid, H.R. 3962 would ensure that Medicaid comply with the CLASS program regulations concerning primary and secondary payers for those Medicaid eligible individuals who are also beneficiaries of the CLASS program. Specifically, the CLASS program would be the primary payer for LTC services for Medicaid enrollees and Medicaid would be the secondary payer. CLASS beneficiaries receiving institutional care and eligible for Medicaid would be able to retain 5% of the CLASS program daily or weekly applicable cash benefit (in addition to Medicaid's personal needs allowance). The remainder of the benefit would be applied to the facility's cost of providing the beneficiary's care. Medicaid would be required to provide secondary coverage of such care. For those receiving home- and community-based services, the state would receive 50% of a beneficiary's daily or weekly cash benefit from the CLASS program. Not later than two years after enactment, H.R. 3962 would also require each state to assess the extent to which certain long-term care providers, public authorities created to provide personal care services to individuals eligible for Medicaid under the state plan, and nonprofit organizations, are serving or have the capacity to serve as fiscal agents for the CLASS program; help ensure an adequate supply of the workers for individuals receiving CLASS program benefits, including in rural and underserved areas; and ensure that the designation of certain entities in the CLASS program would not negatively alter or impede existing programs that provide for consumer controlled or self-directed home and community services, among other requirements. CBO's cost estimate for this provision in Medicaid is incorporated into its estimate for the CLASS provision in Division C (Public Health and Workforce Development) of H.R. 3962 . Under current law, a Medicaid state plan must provide for the receipt and initial processing of applications for medical assistance for low-income pregnant women, infants, and children under age 19 at outstation locations other than TANF offices, such as disproportionate share hospitals and Federally-qualified health centers (FQHCs). State eligibility workers assigned to outstation locations perform initial processing of Medicaid applications including taking applications, assisting applicants in completing the application, providing information and referrals, obtaining required documentation to complete processing of the application, assuring that the information contained on the application form is complete, and conducting any necessary interviews. States must also use applications which are other than those used for aid under TANF. H.R. 3962 would require states to provide for receipt and initial processing of Medicaid applications at specified outstation locations for all Medicaid applicants, and would require state Medicaid programs to allow individuals applying for affordability credits (under subtitle C of title III of Division A) to apply for Medicaid coverage at Disproportionate Share Hospitals (DSH) hospitals, FQHCs, and locations apart from welfare offices. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage, and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010-FY2019 period. In general, no federal matching funds are available for medical services delivered to inmates of public institutions. Such public institutions are the responsibility of a governmental unit or over which a governmental unit exercises administrative control. Federal rules do not require states to terminate Medicaid eligibility for inmates (individuals residing in a public institution), but research indicates that most states do so. H.R. 3962 would require that states not terminate Medicaid eligibility for certain youth during periods of incarceration in a public institution. States would also be required to establish a process that ensures that no claims for federal matching funds be made for services delivered to youth while in a public institution and that such youth receive Medicaid services for which federal matching funds would be available. States must ensure that enrollment in Medicaid for such youth be completed before their release date. This provision would be applicable to an individual who (1) is 18 years of age or younger, (2) was enrolled in Medicaid under the state plan immediately before becoming an inmate of a public institution, (3) is 18 years of age or younger upon release from such institution, and (4) is eligible for Medicaid under the state plan at the time of his/her release. CBO estimates this provision would cost $0.6 billion over the FY2010-FY2019 period. Under CHIP, states may enroll targeted low-income children in a CHIP-financed expansion of Medicaid, create a new separate state CHIP program, or devise a combination of both approaches. States are required to re-determine CHIP eligibility at least every 12 months with respect to circumstances that may change and affect eligibility. Continuous eligibility allows a child to remain enrolled for a set period of time regardless of whether the child's circumstances change (e.g., the family's income rises above the eligibility threshold), thus making it easier for a child to stay enrolled. Not all states offer it, but among those that do, the period of continuous eligibility ranges from six months to 12 months. H.R. 3962 would require separate CHIP programs that cover children in families with annual income less than 200% of the federal poverty level to provide for 12 months of continuous coverage. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage, and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010-FY2019 period. Federal CHIP statute allows states to use a number of factors in determining eligibility for beneficiaries. However, states are not permitted to (1) extend coverage to children in families with higher family income without covering children with lower family income; (2) deny eligibility based on a preexisting medical condition; (3) apply a waiting period to targeted low-income pregnant woman who qualify for pregnancy-related assistance, or (4) apply a waiting period in the case of a child who is eligible for dental-only supplemental coverage. H.R. 3962 would preclude states from applying a waiting period to children applying for child health assistance who are (1) under two years of age; (2) who lost health insurance coverage under a group health plan or health insurance coverage offered through an employer due to (a) a loss of a job, (b) a reduction in work hours, (c) the elimination of an individual's retiree health benefits, or (d) the termination of an individual's health insurance coverage offered through an employer; or (3) the family of the child demonstrates that the cost of health insurance coverage (including the cost of premiums, co-payments, deductibles, and other cost sharing) exceeds 10% of the family income. CBO's estimate of the cost for this provision is included in the estimate for expanding health insurance coverage, and is represented in the net cost of coverage provisions, estimated to be $891 billion over the FY2010-FY2019 period. Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA, P.L. 111-3 ) included provisions to facilitate access and enrollment in Medicaid and CHIP. Among the provisions related to outreach and enrollment, CHIPRA authorizes $100 million in outreach and enrollment grants above and beyond the regular CHIP allotments for fiscal years 2009 through 2013. Ten percent of the outreach and enrollment grants will be directed to a national enrollment campaign, and 10% will be targeted to outreach for Native American children. The remaining 80% will be distributed among state and local governments and to community-based organizations for purposes of conducting outreach campaigns with a particular focus on rural areas and underserved populations. Grant funds will also be targeted at proposals that address cultural and linguistic barriers to enrollment. Also as a part of the outreach-related provisions, CHIPRA requires state plans to describe the procedures used to reduce the administrative barriers to the enrollment of children and pregnant women in Medicaid and CHIP, and to ensure that such procedures are revised as often as the state determines is appropriate to reduce newly identified barriers to enrollment. H.R. 3962 would require the Secretary to issue guidance regarding standards and best practices (e.g., outstationing of eligibility workers, express lane eligibility, presumptive eligibility, continuous eligibility, and automatic renewal) to facilitate outreach and enrollment of eligible individuals in Medicaid and/or CHIP. Such guidance would be required to be issued not later than 12 months after date of enactment of this Act and must target vulnerable populations (e.g., unaccompanied homeless youth, victims of abuse or trauma, persons with mental health or substance related disorders, and individuals with HIV/AIDS). In implementing the requirements of this provision, the Secretary would be permitted to use such authorities as are available under law and may work with such entities as the Secretary deems appropriate to facilitate effective implementation of such programs. Not later than two years after the enactment of this Act and annually thereafter, the Secretary would be required to review and report to Congress on progress in implementing targeted outreach, application and enrollment assistance, and administrative simplification methods for such vulnerable and underserved populations. CBO estimates that this provision would have no effect on direct spending over the FY2010-FY2019 period. States are permitted to seek federal reimbursement for the use of Medicaid managed care enrollment brokers when certain conditions are met (e.g., the broker is independent of the managed care entity and of any health care providers in a given state; no person who is an owner, employee, or consultant or has a contract with the broker has any direct or indirect financial interest in the entity or health care provider). Enrollment brokers serve as a link between the Medicaid managed care delivery system and the Medicaid enrollee. Medicaid enrollment brokers (normally chosen as the result of a competitive bidding process) provide outreach, enrollment and education services to Medicaid consumers about available participating Medicaid managed care plans/entities in the state. H.R. 3962 would require the Inspector General of the Department of Health and Human Services to rule that certain Medicaid brokers have established and maintain procedures to ensure the independence of their enrollment activities from the interests of any managed care entity or provider. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. Under current law, unauthorized aliens (i.e., illegal aliens, foreign nationals who are not lawfully present in the United States) are ineligible for Medicaid and CHIP. Such individuals who meet the categorical and residency eligibility requirements for Medicaid, but are ineligible due to immigration status, are only eligible for Medicaid coverage for emergency conditions (i.e., emergency Medicaid), which includes costs associated with labor and delivery for pregnant women. H.R. 3962 would specify that nothing would change the current prohibitions against federal Medicaid and CHIP payments on behalf of individuals who are not lawfully present in the United States. Since the provision reiterates current law, certain unauthorized aliens would still be eligible for emergency Medicaid services only, and providers could still obtain Medicaid reimbursement for such care. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. Medicaid benefits are identified in federal statute and regulations and include a wide range of medical care and services. Some benefits are specific items, such as eyeglasses and prosthetic devices. Other benefits are defined in terms of specific types of providers (e.g., physicians, hospitals). Still other benefits define specific types of services (e.g., family planning services and supplies, pregnancy-related services) that may be delivered by any qualified medical provider that participates in Medicaid. Finally, additional benefits include premium payments for coverage provided through managed care arrangements and Medicare premium and cost-sharing support for persons dually eligible for both Medicare and Medicaid. Medicaid's basic benefit rules require all states to provide certain "mandatory" services (e.g., inpatient hospital care, physician services, lab/x-ray services). The statute lists additional services that are considered optional (e.g., other licensed practitioners, rehabilitative services, nursing facility services for individuals under age 21) - that is, federal matching payments are available for optional services if states choose to include them in their Medicaid plans. States define the specific features of each mandatory and optional service to be provided under that plan within broad federal guidelines. H.R. 3962 would make a number of changes to benefits under the Medicaid program. For example, this bill would add a new mandatory benefit for coverage of certain preventive services. The bill would also add some optional Medicaid benefits (e.g., nurse home visitation services) and clarify the availability of certain existing optional services under current law (e.g., therapeutic foster care services, adult day health care). H.R. 3962 would also makes coverage of services provided by podiatrists and optometrists mandatory, rather than optional as under current law. These and other proposed benefit changes are described below. Medicaid statute lists types of services covered under Medicaid, some of which are mandatory benefits, and others are optional. For beneficiaries under 21 years of age, states must cover a package of preventive services under the Early and Periodic Screening, Diagnostic, and Treatment Services (EPSDT). For eligible beneficiaries including adults, states are required to cover family planning services and supplies, and certain pregnancy-related services. Coverage may be required if, for example, a service meets another applicable requirement, such as physician's services. Otherwise, state coverage of screening and preventive services for adults is optional. H.R. 3962 would require Medicaid state plans to cover, for all beneficiaries, preventive services that the Secretary determines are (1) services recommended with a grade of A or B by the Task Force on Clinical Preventive Services (established by this bill), or vaccines recommended by the Centers for Disease Control and Prevention (CDC), and (2) appropriate for Medicaid beneficiaries. This section would also amend Section 1928 of the Social Security Act (SSA) to clarify that vaccines covered under the Vaccines for Children (VFC) authority are those recommended by the CDC Director, rather than an advisory committee to the Director, and would also prohibit cost-sharing for the preventive services identified in this section, including cost-sharing otherwise permitted under traditional Medicaid and the optional alternative cost-sharing structure defined under DRA. Except as provided in the general rule for changes requiring state legislation (described later in this report), this provision would apply to services furnished on or after July 1, 2010, without regard to whether related final regulations have been promulgated by that date. CBO estimates this provision would cost $10.7 billion over the FY2010-FY2019 period. Some standard Medicaid benefits are mandatory for most Medicaid groups (e.g., inpatient hospital services, physician services, family planning services and supplies, federally qualified health center services, nursing facility services for persons age 21 or older). Under Medicaid, physician services are those furnished by a physician as defined in the Medicare statute, whether furnished in the office, the patient's home, a hospital, a nursing facility, or elsewhere. Other benefits are optional. Examples of optional benefits for most Medicaid groups that are offered by many states include prescribed drugs (covered by all states), other licensed practitioners (e.g., podiatrists, optometrists, chiropractors, psychologists), and nursing facility services for individuals under age 21 years. H.R. 3962 would modify the definition of mandatory "physician services" under Medicaid to also include a doctor of podiatric medicine as defined in the Medicare statute, effective as of January 1, 2010. Similarly, the bill would make services provided by optometrists as defined in the Medicare statute a new mandatory benefit under Medicaid. This latter provision would take effect 90 days after enactment of this bill. CBO estimates these two provisions would cost $0.2 billion and $0.1 billion, respectively, over the FY2010-FY2019 period. Federal regulations (42 CFR 431.35) require state Medicaid plans to assure necessary transportation for recipients to and from providers, and describe the methods that the agency will use to meet those requirements. In late 2007, the Bush Administration issued a final rule (effective February 26, 2008) that would have eliminated Medicaid reimbursement for school-based administrative costs and costs of transportation to and from school. That rule modified the existing federal regulation on assurance of transportation, adding that for the purposes of this assurance, necessary transportation did not include transportation of school-age children between home and school. Subsequent to the publication of this final rule, Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173 ) imposed a moratorium on further action until June 30, 2008. This moratorium prevented the Centers for Medicare and Medicaid Services (CMS) from imposing restrictions contained in this rule that were more stringent than those applicable as of July 1, 2007. This moratorium was extended twice, first until April 1, 2009 (via Supplemental Appropriations Act, 2008, P.L. 110-252 ) and then until July 1, 2009 (via American Recovery and Reinvestment Act of 2009, P.L. 111-5 ). On June 29, 2009, the Obama Administration announced that it would rescind the final rule on school-based administration and transportation. H.R. 3962 would add non-emergency transportation to medically necessary services, consistent with 42 CFR 431.53 as in effect as of June 1, 2008 (when the Bush Administration final rule was not in effect), to the list of mandatory Medicaid benefits identified in federal statute that are available to Medicaid beneficiaries eligible under the state Medicaid plan. This provision would apply to such transportation services provided on or after the date of enactment. CBO estimates that the cost for this provision would be negligible (i.e., plus or minus $50 million). "Services provided by federally qualified health centers" are a mandatory benefit under Medicaid for most Medicaid beneficiaries. For Medicaid purposes, H.R. 3962 would modify the definition of federally qualified health centers to include school-based health clinics (SBHC) that receive grants under a new SBHC grant program to be established by the Secretary under another provision of this bill in Division C. CBO estimates this provision would cost $1.0 billion over the FY2010-FY2019 period. Under federal Medicaid law, when prescription drug manufacturers enter into rebate agreements with the Secretary, states are required to cover all drug products offered for sale by these manufacturers, except products in 11 drug classes including smoking cessation products. Although prescription drugs are an optional Medicaid benefit, all states cover drugs for most beneficiaries. Under current law, Medicaid programs may cover tobacco cessation counseling services for pregnant women as an optional benefit. If the state covers tobacco cessation drugs when these are dispensed as part of that counseling states receive FFP for these expenditures. Under H.R. 3962 , smoking cessation products would be removed from the list of excluded drugs, so that state Medicaid plans would be required to cover prescription and non-prescription FDA-approved smoking cessation products when these are covered by rebate agreements. CBO estimates this provision would cost $0.1 billion over the FY2010-FY2019 period. Federal and state governments share in the cost of Medicaid benefits based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the national average (and vice versa). The federal matching rate for administrative expenditures is the same for all states and is generally 50%, but certain administrative functions have a higher federal matching rate. States have the option of covering language translation or interpretation services as a benefit, so Medicaid programs could receive federal financial participation for these services. The Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA, P.L. 111-3 ) provided a 75% matching rate for language translation or interpretation services in connection with the enrollment and retention of, and use of services under Medicaid by children of families for whom English is not the primary language. Under H.R. 3962 , beginning January 1, 2010, states would receive the 75% matching rate for translation and interpretation services for other Medicaid beneficiaries, in addition to children of families whose primary language is not English. CBO estimates this provision would cost $0.3 billion over the FY2010-FY2019 period. While there is statutory authority under Medicaid to pay for services rendered by nurse midwives, there is no statutory authority to provide for direct payments to freestanding birthing centers for facility services. H.R. 3962 would add an optional benefit for freestanding birth center services and other ambulatory services offered by a freestanding birth center that are otherwise covered under the state Medicaid plan. The term "freestanding birth center services" would be defined as services furnished to an individual at a freestanding birth center, including by a licensed birth attendant. The term "freestanding birth center" would be defined as a health facility that is not a hospital and where childbirth is planned to occur away from the pregnant woman's residence. The term "licensed birth attendant" would be defined as an individual who is licensed or registered by the state to provide health care at childbirth and who provides such care within the scope of practice and which the individual is legally authorized to perform under state law (or state regulatory mechanism provided by state law), regardless of whether the individual is under the supervision of, or associated with, a physician or other health care provider. This provision would not change state law requirements applicable to licensed birth attendants, and would be effective for items and services furnished on or after the date of enactment of this Act. CBO estimates that the cost for this provision would be negligible (i.e., plus or minus $50 million). In general, therapeutic foster care (TFC) temporarily places youths with serious emotional and behavioral issues with specially trained foster families. Although TFC programs vary, children/adolescents are placed for six to seven months in a structured environment where they are rewarded for positive social behavior and penalized for disruptive and aggressive behavior. TFC is not specifically addressed in Medicaid law, although it sometimes is considered a service under the rehabilitative services benefit, where states have the option to cover rehabilitative services, including medical or remedial services to reduce physical or mental disability and restoration of best possible functional level. There has been debate whether TFC should be considered a medical treatment and whether it should be paid for as a foster care benefit or a Medicaid rehabilitative service or other benefit. CMS issued a controversial rehabilitative services proposed rule in August 2007, but a final rule was never implemented. The proposed rule would have prevented states from receiving federal financial participation (FFP) for TFC under rehabilitative services. Congress imposed a moratorium on implementation of the rehabilitative services rule, along with other administrative rules, until March 2009. The March moratorium was extended until July 1, 2009 by the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). ARRA also included a sense of the Congress provision that CMS should not promulgate a final rule for rehabilitative services and other Medicaid regulations. This provision in H.R. 3962 would clarify that states would have the option under Medicaid to cover TFC for Medicaid eligible children in out-of-home placements. TFC would be defined as a foster care program that provides certain services to parents (e.g., specialized training and consultation on management of troubled youth placed in their care) and children (e.g., structured activities to promote age-appropriate behaviors, crisis intervention, medication monitoring, and case management services). CBO estimates this provision would cost $0.6 billion over the FY2010-FY2019 period. Adult day health care services often include coordinated services for adults in a community-based group setting, but services provided vary greatly depending on whether they follow a medical, social or combination model of care. Services are designed to provide social and some health services to adults who need supervised care in a safe place outside the home during the day. Like TFC, adult day health care services are not specifically addressed in current Medicaid law, although these services often are considered rehabilitative services. There also has been disagreement about whether adult day health care services should be considered medical treatment and whether individuals using these services are receiving rehabilitative services or care that is more custodial or habilitative services. As noted under the discussion of TFC, CMS issued a proposed rehabilitative services rule in August of 2007. That rule sought to clarify the distinction between rehabilitative services that focus on restoration of individuals' functional levels and habilitative services designed to help people acquire new functional abilities. Under a 1989 law, CMS was forbidden from taking adverse action against states that were approved to cover habilitative services until regulations were issued specifying the types of day habilitation services that states could cover under Medicaid. The proposed rehabilitation services rule would have withdrawn prior approval of habilitative services in states grandfathered under the 1989 law. Congress imposed a moratorium on further administrative action on the rehabilitative services rule, along with other administrative rules, until April 1, 2009. Subsequently, ARRA included a Sense of the Congress provision that CMS should not promulgate a final rule for rehabilitative services. H.R. 3962 would prohibit the Secretary from denying federal reimbursement for adult day health care services, day activity and health services, or adult medical day care services, as defined under a state Medicaid plan approved before 1995. The Secretary also would be prohibited from withdrawing federal approval (by regulation or otherwise) for rehabilitative services under a state Medicaid plan. This provision would apply to services provided beginning October 1, 2008. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. Section 1928 of the SSA authorizes the VFC program, under which Medicaid assumes the costs for providing certain low-income children with recommended vaccinations. Medicaid law further defines children who are eligible for vaccines as those who are eligible for Medicaid; who are uninsured; and who receive vaccines purchased through the program and administered at a FQHC or rural health clinic, and do not have health insurance coverage for vaccines, or who are Indians. H.R. 3962 would add public health clinics to the list of providers that may administer vaccines to eligible children under the VFC program. CBO estimates this provision would cost $0.5 billion over the FY2010-FY2019 period. Medicaid financing is shared by the federal government and the states. The federal share for most Medicaid expenses for benefits is determined by the federal medical assistance percentage (FMAP). FMAP is based on a formula that provides higher reimbursement to states with lower per capita income relative to the national average (and vice versa). FMAPs have a statutory minimum of 50% and maximum of 83%, although some Medicaid services receive a higher federal match rate. FY2009 FMAPs ranged from a high of 75.8% in Mississippi to a low of 50.0% in 13 other states. In February of this year, with passage of ARRA, states received temporary enhanced FMAP rates for nine quarters beginning with the first quarter of FY2009 and running through the first quarter of FY2011. State expenditures to administer their Medicaid programs are matched by federal funding at the 50% matching funding rate. Federal matching rates for administrative expenditures are the same for all states, although some activities are matched at higher rates. Within broad federal guidelines, states generally control Medicaid spending levels by tailoring eligibility, covered services, cost-sharing and premiums paid by beneficiaries, provider reimbursement rates, and other program components to achieve their budget and policy goals. To receive payment for the federal share of Medicaid expenditures, states submit quarterly expenditure reports to the Centers for Medicare and Medicaid Services (CMS). The Medicaid financing provisions in H.R. 3962 generally can be considered technical changes or refinements that would reduce federal and state health care expenditures. The proposed changes would affect Medicaid purchases of prescription drugs, disproportionate share hospital (DSH) payments, and graduate medical education (GME) payments. Some of the Medicaid financing provisions in H.R. 3962 , discussed in this section, appear in two Subtitles. Division B, Title VII—Medicaid and CHIP, Subtitle A—Medicaid and Health Reform contains a DSH financing provision, and Subtitle E—Financing, contains provisions on prescription drugs and GME. Medicaid statute requires that states make disproportionate share (DSH) adjustments to the payment rates of hospitals treating large numbers of uninsured individuals and Medicaid beneficiaries. Federal statute specifies a formula for determining DSH allotments for each state. (However, Tennessee and Hawaii have special statutory arrangements relating to their state DSH allotments.) States must define, in their state Medicaid plan, hospitals qualifying as DSH hospitals and DSH payment formulas, taking into account certain federal criteria. For FY1998-FY2002, state-by-state DSH allotments were specified in federal statute. A number of changes to these allotments occurred after that time. H.R. 3962 would require the Secretary to provide a report to Congress (due January 1, 2016), on the extent to which, based on the impact of provisions included in the bill aimed at reducing the number of uninsured, there is a continued role for Medicaid DSH payments. In preparing this report, the Secretary would be required to consult with community-based networks serving low-income beneficiaries. The report would be required to include recommendations regarding (1) the appropriate targeting of Medicaid DSH funds within states, (2) the distribution of Medicaid DSH funds among states, taking into account the ratio of the amount of DSH funds allocated to a state to the number of uninsured individuals in the state, and (3) a new methodology for reducing DSH allotments (described below). Also, the Secretary would be required to coordinate the Medicaid DSH report with the report on Medicare DSH (as delineated in another part of this bill). Aggregate reductions in DSH allotments would equal $1.5 billion in FY2017, $2.5 billion in FY2018, and $6.0 billion in FY2019. (CBO's score also shows a $10 billion reduction in DSH payments over the FY2010-FY2019 period.) To achieve these aggregate reductions among states for each of these fiscal years, the Secretary would be required to impose the largest percentage reduction on states that (1) have the lowest percentages of uninsured individuals (as determined through audited hospital cost reports) during the most recent year for which such data are available, or (2) do not target their DSH payments to hospitals with high volumes of Medicaid patients (i.e., hospitals with a Medicaid inpatient utilization rate that is at least one standard deviation above the mean Medicaid utilization rate among hospitals receiving Medicaid payments in the state), and hospitals that have high levels of uncompensated care (excluding bad debt). The provision also specifies that no hospital may be considered to be a DSH hospital (or as an essential access hospital under the TennCare program in Tennessee) unless the hospital (1) provides services to beneficiaries without discrimination based on race, color, national origin, creed, source of payment, status as a Medicaid beneficiary, or any other ground unrelated to such beneficiary's need for services or the availability of the services in the hospital, and (2) makes arrangements for, and accepts, reimbursement under Medicaid for services provided to Medicaid beneficiaries. The provision related to the definition of a DSH hospital would apply to Medicaid expenditures made on or after July 1, 2010. Most states make Medicaid payments to help cover the costs of training new doctors in teaching hospitals and other teaching programs. There is no formal federal reporting mechanism to document Medicaid GME payments made by states. In 2005, total state and federal Medicaid payments for GME were estimated to be nearly $3.2 billion. On average, Medicaid GME payments were estimated to represent 7% of total Medicaid inpatient hospital expenditures. In May 2007, CMS issued a proposed rule that would have eliminated federal reimbursement for GME under Medicaid. Subsequent federal laws have placed a moratorium on further action on this rule. Most recently, ARRA included a Sense of the Senate provision that the Secretary should not promulgate a final GME payment rule. In its May 11, 2009, unified agenda for forthcoming regulatory action, HHS indicated that final action is "to be determined" on the proposed Medicaid GME rule. H.R. 3962 would explicitly authorize GME payments under Medicaid, whether the GME occurred in or outside of a hospital. To increase transparency and enable GME funds to be monitored, states would be required to provide timely information to the Secretary on annual GME payments. States would be required to report total GME payments and how these payments were used including (1) the institutions and programs eligible for receiving the funding, (2) the manner in which such payments are calculated, (3) the types and fields of education being supported, (4) the workforce or other goals to which the funding is being applied, (5) state progress in meeting workforce or other state GME funding goals, and (6) other information the Secretary determines will assist states in supporting other types and fields of education and workforce goals. In addition, H.R. 3962 also would require that the information reported to the Secretary is provided to an Advisory Committee on Health Workforce Evaluation and Assessment, and the Secretary and this advisory committee would independently review the state information. The Secretary also would be required to issue rules before December 31, 2011 on program goals for Medicaid GME payments, and requirements for use of GME funds. Finally, the bill would add a state option to make hospital GME payments under Medicaid, consistent with the other provisions of this section of the bill. These provisions would be effective upon enactment of H.R. 3962 , and nothing in this section of the bill would affect payments made before such date under a state Medicaid plan for GME. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. States' ability to use provider-specific taxes to fund Medicaid is limited. If a state establishes provider-specific taxes to fund the state share of program costs, federal matching dollars will not be available unless the tax program meets three rules: (1) the taxes collected cannot exceed 25% of the state (non-federal) share of Medicaid expenditures, (2) the state cannot provide a guarantee to the providers that the taxes will be returned to them, and (3) the tax must be broad-based (i.e., the tax is uniformly applied to all providers within the provider class). Per DRA, the Medicaid managed care organization (MCO) provider class includes all MCOs. That is, to qualify for federal matching dollars, a state's provider tax must apply to both Medicaid and non-Medicaid MCOs. This provision was effective upon enactment of DRA (as of February 8, 2006), except in states with taxes based on the Medicaid provider tax class defined in prior law that was in place as of December 8, 2005. In that prior law, MCOs were classified as a separate class of providers for the purposes of determining if a tax was broad-based, and was limited to only Medicaid providers (not all MCOs including non-Medicaid MCOs). In those states, this exception to the DRA MCO provider tax rule was to be effective on October 1, 2009. H.R. 3962 would postpone the effective date from October 1, 2009 to October 1, 2010 for those states with provider taxes based on the prior Medicaid provider tax classification (described above) that was in place as of December 8, 2005. This change would be effective as if included in DRA. CBO estimates this provision would cost $0.4 billion over the FY2010-FY2019 period. States can seek federal reimbursement at the 50% matching rate typically available for administrative activities for home visitation services under Medicaid administrative case management. These administrative activities are defined as activities necessary for the proper and efficient operation of the state Medicaid plan (e.g., outreach, eligibility determinations, utilization review, and prior authorization). Under EPSDT benefits, a mandatory service for individuals under age 21, states can seek Medicaid reimbursement for care coordination and/or case management provided through home visitation services. Such EPSDT-related home visitation may be covered as an administrative cost (reimbursed at the 50% administrative matching rate), or as medical assistance (reimbursed at the state's regular FMAP rate) in the case of medically necessary case management. H.R. 3962 would give states a new option to cover certain nurse home-visitation services for first-time pregnant women or children under age two. CBO estimates this provision would cost $0.8 billion over the FY2010-FY2019 period. Medicaid medical assistance refers to payment for part or all of the cost of care and services covered under a state's Medicaid program on behalf of individuals eligible for benefits. H.R. 3962 would make a technical correction to the definition of Medicaid medical assistance to include payment for part or all of the cost of care and services, or the care and services themselves, or both covered under a state's Medicaid program on behalf of individuals eligible for benefits. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. The federal medical assistance percentage (FMAP) is the rate at which states are reimbursed for most Medicaid service expenditures. It is based on a formula that provides higher reimbursement to states with lower per capita incomes relative to the national average (and vice versa); it has a statutory minimum of 50% and maximum of 83%. Exceptions to the FMAP formula have been made for certain states and situations. For example, the District of Columbia's Medicaid FMAP is set in statute at 70%, and the territories have FMAPs set at 50% (they also are subject to federal spending caps). Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ), all states and the District of Columbia received a temporary increase in Medicaid FMAPs for the last two quarters of FY2003 and the first three quarters of FY2004 as part of a fiscal relief package. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) adjusted FMAP rates for the states, the District of Columbia, and the Territories. The recession adjustment period began with the first quarter of FY2009 and continues through the first quarter of FY2011. Under ARRA, all states are held harmless from any decline in their regular FMAPs, the states and the District of Columbia receive an across-the-board FMAP increase of 6.2 percentage points, and qualifying states receive an additional unemployment-related increase. States were subject to certain requirements to receive the temporary FMAP increase. ARRA allows each territory a one-time choice between an FMAP increase of 6.2 percentage points and a 15% increase in its spending cap, or its regular FMAP rate and a 30% increase in its spending cap. Each of the five territories elected the 30% increase in their spending caps. The ARRA enhanced FMAP rates expire December 31, 2010. H.R. 3962 would extend the ARRA recession adjustment period for the 50 states and DC from the first quarter of FY2011, through the third quarter of FY2011 (i.e., June 2011). In the case of the five territories, the ARRA 30% increase in the cap on Medicaid payments would not apply for calendar quarters beginning on or after October 1, 2010, however, H.R. 3962 includes another provision (described below) that would increase Medicaid spending caps in the territories for each of FY2011 through FY2019. CBO estimates this provision would cost $23.5 billion in FY2011. Under current law, state Medicaid plans must provide methods and procedures to assure that payments are consistent with efficiency, economy, and quality of care, and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care is available to the general population in the geographic area. Additional requirements regarding payment rates under Medicaid apply to inpatient hospital and long-term care facility services. However, within these guidelines, states have considerable flexibility to set provider reimbursement rates independent of any national baseline or reference. Under H.R. 3962 , states would be required to set Medicaid payments for primary care services (i.e., evaluation and management or E & M services defined under Medicare as of December 31, 2009 and as subsequently modified by the Secretary) relative to 2010 Medicare payment rates. For Medicaid purposes, two adjustments would be made to these Medicare payment rates. First, Medicare payments rates for E & M services would be increased by 1.25% in 2010, and in each subsequent year (rather than basing the increase on the conversion factor update used for the Medicare program). For 2010, Medicaid payments to physicians and other health care professionals would equal 80% of the adjusted Medicare E & M service payments. In 2011, the Medicaid rate would equal 90% of the updated 2010 rate. For 2012 and subsequent years, the Medicaid payment for E & M services would equal 100% of the updated Medicare rate. With respect to Medicaid managed care, the provision also would require that, in the case of E & M services, these payment rates would apply, regardless of the manner in which such payments are made, including in the form of capitation or partial capitation (e.g., payments made on a "per member per month" basis, rather than for each specific unit of service delivered). For services furnished as of January 1, 2010 up to 2015, the federal government would fully finance the portion of such payments by which the new minimum payment rates specified above exceed payment rates in effect as of June 16, 2009. The federal government would pay 91% of such payments beginning in 2015. CBO estimates this provision would cost $57.0 billion over the FY2010-FY2019 period. The state Medicaid plan must provide methods and procedures (1) relating to the utilization of and the payment for care and services available under the plan as necessary to safeguard against unnecessary utilization, and (2) to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care and services are available to the general population in the geographic area. H.R. 3962 would require that state Medicaid plans be considered out of compliance with these statutory requirements unless certain conditions are met. Beginning in 2011, states would be required to submit annually to the Secretary a state Medicaid plan amendment (SPA) that details payment rates for that year and specified additional data (i.e., how Medicaid managed care payments take into account provider payment rates) that would assist in the evaluation of states' compliance with this requirement. If the Secretary disapproves the state's SPA, states would be required to submit a revised amendment that complies with these requirements. This provision would take effect on the date of enactment of this bill. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. Until 1980, state Medicaid programs were required to follow Medicare reimbursement principles in paying nursing facilities. Under the Medicare rules in effect at that time, this meant that states were required to use a retrospective reasonable cost system. States continued to have to assure that rates provided access to care. Payment amounts were determined after services were rendered and were based on the actual costs incurred by the provider in furnishing those services. In what is known as the "Boren amendment," the Omnibus Reconciliation Act of 1980 ( P.L. 96-499 ) repealed this requirement for nursing facility services, freeing states to establish new methodologies of their own. The new rules specified that payment rates for hospitals and nursing facilities had to be "reasonable and adequate" to meet the costs of "efficiently and economically operated" facilities. Nearly all states responded to the new flexibility by shifting from retrospective to prospective payment systems for nursing facility services. Under prospective payment systems, rates may be set in advance and may not be related to the actual costs providers incur in furnishing services; or the state may set ceilings and pay the lesser of actual costs. Out of any funds not otherwise appropriated, H.R. 3962 would appropriate to the Secretary $6 billion to reimburse nursing facilities certified by both Medicare and Medicaid (i.e., dually-certified) for Medicaid underpayments that occurred in cost reporting periods ending during a year (beginning no earlier than 2010) that is covered by the latest available Medicare cost report. Funds would be made available for obligation in the following years: $1.5 billion in 2010, $1.5 billion in 2011, $1.5 billion in 2012 and $1.5 billion in 2013. Any funds that remain available after all eligible dually-certified facilities are reimbursed for quality care furnished to Medicaid-eligible individuals would be deposited into the Medicaid Improvement Fund. The Secretary would be prohibited from requiring state matching funds for these payments. Under H.R. 3962 , payment amounts for eligible dually-certified facilities (in which the combined Medicare and Medicaid share of resident days is not less than 75% of the total resident days and the share of Medicaid patient days is not less than 60% of the combined Medicare and Medicaid share of resident days) for a year would be determined by the Secretary as reported on the facility's latest available Medicare cost report. Payments would be made directly by the Secretary to the nursing facility and could not exceed the payment deficit, as defined by the amount of Medicaid reimbursement for the provision of covered services that is significantly less (as determined by the Secretary) than the allowable costs incurred by the facility. Certain facilities, such as those in the highest quartile of costs per day, would be excluded. The Secretary would be prohibited from spending more than 0.75% of the amount made available in any year on administering this payment program. As determined by the Secretary, eligible facilities would be required to provide quality care to Medicaid beneficiaries and dually-enrolled facilities could not have been cited for any immediate jeopardy deficiencies in the most recent state compliance survey. Eligible facilities also would have had to maintain an appropriate staffing level, among other restrictions. Additional limitations and requirements would apply and no administrative or judicial review of the determination of a facility's eligibility for payments or its payment amounts would be allowed. Annual reports would be submitted to the congressional committees of jurisdiction. CBO estimates this provision would cost $6.0 billion over the FY2010-FY2019 period. Outpatient prescription drugs are an optional Medicaid benefit, but all states cover prescription drugs for most beneficiary groups. States purchase prescription drugs from drug manufacturers on behalf of Medicaid beneficiaries and receive matching federal payments for a portion of these purchases, just as they do for other medical services. Medicaid law requires drug manufacturers to ensure that Medicaid receives their "best price." The best price provisions require prescription drug manufacturers, who wish to sell any products to Medicaid beneficiaries, to enter into rebate agreements with the Secretary on behalf of states. Under these agreements, drug manufacturers must provide state Medicaid programs with rebates for the drugs purchased for Medicaid beneficiaries. In exchange for entering into rebate agreements, state Medicaid programs must cover all drugs (except certain statutorily excluded drug classes) marketed by those manufacturers. In 2004 CMS estimated that 550 manufacturers participated in the Medicaid drug rebate program. For each prescription drug purchased by Medicaid, participating drug manufacturers must report two market prices to CMS—the average manufacturer price (AMP), which is the average price that drugmakers receive for sales to retail pharmacies and mail-order establishments, and the lowest transaction price, or "best price," that manufacturers receive from sales to certain private buyers of a drug. Those prices, which serve as reference points for determining manufacturers' rebate obligations, must be reported for each formulation and dosage of each prescription drug purchased on behalf of Medicaid beneficiaries. H.R. 3962 includes three Medicaid prescription drug provisions, described below. CBO estimates that the combined effects of these provisions (and one expanding the list of entities eligible for discounted drug prices under the Section 340B program in the Public Health Service Act) would save $24.6 billion over the FY2010-FY2019 period. Medicaid law also requires the Secretary to establish an upper limit on the federal share of payments for prescription drug acquisition costs. These limits, referred to as federal upper payment limits (FULs) when applied to multiple source drugs, are intended to encourage substitution of lower-cost generic equivalents for more costly brand-name drugs. FULs apply to aggregate state expenditures for each drug. CMS calculates FULs and periodically publishes these prices. Under DRA, new FULs issued after January 2007 were to equal 250% of the AMP of the least costly therapeutic equivalent (excluding prompt pay discounts). Manufacturers are required to report AMP to CMS. National pharmacy associations legally challenged the DRA FUL changes that were published in a proposed rule CMS issued in 2007. The court issued an injunction on December 19, 2007 which prohibited CMS from setting FULs for Medicaid covered generic drugs based on AMP, and from disclosing AMP data except within the Department of Health and Human Services or to the Department of Justice. The court's 2007 injunction was for an indefinite period and remains in place. Congress also imposed a moratorium on the use AMPs to set FULs until October 1, 2009 when the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-275 ) became law in 2008. In the interim, FULs were based on the pre-DRA methodology of 150% of the lowest published price (i.e., wholesale acquisition cost, average wholesale price or direct price) for each dosage and strength of generic drug products. In general, these prices are significantly higher than AMPs. MIPPA authority to use the pre-DRA FUL methodology expired October 1, 2009, so that CMS will not be able to set new FULs without further legislative action and or the removal of the court injunction. Under H.R. 3962 , the Secretary would be required to calculate FULs at 130% of the weighted average (determined on the basis of utilization) of monthly AMPs and also would clarify that the definition of AMP excludes certain discounts and other payments. H.R. 3962 also would require drug manufacturers to report within 30 days after the close of a rebate period, the manufacturer's total number of units used in calculating monthly AMPs for each covered drug. The Secretary would have authority to expedite the promulgation of regulations to clarify upper payment limit and AMP requirements and these regulations could be effective on an interim basis before a public comment period. Through December 31, 2010, states would receive federal financial participation (FFP) for multiple source drug purchases under upper limits in effect on December 31, 2006. For brand-name prescription drugs, there are two components to drug manufacturers' rebate obligations—the basic rebate and an additional rebate. The basic rebate is the greater of either 15.1% of AMP or the difference between AMP and best price. An additional rebate may also apply depending on how quickly the manufacturer raises a drug's price to private purchasers. No additional rebate is owed if the drug's current AMP does not exceed its inflation-adjusted base period level; if a drug's AMP exceeds inflation adjusted levels, then an additional rebate is owed that is equal to the excess amount. Currently, modifications to existing drugs—new dosages or formulations, such as extended release versions, sometimes referred to as product line extensions—generally are considered new products for purposes of reporting AMPs to the Secretary. As a result, drug makers can avoid incurring additional rebate obligations by making slight alterations to existing products. When new products are released, manufacturers can set their base period AMP to any price, so they are able to set new higher prices that will not incur Medicaid's additional rebates. H.R. 3962 would alter the Medicaid rebate for certain extended release versions of single source drugs. Effective for drugs purchased after December 31, 2009, the rebate for extended release line extensions of single source or innovator multiple source prescription drugs that are oral solid dosage forms would be the greater of either the basic rebate or a new rebate calculation. The new rebate would be the product of (1) the AMP for the extended release formulation (in oral solid dosage form) of the single source or innovator multiple source drug; (2) the highest additional rebate (calculated as a percentage of AMP) for any strength of the original single source or multiple source innovator drug; and (3) and the total number of units (as reported by a state) of each dosage form and strength of the extended release formulation that was purchased by a state during the rebate period. In addition, beginning January 1, 2010, H.R. 3962 would increase the basic minimum rebate for single source and multiple source prescription drugs purchased under Medicaid rebate agreements from 15.1% to 23.1%. For rebate periods beginning January 1, 2010, the Secretary would be required to reduce quarterly Medicaid matching payments to states by the amounts attributable to federal share of the increased minimum rebate. The reduction in state matching payments would be considered an overpayment and not be subject to reconsideration. States use a variety of service delivery mechanisms to provide medical and related services to Medicaid beneficiaries. Service delivery mechanisms range from full-risk capitation agreements with managed care organizations (MCOs) to fee-for-service (FFS). Under full-risk capitation agreements, MCOs are paid a fixed amount for all the care Medicaid beneficiaries receive, and are responsible for all costs that exceed the fixed capitation payments. Full-risk contracts cover all medical and related services, including prescription drugs. Drug manufacturers pay states rebates for Medicaid drug purchases, although certain purchases are excluded from the Medicaid drug rebates. Drug purchases excluded from the rebate agreements include drugs dispensed by Medicaid MCOs (when prescription drugs are included in the capitation agreement), inpatient drugs, and drugs dispensed in physicians' or dentists' offices. Some states exclude or carve out drug benefits from their Medicaid MCO contracts, in which case managed care beneficiaries receive their prescribed drugs through the FFS delivery system, and states can claim manufacturer rebates for these purchases. H.R. 3962 would require prescription drug manufacturers to pay rebates on drugs purchased for beneficiaries covered under Medicaid managed care contracts, similar to the rebates required in the FFS component of Medicaid. To help the Secretary monitor prescription drug rebates, H.R. 3962 also would require states to report quarterly their total dollar amount and volume of rebates received from prescription drug manufacturers for Medicaid beneficiaries enrolled in managed care. Drug purchases under the 340B program discount program would be excluded from rebate requirements for Medicaid MCOs. The reporting requirements would apply to prescription drugs dispensed beginning on July 1, 2010. Under current law, there are no federal requirements for states to report on a regular basis the details regarding their Medicaid payment rates to participating providers. H.R. 3962 would require new annual state reports on Medicaid payments. Each year, states would be required to provide the Administrator of CMS specific data on payment rates to providers under the state Medicaid plan, including (1) final rates, (2) the methods used to determine such rates, (3) justification for those rates, and (4) an explanation of the process by which providers, beneficiaries, and other state residents have an opportunity to review and comment on such information before such rates are made final by the state. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. H.R. 3962 would require that, beginning on October 1, 2010, states must establish and maintain laws to require disclosure of information on hospital charges and quality and to make such information available to the public and the Secretary. These state laws must (1) require reporting to the state by each hospital in the state information on (a) charges for the most common inpatient and outpatient hospital services, (b) Medicare and Medicaid reimbursement amount for such services, and (c) if the hospitals allow for or provide reduced charges for individuals based on financial need, the factors used to determine reductions in charges; (2) provide notice to individuals of the availability of information on charges; (3) provide timely access to such information, including through an Internet website; and (4) provide for timely access to quality of care information at each hospital made publicly available. States with an existing program may certify to the Secretary that its program satisfies the requirements of this section. States that, as of this Act's date of enactment, do not meet these requirements would have two years from such date to make necessary modifications to come into compliance. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. The federal and state governments' share in the cost of Medicaid is based on a formula that provides higher federal matching payments to states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). This formula, called the federal medical assistance percentage (FMAP), provides a minimum matching rate of 50% and a maximum matching rate of 83%. The federal matching rate for administrative services is the same for all states and is generally 50%, but certain administrative functions have a higher federal matching rate (for example 75% for operating a state Medicaid fraud control unit; 90% for start-up costs associated with creating a Medicaid Management Information System). H.R. 3962 would require GAO to study federal matching payments made to state Medicaid programs to make recommendations on the FMAP formula to Congress. By February 15, 2011, GAO would be required to submit a report based on this study assessing the effect on the federal government, states, providers, and beneficiaries of making the following changes to the FMAP formula: (1) removing the 50% floor or 83% ceiling, or both and (2) revising the current FMAP formula to better reflect state fiscal capacity, state efforts to finance health and long-term care services, and to better adjust for national or regional economic downturns. In addition and also due by February 2011, GAO would be required to submit a report to Congress on Medicaid's administration by HHS, state Medicaid agencies, and local government agencies. GAO's study of Medicaid administration would address (1) the extent to which federal funding of each administrative function is being used effectively and efficiently, and (2) the administrative functions funded with federal dollars and the expenditure amounts for each function. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. The Children's Health Insurance Program Reauthorization Act (CHIPRA, P.L. 111-3 ) established a new Federal commission called the Medicaid and CHIP Payment and Access Commission, or MACPAC. This commission will review program policies under both Medicaid and CHIP affecting children's access to benefits, including (1) payment policies, such as the process for updating fees for different types of providers, payment methodologies, and the impact of these factors on access and quality of care; (2) the interaction of Medicaid and CHIP payment policies with health care delivery generally; and (3) other policies, including those relating to transportation and language barriers. The commission will make recommendations to Congress concerning such payment and access policies. Beginning in 2010, the commission is required to submit an annual report to Congress containing the results of these reviews and MACPAC's recommendations regarding these policies. Also beginning in 2010, the commission is required to submit annual reports to Congress containing an examination of issues affecting Medicaid and CHIP, including the implications of changes in health care delivery in the U.S. and in the market for health care services. MACPAC must also create an early warning system to identify provider shortage areas or other problems that threaten access to care or the health care status of Medicaid and CHIP beneficiaries. H.R. 3962 would require MACPAC to submit two new reports to Congress on: (1) the adequacy of nursing facility payment policies under Medicaid; and (2) the adequacy of Medicaid payment policies for pediatric subspecialists and the adequacy of patient access to such providers under Medicaid. The provision would also broaden the scope of MACPAC to review policies that affect low-income children (required by current law) as well as other eligible individuals' access to Medicaid benefits; change current law report deadlines to 2011 (instead of 2010); and require MACPAC to examine the impact of the implementation of the Affordable Health Care for America Act on the access to needed health care and services by low-income individuals and families under Medicaid and CHIP. The bill would authorize to be appropriated $11.8 million for the purpose of carrying out the requirements of this provision. Such funds would be made available until expended. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. States are required to create a state plan for their Medicaid programs that is subject to approval by CMS. This comprehensive document describes nearly all aspects of each state's Medicaid program including administrative activities, eligibility, enrollment, covered benefits, provider credentialing, provider reimbursement, quality assurance, beneficiary cost sharing, and many more program elements. In creating their Medicaid plans, states must conform to federal rules and guidance. Whenever states make changes to their Medicaid program, they must update their state plans by submitting a state plan amendment, which is also subject to review and approval by CMS. As part of the Medicaid plan, states establish participation requirements and reimbursement rules for different providers and suppliers that deliver services to Medicaid beneficiaries, subject to federal rules. These requirements include reporting and monitoring waste, fraud, and abuse. In general, initiatives designed to combat fraud, waste, and abuse are considered program integrity activities. This includes processes directed at reducing improper payments, as well as activities to prevent, detect, investigate, and ultimately prosecute health care fraud and abuse. More specifically, program integrity ensures that correct payments are paid to legitimate providers for appropriate and reasonable services for eligible beneficiaries. Medicaid and CHIP program integrity are often limited to issues of fraud and abuse by providers (as well as beneficiaries) and efforts to curtail these problems. The federal government pays a share of every state's spending on Medicaid services and program administration, including expenditures for the reduction of waste, fraud, and abuse. The federal share for most Medicaid service costs is determined by a state's FMAP. The federal match for administrative expenditures does not vary by state and is generally 50%, but certain administrative functions have a higher federal match, including two program integrity expenditures: operation of required Medicaid Management Information Systems (MMIS) and operation of state Medicaid Fraud Control Units (MFCU). Operation of MFCUs and MMIS activities are matched at 75%, although the federal match is 90% for certain startup expenses. Thus, the federal government provides the majority of Medicaid spending to combat fraud and abuse. Congress provided new dedicated Medicaid program integrity funding in DRA when it established a Medicaid Integrity Program (MIP) with an appropriation reaching $75 million annually for audits, identification of overpayments, education with respect to payment integrity and quality of care, and other purposes. Congress also provided in DRA an additional $25 million annually for five years beginning in FY2006 for Medicaid activities of the HHS Office of Inspector General (OIG), and an annual appropriation reaching $60 million to expand the Medicare-Medicaid data match project (referred to as Medi-Medi) that analyzes claims from both programs together in order to detect aberrant billing patterns. Improper payments are one measure of fraud and abuse activities under Medicaid. Under the Improper Payments Information Act of 2002 (IPIA, P.L. 107-300 ), federal agencies were required to identify programs that are susceptible to significant improper payments, estimate the amount of overpayments, and report annually to Congress on those figures and on the steps being taken to reduce such payments. In compliance with IPIA provisions, the Department of Health and Human Services estimated FY2008 Medicaid composite error rates at 10.5%, or $32.7 billion in improper payments of which the federal share was $18.6 billion, and, for CHIP, the rate was 14.7%, or $1.2 billion, with a federal share of $0.8 billion. Measures of improper payment measures focus on payments made in error, not the cause of those improper payments. Thus, improper payment measures provide no measure of fraud, which most often is undetected. Improper payment measures provide estimates of program losses in general. The National Health Care Anti-Fraud Association estimates that the losses to health insurers, including Medicaid, attributable to health care fraud are in the range of 3% to 10% of paid claims. Subject to federal rules, states generally establish their own payment policies, rates, and reimbursement methodologies for Medicaid providers, including inpatient facilities such as hospitals, nursing facilities, and intermediate care facilities for the mentally retarded. Federal regulations require that Medicaid provider rates be sufficient to enlist enough providers so that covered services are available at least to the same extent that comparable care and services are available to the general population within a given geographic area. In Medicare, hospitals are reimbursed under a prospective payment system (PPS), where each admission is classified into a Medicare severity adjusted diagnosis-related group (MS-DRG) based on the patient's diagnosis and procedures performed. Each MS-DRG has a predetermined reimbursement amount. In general, a hospital is paid the same amount for an MS-DRG regardless of how long patients stay in the hospital or what is required to treat the patient. In some situations under Medicare's PPS, patients with certain complicating conditions could be reclassified into different MS-DRGs for which the hospital would receive a higher payment. To avoid additional hospital payments for complications that were acquired during patients' admissions, DRA required the Secretary to initiate a hospital-acquired condition (HAC) program for Medicare. Starting October 1, 2007 (FY2008), CMS required hospitals to report whether Medicare patients had certain conditions when they were admitted. Beginning October 1, 2008 (FY2009), if the HACs identified by the Secretary are coded as present at admission, the conditions would not be considered to be acquired during the patient's hospital stay, and the case could receive additional MS-DRG payment. In addition to the HAC policy, in January 2009, CMS issued three national coverage determinations that precluded Medicare from paying any amount for certain serious preventable medical care errors. For Medicaid, CMS issued guidance to states in July 2008 to appropriately align Medicaid inpatient hospital payment policies with Medicare's HAC payment policies. In the guidance, CMS indicated that for patients eligible for both Medicare and Medicaid (dual eligibles), hospitals that were denied payment under Medicare might attempt to bill Medicaid for HACs as the secondary payer. CMS instructed state Medicaid agencies to deny Medicaid payments when dual eligible beneficiaries had HACs during an inpatient stay. In its guidance, CMS also encouraged Medicaid agencies to implement policies that would deny payment when other (non-dual eligible) Medicaid beneficiaries had HACs during a hospitalization. CMS identified several Medicaid authorities that could be used to justify payment denials for HACs, but unlike Medicare, DRA did not specifically apply the HAC initiative to Medicaid. H.R. 3962 would require state Medicaid and CHIP programs to deny hospital payments for HACs as well as for certain serious preventable errors in medical care (never events) determined as non-covered by the Medicare program. In addition, states would have permission to identify other health-care acquired conditions for non-payment under Medicaid. States would be required to have these programs in place for hospital discharges that occur on or after January 1, 2010. CBO estimates that the cost for this provision would be negligible (i.e., plus or minus $50 million). Under DRA's Medicaid Integrity Program (MIP) provision, the Secretary has the authority to contract with entities to (1) conduct program integrity activities including reviewing actions of individuals and entities that furnish services under Medicaid to determine if waste, fraud, or abuse has occurred or is likely to occur; (2) audit claims for payment of services provided under a Medicaid state plan (including cost reports, consulting contracts, and risk contracts); (3) identify federal overpayments to individuals or entities; and (4) educate providers, managed care entities, and beneficiaries on program integrity and quality of care. The law established conditions that restrict entities eligible to provide MIP services and create requirements for the Secretary to follow in contracting with eligible entities. The Secretary was required to establish a five-fiscal year comprehensive plan for ensuring Medicaid program integrity. DRA's MIP provisions also required CMS to hire an additional 100 full-time equivalent employees who would be dedicated to Medicaid program integrity activities. The Secretary also was required to submit to Congress a report, identifying how MIP funds were spent and what MIP expenditures achieved, within 180 days of the close of each fiscal year (beginning in FY2006). H.R. 3962 would require eligible entities (MIP contractors) to issue assurances to the Secretary that they will conduct periodic evaluations of the effectiveness of their MIP contract activities, and submit to the Secretary annual reports documenting these evaluations. This reporting requirement would be effective for each contract year beginning with 2011. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. Medicaid statute delegates the administration of the Medicaid program to the states. There is considerable variation in how states administer their provider enrollment processes. State Medicaid agencies determine whether a provider or supplier is eligible to participate in the Medicaid program by providing for written agreements with providers and suppliers. Written agreements require that providers and suppliers maintain specific records, disclose certain ownership information, and grant access to federal and state auditors to books and records. States establish policies for provider and supplier re-enrollment, although federal rules must be met for certain providers, such as nursing facilities and intermediate care facilities for the mentally retarded (ICF/MRs), which must have passed survey and certification inspection (at least every 15 months) before they can be re-enrolled as Medicaid providers or suppliers. OIG has issued a series of compliance guidance documents since 1998 for providers participating in federal health care programs to assist in preventing fraud, waste, and abuse. The purpose of the documents is to encourage health care providers to adopt compliance programs and internal control measures to monitor their adherence to applicable rules, regulations, and requirements. The adoption of these programs is not mandatory. There is no current law explicitly directing health care providers to adopt compliance programs. States would be required under H.R. 3962 to ensure that providers and suppliers (other than physicians or nursing facilities) that provide services under state Medicaid plans implement compliance programs. In addition, H.R. 3962 would require states to enforce determinations made by the Secretary of a significant risk of fraud by a category of providers or suppliers and carry out enforcement activities as required by the Secretary. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. Under current Medicaid law, when states discover that overpayments have been made to individuals or other entities, they have 60 days to recover or attempt to recover the overpayment before an adjustment is made to their federal matching payment. Adjustments in federal payments are made at the end of the 60 days, whether or not recovery is made. When states are unable to recover overpayments because the debts were discharged in bankruptcy or were otherwise uncollectable, federal matching payments would not be adjusted. Beginning with enactment, H.R. 3962 would extend the period for states to repay overpayments to one year when the overpayment is due to fraud. CBO estimates this provision would cost $0.1 billion during the FY2010-FY2019 period. Medical loss ratio is the share of total premium revenue spent on medical claims. Medigap insurance policies are private supplemental health care policies that Medicare beneficiaries can purchase to help cover some items, services, and cost sharing not covered under Medicare. Medigap plans are required to have a minimum medical loss ratio of 65% for individual policies and 75% for group policies. In addition, some states impose medical loss ratios or related requirements on insurers in the individual and/or small group health insurance markets. As of June 2008, minimum ratios required by states ranged from 55% to 80%. States are prohibited from making payments to Medicaid managed care organizations (MMCO) that are paid on a prepaid capitation or other risk basis unless the managed care organizations fulfill certain requirements. For instance, MMCOs are required to maintain sufficient patient encounter data to identify the physician who delivered services to Medicaid beneficiaries. H.R. 3962 would require that no federal Medicaid and CHIP payments be made to states for expenditures incurred for services provided by certain Medicaid managed care organizations that are paid on a prepaid capitation or other risk basis (e.g., health maintenance organizations, provider sponsored organizations, other public or private organizations that meet certain requirements for written policies and procedures with respect to adult enrollees) unless the contract between the state and the entity has a medical loss ratio, as determined in accordance with a methodology specified by the Secretary, that is at least 85%. This provision also would require MMCOs to maintain and report to states patient encounter data at a frequency and level of detail to be specified by the Secretary. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. Subject to certain specified exceptions, the Secretary is required to exclude from Medicare or Medicaid program participation providers that (1) have been convicted of a criminal offense related to the delivery of an item or service under Medicare or under any state health care program, (2) have been convicted, under federal or state law, of a criminal offense relating to neglect or abuse of patients in connection with the delivery of a health care item or service, (3) have been convicted of a felony conviction related to health care fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct, or (4) have been convicted of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. The Secretary also may exclude from Medicare or Medicaid participation providers or individuals involved in acts specifically prohibited, such as program-related convictions, license revocation, failure to supply information, and default on loan or scholarship obligations. CMS must promptly notify the Inspector General of the receipt of any application for participation that identifies any principal of a provider that has engaged in prohibited activities. Subject to certain specified exceptions, when Medicare provider reimbursement is precluded as a result of the termination of provider participation for reasons such as those listed above, H.R. 3962 would require states to terminate federal financial participation for such providers under Medicaid and CHIP effective for services provided on or after January 1, 2011. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. Under current law, states are required to exclude providers from Medicaid and CHIP participation for reasons specified in statute (e.g., the provider is involved in criminal acts related to the program) for a specified period of time as directed by the Secretary. H.R. 3962 would require Medicaid and CHIP state agencies to exclude individuals or entities from participating in Medicaid or CHIP if such providers own, control, or manage entities that (1) have unpaid overpayments under Medicaid or CHIP or have been determined by the Secretary or the Medicaid or CHIP state agencies to be delinquent during the specified period; (2) are suspended, excluded, or terminated from participation under Medicaid or for such period; or (3) are affiliated with an individual or entity that has been suspended, excluded, or terminated from Medicaid or CHIP participation. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. States are required to operate an automated claims processing and information retrieval system or Medicaid Management Information System (MMIS) to administer their state plans. MMIS systems must meet a number of requirements. For example, they must (1) be compatible with Medicare claims processing and information systems, (2) provide for electronic transmission of claims data, (3) be capable of providing timely and accurate data, (4) be consistent with Medicaid Statistical Information Systems data formats, (5) meet other specifications as required by the Secretary. H.R. 3962 would require states to submit new MMIS data as determined necessary by the Secretary for the detection of waste, fraud, and abuse under Medicaid. Such new data elements would be required on or after July 1, 2010. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. As a condition of participation, certification, or recertification under Medicaid, the Secretary requires participating providers to supply (to the Secretary or the state Medicaid agency) information on the identity of each person with ownership or control interests in the entity or subcontractor that is equal to five percent or more of such entity. Disclosing entities include providers of service, independent clinical laboratories, renal disease facilities, managed care organizations or a health maintenance organizations, entities (other than individual practitioners or groups of practitioners) that furnish or arrange for services, carriers or other agencies or organizations that act as fiscal intermediaries or agents for service providers. Medicare laws require the Secretary to establish a process for the enrollment of providers of services and suppliers. H.R. 3962 would require Medicaid agents, clearinghouses, or other alternate payees that submit claims on behalf of health care providers to register with the state and the Secretary in a form and manner that is consistent with the Medicare process for the enrollment of providers of services and supplies. Entities that fail to register would be denied federal financial participation (Medicaid matching payments). CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. States are required to deny Medicaid federal assistance payments in a number of circumstances specified in statue. Examples include, reimbursement of a nursing facility for payment of legal expenses associated with actions initiated by the facility that are dismissed because there was no basis for legal action; or reimbursement of a state for roads, bridges, stadiums, or other items not covered in a state Medicaid plan. Under H.R. 3962 , the Secretary would be required to deny payment for any amount expended on litigation in which a court imposes sanctions on a state, its employees, or its counsel for litigation-related misconduct, or for payment of legal expenses associated with any action in which a court imposes sanctions on a managed care entity for litigation-related misconduct. This provision would apply to amounts expended on or after January 1, 2010. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. CMS processes Part B Medicare claims which include payments for physician, laboratory, and radiology claims. In 1996, to help ensure correct payment for reimbursement claims, CMS implemented the correct coding initiative (CCI). Under CCI, CMS' contractors use automated pre-payment edits to review Medicare claims submitted by Part B providers. Medicare contractors use software to scan claims and apply CCI edits designed to detect anomalies that indicate a claim has incorrect information. For example, CCI edits can detect claims with duplicate services delivered to the same beneficiary on the same date of service. In addition, comparing medical billing codes CCI software can identify when medical procedure were billed erroneously as service bundles (when individual services are grouped together, but cheaper comprehensive codes are available to describe the same services) or in other cases when services should have been billed individually, but were grouped as bundled services. H.R. 3962 would require that Medicaid claims submitted for federal reimbursement on or after October 1, 2010, would incorporate methodologies compatible with Medicare's National Correct Coding Initiative or any successor initiative to promote correct coding and to control improper coding leading to inappropriate payment. By September 1, 2010, the Secretary would be required to identify CCI methodologies (or methodologies of any successor initiative) that are compatible to claims filed under Medicaid, and identify those methodologies that should be incorporated into claims files under Medicaid with respect to items or services for which states provide medical assistance under Medicaid and no national correct coding methodologies have been established under such initiative with respect to Medicare. The Secretary also would be required to notify states of the CCI methodologies (or successor initiative) that were identified and how states should incorporate those methodologies into their Medicaid claims processing systems. The Secretary would be required to submit a report to Congress that includes the notice given to states about the CCI methodologies (or successor initiatives) and analysis that supports the identification of CCI methodologies to be applied to Medicaid claims. CBO estimates this provision would save $0.3 billion over the FY2010-FY2019 period. In the 50 states and the District of Columbia (hereafter referred to as the states), Medicaid is an individual entitlement. There are no limits on federal payments for Medicaid provided that the state contributes its share of the matching funds. By contrast, Medicaid programs in the five territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands) are subject to annual federal spending caps that are set in statue. The Congress has increased the levels of federal Medicaid funding in the territories in recent years. For FY2008 and subsequent fiscal years, the total annual cap on federal funding for the Medicaid programs in the territories is calculated by increasing the FY2007 ceiling for inflation. All five territories typically exhaust their caps prior to the end of the fiscal year. Once the cap is reached, the territories assume the full costs of Medicaid services, or in some instances may suspend services or cease payments to providers until the next fiscal year. The federal share for most Medicaid service costs is determined by the FMAP, which is based on a formula that provides higher reimbursement to states with lower per capita income relative to the national average (and vice versa). FMAPs have a statutory minimum of 50% and maximum of 83%. In the territories, the FMAP is typically set at 50%. Most recently, ARRA allows each territory to choose between an FMAP increase of 6.2 percentage points along with a 15% increase in its spending cap, or its regular FMAP along with a 30% increase in its spending cap for the period between the first quarter of FY2009 through the first quarter of FY2011. All five territories made the one time choice for the 30% increase in their spending caps. The Medicaid programs in American Samoa and the Northern Mariana Islands have operated under a Section 1902(j) waiver since 1983 and 1989, respectively. Section 1902(j) refers to the section of the Social Security Act under which authority is granted to waive certain Medicaid program rules. Under a Section 1902(j) waiver, the only Medicaid requirements that may not be waived are: (1) the 50% FMAP, (2) the capped Medicaid allotments for American Samoa and the Northern Mariana Islands, and (3) the requirement that payment may not be made for services that are not described in Section 1905(a) of the Social Security Act. Under H.R. 3962 , for FY2011 through FY2019, the provision would increase the existing spending caps in the territories that are otherwise determined under current law by the following amounts (in $ millions): The provision would require that the Secretary submit a report not later than October 1, 2013, that details a transition plan to modify the existing Medicaid programs and outline actions the Secretary and the governments of each territory must take to achieve full parity in Medicaid financing with the states by FY2020. The report would be required to include FMAP rates for each territory if the formula applicable to the states were applied. The report would also be required to include any recommendations that the Secretary may have as to whether the mandatory ceiling amounts for each territory provided in Section 1108 of the Social Security Act should be increased any time before FY2020 due to any factors that the Secretary deems relevant. The Secretary would also be required to include information about per capita income data that could be used to calculate FMAP percentages for each territory, and information on how such data differ from the per capita income data used to promulgate FMAPs for the states, as well as recommendations on how the FMAP would be calculated for the territories beginning in FY2020 to ensure parity with the states. The Secretary would be required to submit subsequent reports to Congress in 2015, 2017, and 2019 detailing the progress that the Secretary and the governments of each territory have made in fulfilling the actions outlined to achieve Medicaid parity in the financing transition plan for the territories (described above). For fiscal years 2011 through 2019, FMAP rates for Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa would be set at the highest FMAP applicable to any of the states for the fiscal year involved, taking into account the application of relevant provisions of ARRA to such states for calendar quarters during such fiscal years for which such subsections apply. Finally, the provision would extend the waiver authority provided under Section 1902(j) to all of the territories beginning with FY2011. In addition, the Secretary would be required to provide nonmonetary technical assistance (i.e., without additional funding) to the territories in upgrading their existing computer systems in order to meet reporting requirements necessary to implement the financing parity provisions (described above). CBO estimates this provision would cost $9.3 billion over the FY2010-FY2019 period. In theory, a medical home would provide participants with access to a personal primary care physician, or specialist, with an office care team who would coordinate and facilitate care and provide guidance, insight, and advice to help the patients obtain physician-guided, patient-centered care. Integrated health care is expected to enhance patient adherence to recommended treatment and avoid (1) hospitalizations, unnecessary office visits, tests, and procedures; (2) use of expensive technology or biologicals when less expensive tests or treatments are equally effective; and (3) patient safety risks inherent in inconsistent treatment decisions. Section 204 of the Tax Relief and Health Care Act of 2006 (TRCHA, P.L. 109-432 ) mandated a three-year Medicare medical home demonstration project, which began in 2008. The demonstration is being conducted in up to eight states and pays medical practices for providing continuous and coordinated family-centered care management to Medicare beneficiaries with multiple chronic illnesses (such as severe asthma, complex diabetes, cardiovascular disease, rheumatologic disorder) or prolonged illnesses that require regular medical monitoring, advising or treatment. The demonstration aims to enroll 400 practices as medical homes and is scheduled to end in 2012, with a final evaluation due by December 2013. 31 No similar demonstration or program is currently being conducted under the Medicaid program. Like Medicare, Medicaid has limited experience with medical home pilots or programs. While there have never been national or regional medical home demonstrations or pilots under Medicaid, some federal programs designed to help fund health information technology (HIT) infrastructure have provided support for the creation of medical homes in Medicaid. First, Medicaid Transformation Grants, established by DRA ( P.L. 109-171 ), have been used by some states to provide funding for medical homes. Eight of the forty-two grants awarded in FY2007 and FY2008 were used to develop information technology infrastructure for medical home programs. Second, the Medicaid Information Technology Architecture (MITA) initiative has provided some state Medicaid agencies with federal matching funds to enhance Medicaid Management Information Systems (MMIS) capacity (P.L. 92-603). It is believed that a more flexible and fully interoperable MMIS would facilitate the creation of medical homes in Medicaid. Under the MITA initiative, states are eligible to receive a 90% federal match for the purchase/implementation of an MMIS system, and a 75% match for its maintenance. Despite the funding from MITA and the Transformation Grants, most medical home activity in Medicaid has been state-initiated and state-funded. The National Academy for State Health Policy conducted an environmental scan in June 2009 which identified 34 medical home programs, or efforts, in 31 states. Each of these seeks to establish medical homes for Medicaid or CHIP beneficiaries. H.R. 3962 would require the Secretary to establish a five-year Medicaid medical home pilot program for Medicaid eligible individuals, including medically fragile children and high-risk pregnant women. In establishing medical home pilot projects, states with Secretary-approved applications would be required to apply either an Independent Patient-Centered Medical Home model or a Community-Based Medical Home Model. Under an Independent Patient-Centered Medical Home, payments would be made to physician-directed or nurse-practitioner directed practices for the provision of services, such as care coordination, population disease management, and teaching self-care skills for managing chronic illness, to high need beneficiaries. Under a Community-Based Medical Home Model, payments would be made to certain nonprofit community-based or state-based organizations, or a state, which provide services under the supervision of or in close collaboration with the primary care or principal care physician, nurse practitioner, or physician assistant designated by the beneficiary. Such services would include teaching self-care skills for managing chronic illnesses; transitional care services; care plan setting; nutritional counseling; among others. The pilot would increase the matching percentage for administrative expenditures up to 90% for the first two years of the pilot, and 75% for the next three years. The Secretary would be required to submit to Congress a report on the evaluation of this pilot. The additional federal financial participation resulting from the implementation of this project could not exceed in the aggregate $1,235 million over the five-year period. CBO estimates this provision would cost $0.5 billion over the FY2010-FY2019 period. Under H.R. 3962 , the Secretary would be required to establish an accountable care pilot program under Medicaid, and would apply one or more of the models for the Medicare program also included in this bill. Among several activities, the Medicare accountable care organizations (ACOs) would encourage the redesign of care processes, reward high-quality, efficient physician practices, and test certain payment incentive models. Qualifying ACOs would include certain physician groups, and could also include hospitals or other providers and suppliers that would share in any incentive payments. Among a number of criteria, these ACOs would have to meet certain reporting requirements and contribute to a best practices network or website to share strategies on quality improvement, care coordination and efficiency. The Medicaid ACO project would be limited to a period of five years. The Secretary would be authorized to increase federal matching rates for administrative services performed by ACOs up to 90% for the first two years and up to 75% for the remaining three years of the project. In addition, the Secretary would be required to evaluate the payment incentive model to determine its impact on beneficiaries, providers, suppliers and the overall program. An evaluation report would be required to be submitted to Congress and made available to the public. CBO estimates this provision would save $0.1 billion over the FY2010-FY2019 period. Medicaid does not reimburse for treatment provided to patients receiving care in institutions for mental disease (IMD), except to those patients under age 21 receiving inpatient psychiatric care and individuals age 65 and over. IMDs are defined under Medicaid statute as hospitals, nursing facilities, or other institutions of more than 16 beds that are primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing care and related services. Federal law requires that hospital-based IMDs which have emergency departments provide a medical screening examination to individuals for whom an examination or treatment for a medical condition is requested. In such cases, the hospital-based IMD must provide for an appropriate medical screening examination to determine whether or not a medical emergency exists. If a medical emergency exists, then the hospital-based IMD must provide, within the staff and facilities available at the hospital, for further medical examination and treatment as may be required to stabilize the medical condition, or to transfer the individual to another medical facility, subject to certain limitations. Under H.R. 3962 the Secretary would be required to establish a three-year Medicaid demonstration project in which eligible states would be required to reimburse certain IMDs for services provided to Medicaid eligibles between the ages of 21 and 65 who are in need of medical assistance to stabilize an emergency medical condition. To be defined as having an emergency medical condition, an individual would have to express suicidal or homicidal thoughts or gestures, if determined dangerous to self or others. The Secretary would be required to establish a mechanism for in-stay review to determine whether or not the patient has been stabilized. This mechanism would commence before the third day of the inpatient stay. The term "stabilized" means that the emergency medical condition no longer exists with respect to the individual and that the individual is no longer dangerous to self or others. Eligible states would be selected by the Secretary based on geographic diversity and would manage the provision of these benefits under the project through utilization review, authorization or management practices, or the application of medical necessity and appropriateness criteria applicable to behavioral health. Up to $75 million would be appropriated for FY2010. Such funds would remain available for obligation for three years through December 31, 2012. The Secretary would be required to allocate funds, on a quarterly basis, based on their availability and the FMAP formula. Finally, the Secretary would be required to submit annual reports to Congress on the progress of the demonstration project as well as a final report that includes an evaluation of the demonstration's impact on the functioning of the health and mental health service system and on Medicaid enrollees. In addition, the final report would be required to contain information pertaining to whether the demonstration project resulted in increased access to inpatient mental health services under Medicaid, whether average lengths of stays for individuals admitted under the demonstration project were longer or shorter as compared to individuals otherwise admitted in comparison sites, and a state-by-state analysis of whether the project reduced emergency room visits or lengths of stay for eligibles, among other requirements. Further, the final report would be required to include a recommendation regarding whether the demonstration project should be continued after December 31, 2012, and expanded on a national basis. CBO estimates this provision would cost $0.1 billion over the FY2010-FY2019 period. Division D of the H.R. 3962 , the "Indian Health Care Improvement Act Amendments of 2009," contains a number of sections related to improving American Indian and Alaska Natives' access to the Medicaid and CHIP programs. This section includes a summary of the Medicaid and CHIP-related sections of Division D. The Indian Health Service (IHS), an agency in HHS, provides health care for eligible American Indians/Alaska Natives through a system of programs and facilities located on or near Indian reservations and in certain urban areas. IHS may provide services directly, or Indian tribes (ITs) or tribal organizations (TOs) can operate IHS-services themselves through self-determination contracts and self-governance compacts negotiated with IHS. Urban Indian Organizations (UIOs) also provide IHS-services using grants and contracts from IHS. IHS, and tribally- operated facilities are eligible to receive reimbursements from SSA programs including Medicaid and CHIP. UIOs may also be eligible to receive reimbursements from Medicaid and CHIP. For Medicaid, services received through IHS facilities, whether operated by the IHS, a IT or a TO, the federal government pays the entire cost of covered services; that is, there is no state share for such services delivered by such providers. In recent years, there have been efforts to expand American Indian and Alaska Native enrollment in the Medicaid and CHIP programs. For example, the Children's Health Insurance Programs Reauthorization Act (CHIPRA, P.L. 111-3 ) and American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) amended Medicaid and CHIP statutes as they apply to American Indians and Alaska Natives to require states to increase outreach, facilitate enrollment, and eliminate cost sharing for eligible American Indians and Alaska Natives in Medicaid and CHIP. H.R. 3962 would amend the Indian Health Care Improvement Act to include cross references to the CHIPRA and ARRA amendments that relate to American Indians and Alaska Natives in Medicaid and CHIP. These cross references are not discussed below because they do not change the Medicaid or CHIP programs as they affect American Indians and Alaska Natives. CBO did not provide separate cost/savings estimates for the individual provisions described below. However, CBO did estimate that Division D would cost $0.2 billion in total over the FY2010-FY2019 period. H.R. 3962 would define a number of Indian terms as they are defined in Section 4 of the Indian Health Care Improvement Act as amended by this bill. These terms include IHS, IT, TOs, and UIOs, Indian Health Programs (IHPs) and Tribal Health Programs (THPs). IHPs include programs operated by IHS, ITs, TOs, and THPs include programs operated by ITs and TOs. These definitions would apply for all of the SSA including Titles XI, XVIII, XIX and XXI. H.R. 3962 would require that payments received by an IHP or UIO from Medicaid or CHIP not be considered in appropriations for Indian health care services. It would also prohibit the Secretary from providing services to Indians with coverage under Medicaid or CHIP in preference to those Indians without such coverage. In addition, H.R. 3962 designates IHPs and UIOs as the payor of last resort for services provided to eligible American Indians and Alaska Natives, including services covered by Medicaid and CHIP. H.R. 3962 would also require that Medicaid payments to IHS facilities be placed in a special fund to be held by the Secretary, and would require the Secretary to ensure that each IHS service unit receives 100% of the reimbursed amounts to which the service unit's facilities are entitled. Amounts in the special fund are to be used by a facility first (to the extent provided in appropriations acts) to improve IHS facilities so they can comply with the applicable conditions and requirements of the Medicaid program; if the reimbursed amounts are in excess of the amount necessary to make such improvements, the facility is required to use the funds, after consulting with the tribes being served by the service unit, to increase the facility's capacity to provide services or to increase the quality or accessibility of its services. CHIP funds are not required to be placed in the special fund. H.R. 3962 would also authorize THPs to elect to directly bill and receive payments from Medicaid or CHIP. It would exclude THPs that directly bill these programs from making payments into, or receiving payments from, the special fund discussed above. THPs would be required to use reimbursements received from Medicaid and CHIP in the same manner as discussed above for IHS facilities. THPs electing to directly bill Medicaid and CHIP would be subject to the auditing requirements applicable to whichever programs it chooses to bill directly. H.R. 3962 would authorize the Secretary to terminate direct billing for THPs that are not compliant with direct billing requirements. H.R. 3962 would expand payments under Medicaid and CHIP for services provided by IHPs. It would provide that IHPs would be eligible for payments for all items and services provided under a state plan or under a waiver, if the IHP meets the requirements that are generally applicable to other types of providers (i.e., non-IHPs) that provide these services. It would also authorize the Secretary to enter into an agreement with a state for the purpose of reimbursing that state for Medicaid/CHIP services provided by an IHP or UIO directly, through referral, or under contract or other arrangements between an IHP/UIO and another entity. The section would also amend SSA Section 1911(d), which contains a cross-reference on direct billing for IHPs and would add a new SSA Section 1911(c) that cross-references the special fund for improvement of IHS facilities that is described above and a new SSA Section 1911(d) that cross-references direct billing. H.R. 3962 would also amend SSA Sec. 2105 to permit CHIP payments to be made to ITs, TOs and UIOs explicitly. Currently, CHIP payments cannot be made to health care programs where other federal payments are made with the exception of IHS-operated or funded facilities. H.R. 3962 would require the Secretary to make grants or enter into contracts with tribes and tribal organizations for programs on or near reservations and trust lands, including using electronics and telecommunications, to assist individual Indians to enroll in Medicare, Medicaid, and CHIP, and pay premiums and cost sharing required by the programs. Payment of premiums and cost sharing may be based on need as determined by the tribe or tribal organization. H.R. 3962 would direct the Secretary to place conditions as deemed necessary on the contracts and grants, including requirements to determine Indian Medicaid, Medicare, and CHIP populations, educate Indians about the programs' benefits, provide transportation to enrollment sites, and develop and implement methods to improve Indian participation in the programs. H.R. 3962 would also apply the enrollment, premium, and cost-sharing assistance program to UIOs, and would set requirements for agreements with such organizations. In addition, H.R. 3962 would also require the Secretary, acting through CMS, to consult with states, IHS, ITs, TOs, and UIOs on developing and disseminating best practices to facilitate agreements between the states and Indian entities regarding enrollment and retention of Indians in Medicare, Medicaid, and CHIP. H.R. 3962 also contains cross-references to sections in the SSA for provisions on agreements for collecting, preparing, and submitting applications for Medicaid and CHIP and relevant SSA sections for targeted CHIP assistance for enrolling low-income Indian children. H.R. 3962 would also amend SSA Sec. 2102 to increase Medicaid and CHIP outreach and enrollment for American Indians and Alaska Natives. Specifically, state CHIP plans would be required to describe how the state would ensure that payments are made to IHPs providing CHIP benefits in the state. H.R. 3962 would require the Secretary to conduct three studies related to SSA programs and submit reports to Congress based on these studies. The studies/reports that would be required are as follows: A study to determine the feasibility of treating the Navajo Nation as a state for Medicaid purposes, for Indians living within the Navajo Nation's boundaries. The Secretary would be required to consider the feasibility of certain options—including allowing an Indian entity to operate as a state Medicaid program for Indians living within the boundaries of Navajo Nation—and to report the results of the study to specified committees of Congress not later than three years after enactment. The report would be required to include certain specified elements such as a summary of consultation between the relevant states, the Secretary, and Navajo Nation, projected costs or savings, and the legislative actions necessary to address the establishment of such an entity if it is determined feasible. An annual report to Congress, beginning January 1, 2011, covering the enrollment and health status of Indians receiving items or services under the health benefit programs funded under the SSA during the preceding year. The report must contain certain specified information including the number of Indians enrolled in or receiving items or services under each SSA program and under programs funded by IHS; the health status of these Indians, disaggregated by diseases or conditions; the status of IHP and UIO facilities' compliance with the applicable terms and conditions under Medicare, Medicaid, and CHIP, and the progress being made by such facilities toward achievement and maintenance of compliance; and other information as the Secretary determines appropriate. The Secretary would be required to act through the administrator of CMS and the director of IHS in submitting this report. A study to identify barriers to interstate coordination of enrollment and coverage of Medicaid- and CHIP-enrolled children who frequently change their state of residence or may be temporarily outside their state of residence for a variety of reasons (e.g., educational needs, family migration, or emergency evacuations). The study must also include an examination of enrollment and coverage coordination issues faced by Medicaid- and CHIP-enrolled Indian children temporarily residing in an out-of-state boarding school or peripheral dormitory funded by the Bureau of Indian Affairs. The Secretary, in consultation with state Medicaid and CHIP directors, would be required to submit a report to Congress, not later than 18 months after enactment, that contains recommendations for legislative and administrative actions to address the enrollment and coverage coordination barriers identified in the study. H.R. 3962 would require the Secretary to establish an identifiable program or office within CMS to improve coordination between Medicare and Medicaid and protection for dual eligible beneficiaries (individuals eligible for both Medicare and Medicaid). CMS' dual eligible office or program would be required to (1) review Medicare and Medicaid enrollment, benefits, service delivery, and payment, policies as well as grievance and appeals processes for Medicare Parts A and B, Medicare Advantage, and Medicaid; (2) identify areas where improved coordination and protection could improve care and reduce costs; (3) issue guidance to states on improving coordination and protection for duals. In addition, under this provision of H.R. 3962 , the new dual eligible beneficiary coordination office or program would be responsible for simplifying dual eligibles' access to benefits and services under Medicare and Medicaid; improving the care continuity for duals as well as their safe and effective care transitions; harmonizing regulatory conflicts between Medicare and Medicaid; and reducing the total cost and improving quality for services provided to duals under Medicare and Medicaid. The Secretary's responsibilities for implementing the CMS office or program for coordination and protection for dual eligibles would include the following: (1) examination of Medicare and Medicaid payment systems to develop strategies to foster more integrated and higher quality care; (2) development of methods to facilitate dual eligibles' access to post-acute and community-based services and to identify actions to improve coordination of community-based care; (3) a study of enrollment in Medicare Savings Program or MSP (for both Medicare and Medicaid) to identify methods to more efficiently and effectively reach and enroll dual eligibles; (4) an assessment of communication strategies aimed at dual eligibles, including the Medicare website, 1-800-MEDICARE, and the Medicare handbook; (5) research and evaluation of areas where service utilization, quality, and access to cost sharing protection could be improved and an assessment of factors relating to enrollee satisfaction with services and delivery; (6) collection and dissemination to the public of data and a database that describes eligibility, benefits, and cost-sharing assistance available to dual eligibles by state; (7) support for coordination of state and federal contracting oversight for dual eligible coordination programs; (8) support for state Medicaid agencies by providing technical assistance for Medicaid and Medicare coordination initiatives to improve integration of acute and long-term care services for duals; (9) monitoring total combined Medicare and Medicaid program expenditures in serving dual eligibles and making recommendations to optimize total quality and cost performance across both programs; and (10) coordination of Medicare Advantage plan activities under Medicare and Medicaid. The office or program of dual eligible coordination and protection also would be required to work with relevant state agencies and appropriate quality measurement entities to improve and coordinate Medicare and Medicaid reporting requirements. The office or program of dual eligible coordination and protection also would seek to minimize duplicate reporting requirements and identify ways to combine assessment requirements. The office also would strive to identify quality metrics and assessment requirements that facilitate quality comparisons across FFS Medicare, Medicare Advantage, FFS Medicaid, and Medicaid managed care. The Secretary would be required to seek endorsement by the quality metrics contractor described under Sec. 1890 (a) of H.R. 3962 . Further the office or program of dual eligible coordination and protection would be required to consult with relevant dual eligible stakeholders. Finally, within one year of enactment of H.R. 3962 and every three subsequent years the Secretary would be required to submit a report to Congress documenting progress of the office or program of dual eligible coordination and protection. CBO estimates this provision would have no effect on direct spending during the FY2010-FY2019 period. Under the Supplemental Appropriations Act ( P.L. 110-252 ), Congress directed the Secretary of HHS to establish a Medicaid Improvement Fund (MIF) that is available to the Secretary to improve the management of the Medicaid program with regard to Agency oversight of contracts and contractors, and the evaluation of demonstration projects. MIF funds are authorized and appropriated in the amount of $100 million for FY2014, and $150 million for each of fiscal years 2015 through 2018, and are available in addition to payments that would otherwise be made for such activities. H.R. 3962 would strike MIF funding amounts authorized and appropriated for the period between FY2014 through 2018, and would specify that funds available for expenditures from the MIF would be in an amount as appropriated or otherwise made available by law. CBO estimates this provision would save $0.7 billion during the FY2010-FY2019 period. A Personal Care Attendant is a person who provides personal care to an individual with a significant disability by providing assistance with activities of daily living (ADLs) and instrumental activities of daily living (IADLs). ADLs generally refer to eating, bathing and showering, using the toilet, dressing, walking across a small room, and transferring (getting in or out of a bed or chair). IADLs include preparing meals, managing money, shopping for groceries or personal items, performing housework, using a telephone, among others. Under current law, states have the option to cover personal care services, including personal care attendant services, under a variety of optional state plan benefits. These are the state plan: (1) personal care benefit; (2) self-directed personal care benefit; and (3) the h ome and community-based services benefit. State also have the option to offer personal care under certain waiver authorities, including section 1915(c) home and community-based waivers, and section 1115 Research and Demonstration waivers. Although states have significant flexibility to determine the amount and scope of these benefits, each statutory authority includes a unique set of rules defining and limiting the way in which a state may extend this benefit to Medicaid beneficiaries. H.R. 3962 states that it is the sense of the Congress that states would be allowed to elect under their Medicaid programs a Community First Choice Option under which (1) coverage of community-based attendant services and supports furnished in home and communities would be available, at an individual's option, to individuals who would otherwise qualify for Medicaid institutional coverage; (2) such supports and services would include assistance to individuals with disabilities with activities of daily living, instrumental activities of daily living, and health-related tasks; (3) the FMAP for such services and supports would be enhanced; (4) states, consistent with minimum federal standards, would ensure the quality of such supports and services; and (5) states would collect and provide data to the Secretary on the cost, effectiveness and quality of supports and services provided through state options. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. Federal assistance is provided to certain low-income persons to help them meet Medicare Part D premium and cost-sharing charges. To qualify for the Part D low-income subsidy (LIS), Medicare beneficiaries must have resources (assets) no greater than the income and resource limits established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ). Individuals may qualify for the full subsidy in two ways: (1) if they are eligible for Medicaid or one of the Medicare Savings Programs (MSP; Qualified Medicare Beneficiary (QMB), Specified Low Income Medicare Beneficiary (SLMB), or Qualifying Individual (QI)), or are recipients of Supplemental Security Income benefits, they are deemed automatically eligible; or (2) if they apply for the benefit through their state Medicaid agency or through the Social Security Administration (SSA) and are determined to have an annual income below 135% of the federal poverty level and to have resources below a certain limit. The Commissioner of Social Security is required to conduct outreach efforts to identify persons potentially eligible for assistance under the MSP and the LIS programs and to notify such persons of the availability of assistance. Outreach efforts are to be coordinated with the states. MIPPA extended the outreach requirements for the Commissioner of Social Security. Beginning January 1, 2010, the Commissioner is required, with the applicants' consent, to transmit data from the LIS application to the appropriate state Medicaid agency. The transmittal initiates an application of the individual for MSP benefits. states are required to accept data transmitted under this provision and to act on the data in the same manner and in accordance with the same deadlines as if the data constituted an initiation of an MSP application submitted directly by the individual. The date of the individual's application for LIS from which the summary data was derived constitutes the application date for MSP. Under Medicaid rules, states are required to process Medicaid applications, including MSP applications, with reasonable promptness. H.R. 3962 would clarify that for the purpose of a state's obligation to furnish medical assistance (Medicaid-financed coverage) with reasonable promptness and for the purpose of determining when medical assistance is to be made available, the date of the electronic transmission of low-income subsidy program data to the state Medicaid Agency would constitute the date of filing for benefits under the MSP. In addition, for the purpose of determining when medical assistance will be made available, the state would be required to consider the date of the individual's application for the LIS to constitute the date of filing for benefits under the MSP. With respect to Medicaid spending, CBO estimates this provision would cost $2.0 billion over the FY2010-FY2019 period. (Effects on Medicare spending for this provision were estimated by CBO to be $11.8 billion over the same period.) CHIPRA restated prior law that federal funding for individuals who are not legal residents is not allowed, and that the law provides for the disallowance of federal funding of erroneous expenditures under Medicaid and CHIP. H.R. 3962 would make a technical correction to one sentence in CHIPRA by replacing the reference to "legal residents" with the phrase "lawfully residing in the United States." Thus, the new wording would be "Nothing in this Act allows federal payment for individuals who are not lawfully residing in the United States." CBO estimated this provision would have no effect on direct spending over the FY2010-FY2019 period. Approved Section 1115 waivers are deemed to be part of a state's Medicaid (or CHIP) state plan for purposes of federal reimbursement. The provision would clarify that Medicaid coverage offered under the Special Terms and Conditions (STCs) of a Section 1115 demonstration waiver approved by the Secretary (e.g., benefit coverage, cost sharing rules, special financing arrangements, eligible populations, etc.) would be considered part of the Medicaid state plan. Medicaid program rules not explicitly listed in the waiver STCs would still apply. CBO estimated this provision would have no effect on direct spending over the FY2010-FY2019 period. CHIPRA, the reauthorization of CHIP, included several provisions designed to improve the quality of care for children under Medicaid and CHIP. The law directed to Secretary to develop (1) child health quality measures, (2) a standardized format for reporting information, and (3) procedures to encourage states to voluntarily report on the quality of pediatric care in these two programs. Examples of these initiatives included grants and contracts to develop, test, update and disseminate evidence-based measures, and demonstrations to evaluate promising ideas for improving the quality of children's health care under Medicaid and CHIP. H.R. 3962 would require the Secretary to develop and publish measures on the quality of maternity care under Medicaid and CHIP. The Secretary would also be required to publish a standardized reporting format for these measures, to be used by participating managed care entities, providers and practitioners in reporting such measures to the Secretary. The bill would also require the Secretary to develop quality measures for services provided to adult Medicaid and CHIP beneficiaries ages of 21 and 64 (that are not part of the set of quality measures for the delivery of health care services in the U.S. established under a separate provision in this bill). These measures would also be published, along with a standardized reporting format for use by participating providers. In developing these quality measures, the Secretary would be required to consult with certain academic institutions with related health quality measurement expertise, and to obtain input from stakeholders. The development of these measures must be coordinated with the development of the child health quality measures established in CHIPRA. Starting in 2013, and annually thereafter, the Secretary would be required to submit a report to Congress on the availability of reliable data relating to the quality of maternity care and services provided to adults ages 21 to 64 under Medicaid and CHIP, and recommendations for improving such quality of care under both programs. A total of $40 million would be appropriated for these activities for the five year period beginning with FY2010, to remain available until expended. CBO estimates that the cost for this provision would be negligible (i.e., plus or minus $50 million). H.R. 3962 would provide that a state plan for medical assistance under Title XIX, if considered by the Secretary to require state legislation in order for the plan to meet an additional requirement imposed by an amendment made in this title, must not be regarded as failing to be in compliance solely on the basis of failure to meet the requirement prior to the first day of the first calendar quarter beginning after the close of the first regular session of the state legislature that begins after the date of the enactment of this Act. For states with a two-year legislative session, each year of its session would be required to be deemed a separate regular session of the state legislature. CBO estimates this provision would have no effect on direct spending over the FY2010-FY2019 period. | The 111th Congress has devoted considerable effort to health reform that seeks to increase health insurance coverage for more Americans and help to control costs, while improving quality and patient outcomes. The Affordable Health Choices for America Act (H.R. 3962) was introduced in the House of Representatives on October 29, 2009. H.R. 3962 is based on H.R. 3200, America's Affordable Health Choices Act of 2009, originally introduced on July 14, 2009, and reported separately on October 14, 2009, by three House Committees—Education and Labor, Energy and Commerce, and Ways and Means. H.R. 3962 was further modified by the manager's amendment posted on November 3, 2009. H.R. 3962, as passed by the House on November 7, 2009, proposes sweeping reforms of the health care delivery system, described in the three divisions. Division A, "Affordable Health Care Choices," focuses on reducing the number of uninsured, restructuring the private health insurance market, setting minimum standards for health benefits, and providing financial assistance to certain individuals and small employers. Division B, "Medicare and Medicaid Improvements," proposes modifications to the largest two public health insurance programs to make them consistent with provisions in Division A and to amend other provisions in existing federal statute. Division C, "Public Health and Workforce Development," would amend and expand existing health professions and nursing workforce programs. A Republican alternative amendment in the nature of a substitute, dated November 3, 2009, is addressed in a separate CRS report. This report summarizes the major provisions affecting Medicaid and CHIP in H.R. 3962 (as passed), including modifications made by the manager's amendment. The report focuses primarily on provisions in Division B, Title VII—Medicaid and CHIP, plus selected provisions in Title IX—Miscellaneous Provisions. It also describes selected sections of Titles I and II of Division D, the Indian Health Care Improvement Act Amendments of 2009, related to improving access to Medicaid and CHIP for American Indians and Alaskan Natives. Due to the breadth of the changes proposed in H.R. 3962, some provisions of Divisions A and C also could affect Medicaid, but these are not Medicaid-specific. The Division B provisions would modify existing law and add new provisions affecting Medicaid eligibility; benefits; financing; waste, fraud, and abuse; payments to territories; demonstrations and pilot programs; and other miscellaneous Medicaid components. A major provision in Division B would expand Medicaid eligibility for traditional and non-traditional beneficiary categories up to 150% of the federal poverty level. The federal government would fully finance the costs for certain of these expanded beneficiary categories for periods before 2015, decreasing to 91% beginning in 2015. With respect to benefits, Medicaid programs would be required to cover preventive services, and would be allowed to cover nurse home visitation and birthing center services. There are a number of financing changes that would affect Medicaid under H.R. 3962, including reducing Medicaid disproportionate share hospital (DSH) payments by $10 billion by FY2019, increasing prescription drug rebates, and raising provider payments for certain primary care services. Additional waste, fraud, and abuse provisions affecting Medicaid and the Children's Health Insurance Program (CHIP) include requirements to deny payment for health care acquired conditions, require new Medicaid Integrity Program evaluations and reports, and require states to implement a national correct coding initiative, similar to the Medicare program. Under H.R. 3962, spending caps for the territories would be increased, and a series of demonstrations would be approved, including a medical home program, an accountable care organization program, and a program for stabilization of emergency medical conditions by mental disease institutions. |
The U.S. Department of the Treasury (Treasury) is responsible for issuing federal government debt. Debt issuance is a core component of Treasury's role as the manager of government operations, as it is needed when tax revenue collections are insufficient to meet the demand of federal obligations. The primary objective of Treasury's debt management strategy is to finance the government's borrowing needs at the lowest cost over time. To accomplish this Treasury adheres to three principles: (1) to issue debt in a regular and predictable pattern, (2) to provide transparency in the decisionmaking process, and (3) to seek continuous improvements in the auction process. Within the Treasury, the Office of Debt Management (ODM) makes all decisions related to debt issuance and the management of the United States debt portfolio. When federal spending exceeds revenues, the ODM directs the Bureau of the Fiscal Service to borrow the funds needed to finance government operations by selling securities to the public and government agencies through an auction process. The Bureau of the Fiscal Service manages the operational aspects of the issuance of Treasury securities, including the systems related to and the monitoring of security auctions. The ongoing economic recovery and concerns over the long-term fiscal outlook of the United States illustrate the importance of Treasury's role in financing the obligations of the country. In addition, long-term obligations resulting from the retirement and rising health care costs of the Baby Boomer generation, in the absence of policy changes, are projected to cause large increases in future federal debt. Given these challenges, the ability to maintain efficient and stable debt markets to ensure confidence and liquidity will remain an issue going forward. Treasury's debt management strategy can be complicated by challenges associated with approaches of total federal debt levels to the statutory debt limit. When the total amount of federal debt approaches the statutory debt limit, Congress may authorize the Treasury Secretary to invoke "extraordinary measures" to prevent the limit from binding. Those measures may compromise Treasury's ability to reach its borrowing objectives as it seeks to avoid the potential adverse effects associated with a binding debt limit. As the amount of money owed by the United States to holders of Treasury securities rises, interest payments can become a greater burden on taxpayers. If investors choose to purchase Treasury securities, less money is available to fund private sector investments and other financial instruments. To the extent that these securities are held by foreign governments or individuals abroad, those investors will be the beneficiaries of the interest payments. This report examines Treasury's debt management practices, focusing on the auction process, how prices and interest rates of securities are determined, and the role of market participants in the process. It also addresses the role of debt in influencing present and future budget outcomes. Congress holds the authority to issue debt on behalf of the United States through power granted in Article I, Section 8 of the Constitution. While this power was delegated to the Secretary of the Treasury in 1789, Congress retains ultimate control over spending through the budget and appropriations process, and revenue levels through tax legislation. If spending exceeds revenues, Treasury determines what type of debt instruments are used to finance the borrowing necessary to fulfill all obligations. The primary objective of Treasury's debt management strategy is to fulfill the government's borrowing needs at the lowest cost over time. Beyond financing the federal government, the success of Treasury's debt management strategy also affects global markets due to the influential role of the United States in the world economy. As noted earlier, Treasury adheres to three debt management principles: (1) to issue debt in a regular and predictable pattern, (2) to provide transparency in the decisionmaking process, and (3) to seek continuous improvements in the auction process. Adoption of this strategy helps to maximize government contributions to growth and efficiency in both the domestic and global capital markets. Development of modern debt management dates to the passage of the Second Liberty Bond Act of 1917. As amended, that legislation designated the Treasury Secretary as the principal authority to determine the types of issues, terms, and techniques most appropriate to manage public debt. Before this measure, interest rates and maturity periods of bonds were set by legislation and congressional authority. Further refinements in debt management policy came when Treasury established the Bureau of Public Debt within the Office of Fiscal Service in June 1940. In the late 1980s, ODM, formerly known as the Office of Market Finance, became the central office responsible for the decision making behind Treasury's borrowings. The Bureau of the Public Debt and the Financial Management Service (FMS) merged in 2012 to form the Bureau of the Fiscal Service. The Bureau of the Fiscal Service now oversees the operational aspects of the federal government borrowing process, accounts for and services federal debt, and provides reimbursable support services to federal agencies under the authority of the Treasury Franchise Fund. It also conducts auctions of Treasury securities to allow individuals, institutions, and financial professionals to invest in Treasury bills, notes, bonds, inflation-protected securities (TIPS), and floating rate notes (FRNs). The Federal Reserve (Fed) works alongside the Treasury in the debt management process, acting as Treasury's fiscal agent. The Fed was created in 1913 to institute stability in the banking sector following a time of financial panic. Initially, the Fed's role was primarily to oversee the money supply and supervise the banks during a time of increased borrowing needs as the United States sought ways to finance World War I expenses. For the first several decades of its existence, the Fed worked closely with Treasury to implement fiscal policy goals. Since the early 1950s, however, the Fed has operated independently from Treasury and uses its open market operations to manage the amount of money and credit in the economy via monetary policy. The Fed also provides banking services to the federal government by maintaining deposit accounts for Treasury, paying U.S. government checks drawn on the Treasury, and issuing and redeeming savings bonds and other government securities. During the mid-1970s, the economy experienced a period of rising nominal federal budget deficits, which increased debt issuance and disrupted financial markets. At that time, Treasury decided that it needed a new strategy to provide greater transparency and regularity in debt management. The resulting debt management process modernized the market for Treasury securities, realizing the benefits of predictability in an environment of large deficits. The modernization also induced policymakers to improve institutional practices. As a result, Treasury was able to raise large amounts of money with a minimal impact on the financial markets. These policies also extended the average maturity of the national debt and produced a better defined yield curve. Auctions are the cornerstone of Treasury's debt management strategy. Auctions and their offering amounts are scheduled and announced in advance of the auction date. Bidders in Treasury auctions may be either foreign or domestic and individual or institutional investors, or federal, state, or local government entities. Treasury securities can be purchased via a web-based account using the department's Treasury Direct system. Purchases of Treasury bills, notes, bonds, TIPS, floating rate notes, and savings bonds can be made through this system. The yield-to-maturity, interest coupon rate, and the discount (or premium) on a Treasury security are key to understanding the auction process. The yield-to-maturity rate is the rate of return anticipated on a security if it is held until the maturity date and is what is specified by a competitive bidder at the auction. The interest coupon rate is set at the highest yield level, in increments of one-eighth of one percent, which does not result in a price greater than 100% of principal. If the price of a Treasury security, as determined at auction, is less than the face value of the security, then the security may be described as purchased at a discount—if the price exceeded the value of the security, it is described as purchased at a premium. Auction bids for Treasury securities may be submitted as noncompetitive or competitive. With a noncompetitive bid, a bidder agrees to accept the discount rate (or yield) determined at auction and is guaranteed to receive the full amount of the bid. With a competitive bid, a bidder specifies the yield that is acceptable. A bid may be accepted in a full or partial amount if the rate specified is less than or equal to, respectively, the discount rate set by the auction. Once the auction closes, all noncompetitive bids are accepted and competitive bids are ranked based on yield, from lowest to highest. Competitive bids are accepted, starting at the lowest yield, until the offering amount has been exhausted. The highest accepted yield becomes the "stop." A competitive bid will not be accepted if the rate specified in the bid is higher than the yield set at the auction. Though interest payments received by successful bidders may vary based on the yield specified in their auction bids, all securities in an auction are sold for a single price, computed based on the "stop" yield. Most of the debt sold by the federal government is marketable, meaning that securities are sold via the auction process and can be resold on the secondary market. Currently, Treasury offers five types of marketable securities: Treasury bills, notes, bonds, inflation protected securities (TIPS), and floating rate notes (FRNs). Treasury sold their securities in 272 public auctions in 2015. If Treasury borrowing requirements or financing policy decisions change, the types of securities, the length of maturity periods, and offering amounts could be altered. Treasury bills (T-bills) are short-term securities that mature in one year or less. T-bills are sold at a discount from their face value. The interest rate determines the discount from face value and the price paid at auction. When the bill reaches maturity, the investor receives the face value. T-bills are currently being offered with maturities of 4, 13, 26, and 52 weeks. Auctions for T-bills take place weekly on Tuesdays (4-week bills) and Mondays (13- and 26-week bills). Every 4 weeks, 52-week bills are auctioned on Tuesdays as well. The timing from the announcement of the auction, to its execution, to issuance of the purchased security is generally between 7 and 10 days. Treasury notes are interest-bearing securities, offered in multiples of $100, currently being offered in 2-, 3-, 5-, 7-, and 10-year fixed maturities. The relationship between yield to maturity and the interest rate determines the price at auction. If the yield-to-maturity is greater than/equal to/less than the interest rate, the price will be less than/equal to/greater than par (face) value. Treasury notes pay interest on a semi-annual basis and the investor receives the face value when the note matures. Treasury notes are currently being auctioned on a monthly basis (2-, 3-, 5-, and 7-year notes) and quarterly (10-year notes). Treasury bonds are interest-bearing securities, offered in multiples of $100, with maturities of 30 years. The price, yield, and interest rate of a Treasury bond are determined at auction in the same way as a Treasury note. Treasury bonds pay interest on a semi-annual basis and investors receive face value when the bond matures. Treasury bonds are currently auctioned quarterly. TIPS are interest-bearing securities that protect investors from inflation. TIPS are offered in multiples of $100, with maturity periods of 5, 10, and 30 years. The TIPS principal adjusts based on the movements in the consumer price index (CPI-urban, non-seasonally-adjusted) with a three-month lag. The adjustments in the principal of the security form the basis for the interest payments, paid semiannually at a fixed rate. If inflation/deflation occurs, the interest payment increases/decreases. However, when a TIPS matures, the investor is paid the inflation-adjusted principal or original principal, whichever is greater. TIPS are currently being offered in April (5-year), January and July (10-year), and February (30-year). Treasury began issuing Floating Rate Notes (FRNs) in January 2014. FRNs are sold in increments of $100, and have a 2-year maturity period. The interest rate on FRNs is tied to the discount rate for 13-week Treasury bills. This relationship protects investors from the effects of a rise in interest rates, in exchange for offerings at lower yields than fixed-rate debt instruments with equivalent maturity periods. Auctions for FRNs take place at the end of each month. Nonmarketable debt is composed of approximately 2% of publicly held debt and nearly all intragovernmental debt. Publicly held debt that is nonmarketable is primarily the state and local government series and savings bonds. Intragovernmental debt is largely composed of debt owed by Treasury to the Social Security, Civil Service Retirement and Disability, Military Retirement, and Medicare trust funds. The main purpose of publicly held nonmarketable debt is to protect the bearers from market risk. The state and local government series was created in 1972 to restrict state and local governments from earning arbitrage profits by investing any tax-exempt bond proceeds in investments that may generate higher yields, thereby risking the returns. This program sells Treasury securities to state and local governments to help them comply with this requirement. Savings bonds provide a means for the small investor to participate in government financing. Savings bonds have been sold continuously since 1935 when they were introduced to encourage broad public participation in government financing by making federal bonds available in small denominations. U.S. government trust funds, which compose intragovernmental debt, contain revenues designated by law for a specific purpose. When revenues in the trust funds exceed benefit payments, the unspent monies must remain in the trust fund for future use. However, this excess cash is transferred to the Treasury's General Fund and is used to finance other activities which fall outside the specific purpose of the trust fund. In exchange, the trust fund is issued a Treasury "special issue" security to be redeemed at face value at any time in the future when the funds are needed. Special issue securities are available only to trust funds and are designated as nonmarketable, earning interest on a semi-annual basis. The interest rate is determined by formula, based on the average yield of certain marketable securities. Securities of this type protect the trust fund investments from market fluctuations. The Federal Reserve serves as Treasury's fiscal agent. In this role, it is responsible for the primary dealer relationships which are used not only for Treasury auctions but other open market operations to conduct monetary policy. In addition, the Federal Reserve plays an important role in the operational aspects of the auction process and payments mechanism. The Federal Reserve is not responsible for making debt issuance decisions—this responsibility rests solely within Treasury's ODM to ensure the independence of the two institutions. In addition, the Fed is a holder of Treasury securities. It is involved in the purchase and resale of these securities to the secondary market through its open market operations. These operations help keep the federal funds rate close to a target rate that is set by the Federal Open Market Committee. Its holdings of Treasury securities amounted to nearly $2.5 trillion as of August 2016. Any profits earned by the Fed through the sale of Treasury securities and other activities are remitted to Treasury and recorded as revenues in the federal budget. The Federal Reserve banks also act as fiscal agents and depositories for Treasury accounts by accepting deposits of federal taxes and other federal agency receipts and processing checks and electronic payments drawn on the account. The Fed's monetary policy actions can affect interest rates on Treasury securities in the short run. The Fed conducts its monetary policy by setting a federal funds rate, the price at which banks buy and sell reserves on an overnight basis, based on the supply and demand for bank reserves. Monetary actions by the Fed generally affect short-term nominal interest rates. If the Fed lowers the federal funds rate, resulting in a lower short-term interest rate, long-term interest rates are likely to fall also, though they may not fall as much or as quickly. Primary dealers are securities brokers and dealers who are registered to operate in the government securities market and have a trading relationship with the Federal Reserve Bank of New York. Primary dealers are the largest purchasers of Treasury securities sold to the public at auction. In many cases, auction purchases by primary dealers are later sold on the secondary or "when-issued" markets (see discussion in the next section). In addition to their role in the auction process, the primary dealers also work closely with the Fed to execute its monetary policy. These primary dealers are large financial institutions who the Fed relies on to act as intermediaries through which Treasury securities are bought and sold and then resold on the secondary market to increase or decrease the money supply. They are expected to maintain trading relationships with the Fed's trading desk and provide the trading desk with market information and analysis that may be useful to the Fed in the formulation and implementation of monetary policy. The primary dealers also use this system to help them meet their liquidity needs by swapping securities with the Fed on an overnight basis. This type of securities lending has no effect on general interest rates or the money supply since it does not involve cash, but can affect the liquidity premium of the securities traded. Along with the primary dealers and the Fed, individual investors, other dealers and brokers, private pension and retirement funds, insurance companies, investment funds, and foreign investors (private citizens and government entities) also purchase Treasury securities through the auction process and on the secondary market. Treasury releases a variety of data on purchasers of Treasury securities following each auction. The data are arranged into two categories, bidder category data and investor class data. The bidder category data show purchases by primary dealers, direct bidders, indirect bidders, and noncompetitive bidders by bill type. The investor class data describes the type of individual or institution bidding for the bill. Limitations exist on the data available for treasury security purchases. For example, ownership of a marketable security can change until it matures, meaning that the data (which lists ownership at the time of the auction) may not reflect the updated ownership composition. This is particularly true of primary dealers who purchase large amounts of securities and then resell them on the secondary market. Participants in the secondary market play an indirect role in determining the price of Treasury securities. Once an auction is announced by Treasury, dealers and market participants start trading securities on a "when-issued" basis, meaning that once a security is purchased and issued, it will be immediately resold to the secondary market purchaser. Because trading starts in the secondary market before the actual auction takes place, "when-issued" market participants effectively determine the yield or discount rate of Treasury securities based on what they are willing to pay. Transactions of Treasury securities between investors and companies or dealers on the repurchase (repo) market play a role in the effective functioning of the credit markets. In the repo market, transactions take place between two parties who exchange Treasury securities, often on a very short-term basis, for cash. The company or dealer pays the investor an agreed upon rate of interest for use of the funds with the expectation that the Treasury security will be repurchased at the mutually agreed upon future date. This process provides the company or dealer with the liquidity needed to meet immediate obligations. The inability or unwillingness of some investors to return Treasury securities during recent economic recession led to volatility in the repo market that affected market liquidity. In the fall of 2008, failures in this market spiked to nearly $2.7 trillion, half of the market's total value, due to the general market panic caused by the bankruptcy of Lehman Brothers. These settlement fails were the highest ever recorded. Treasury took the unprecedented response of reopening four securities in October 2008 to renew market functioning. In addition, the Treasury Market Practice Group, a private sector group sponsored by the Federal Reserve Bank of New York, suggested new guidelines to lower the level of future failures. Their recommendations resulted in the implementation of a three percentage point fee on failed repo transactions. Activity in the secondary and repurchase markets increased as the economy improved. The Treasury Secretary manages revenue, works to improve public credit, and provides for on-time revenue collection and payment of debts. If federal government finances are not well managed, financial stability and economic growth could be at risk. Throughout the year, the balance held by Treasury can fluctuate significantly as a result of higher or lower revenue collections or issuance of more or less debt during certain periods. As a result, Treasury must ensure that adequate funds are available, either via revenue streams or borrowing, to finance obligations. In order to finance the government's obligations while minimizing borrowing costs, Treasury must accurately project what cash requirements will be needed on a daily basis to cover government payments especially given these variations. The total amount of debt issued over the fiscal year depends in large part on the decisions made by Congress and the priorities it chooses in its annual budget and appropriations process. Recently, Treasury has issued increasing amounts of debt as a result of the government response to the most recent economic downturn, along with other budgetary initiatives. Over the longer term, these priorities could change as the economy recovers and decisions on how to finance the promises to retirees for healthcare and other benefits may increase the demands on Treasury's debt issuance. Treasury's financing needs generally follow a predictable seasonal pattern in response to changes in the level of public debt. Growth in public debt is typically lowest in April, due to the filing of personal income tax returns paid during that month, and highest in September, as a result of the need to meet obligations due at the end of the fiscal year. In addition to funding the needs of the government, Treasury manages the accounts of government agencies through the Bureau of the Fiscal Service. Loans are provided to Departments or Agencies in order to meet obligations, such as payments owed to eligible beneficiaries of social service programs. FMS disburses payments to individuals and businesses, collects federal revenue, and issues government-wide financial reports. Gross federal debt is composed of debt held by the public and intragovernmental debt. Debt held by the public, issued through the Bureau of the Fiscal Service, is the total amount the federal government has borrowed from the public and remains outstanding. This measure is generally considered to be the most relevant in macro-economic terms because it is the amount of debt sold in credit markets. Intragovernmental debt is the amount owed by the federal government to other federal agencies, primarily in the Social Security, Medicare, and Civil Service Retirement and Disability trust funds, to be paid by Treasury. The Bureau of the Fiscal Service provides various breakdowns of debt figures. The most up-to-date data on federal debt can be found on the "Debt to the Penny" section of the Bureau's Treasury Direct website. The Daily Treasury Statement (DTS) and Monthly Treasury Statement (MTS) provide greater detail on the composition of federal debt, including the operating cash balance, the types of debt sold, the amount of debt subject to the debt limit, and federal tax deposits. The Monthly Statement of the Public Debt (MSPD) includes figures from the DTS as well as more detailed information on the types of Treasury securities outstanding. The Office of International Affairs provides figures on the amount of debt held by foreigners through the Treasury International Capital System (TIC). The TIC data reflect estimates of who holds Treasury securities at a given period of time, which may be different from who purchased these securities at auction. Figure 1 shows changes in debt levels as a percentage of GDP from 1940 to 2015. Although nominal debt levels have steadily risen in the post-war period, debt measured as a percentage of GDP declined precipitously for several decades following its peak at 118% in 1946 until it reached 32% by 1981. Real debt levels have subsequently undergone significant increases in the past few decades. At the end of fiscal year 2014, total debt was 103.2% of GDP and publicly held debt equaled 74.1% of GDP. These totals represented the highest values recorded since 1947 and 1950, respectively. Total federal debt and federal debt held by the public declined from FY2014 and FY2015, to 103.2% of GDP and 73.7% of GDP respectively. Prior to FY2015, total federal debt had not experienced an annual decline since FY2001, and debt held by the public had not declined since FY2007. Levels of federal debt change on a daily basis. On August 12, 2016, for example, gross federal debt totaled $19.403 trillion, intragovernmental debt totaled $5.390 trillion, and debt held by the public totaled $14.013 trillion. By the next business day, August 15, 2016, gross federal debt rose to $19.420 trillion, as intragovernmental debt rose to $5.396 trillion while debt held by the public rose to $14.024 trillion. Treasury also estimates who owns federal securities. Because marketable Treasury securities can be and are often sold on the secondary market, ownership will change over time. As of March 2016, the latest period for which such estimates are available, gross debt totaled $19.265 trillion, of which, $7.801 trillion was owned by the Federal Reserve and Intragovernmental Holdings. U.S. savings bonds accounted for $0.170 trillion and foreign and international holdings accounted for $6.148 trillion. The remainder of the debt was held in depository institutions (i.e., commercial banks), pension funds, insurance companies, mutual funds, state and local governments, and other investors (i.e., individuals and corporations). Investors examine several key factors when deciding whether they should purchase Treasury securities. As with all types of investments, price, expected return, and risk play a role in this process. Treasury securities provide a known stream of income and offer greater liquidity than other types of fixed-income securities. Prices are determined by investors who place a value on Treasury securities based on the characteristics of safety and liquidity afforded by this investment option. Because they are also backed by the full faith and credit of the United States, they are often seen as one of the safest investments available, though investors are not totally immune from losses. The behavior of the market can lead to price changes, changes in interest rates, or inflation, which does create some investment risk. Despite the current economic conditions and financial market volatility, Treasury securities have remained attractive to investors. The yield curve shows the relationship between the interest rate (cost of borrowing) and the maturity of debt (i.e., U.S. Treasury securities) at a given time. In other words, the yield represents the rate of return an investor would earn if a security was held to maturity. The yield curve typically changes on a daily basis as interest rates move. Generally, yield curves are upward sloping (i.e., the longer the maturity, the higher the yield), with diminishing rates of increase over time. Figure 2 shows the nominal and real yield rates for Treasury securities as of August 16, 2016. Yield rates increased on both a nominal and real basis with the maturity length of the security, ranging on a nominal basis from 0.27% for a 1-month security to 2.29% for a 30-year security. Two opposing forces affect the slope and shape of the yield curve. First, investors must be compensated for choosing to invest now even though they may be able to achieve higher interest rates if they invested at a future point in time. This pushes interest rates up. Opposing this increase in interest rates is the fact that the longer the period to maturity, the greater the likelihood that interest rates will fall. This increases the risk to the lender (i.e., Treasury), as they could save on interest costs if they decided to wait before borrowing money. Generally speaking, the first effect will outweigh the second, leading to an upward sloping yield curve. An upward sloping yield curve also illustrates expectations for future economic growth and rising short-term interest rates. A downward-sloping curve implies that investors expect short-term interest rates to rise above long-term rates. These yield curves have frequently occurred before recessions. Yields can change for the same maturities from auction to auction and can vary on a daily (business day) basis. Treasury's Office of Debt Management generates the official daily yield curves to calculate a rate of constant maturity on Treasury securities in order to provide a meaningful measure of the yield on a security with a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. All securities with the same length to maturity must have the same yield, even if they were originally issued with different maturities or coupon rates. Yields are equalized through price changes. Figure 3 shows the Treasury constant maturity rates for selected maturities since 1962. Rates on securities with different maturities generally track each other. This is because securities with similar maturity periods tend to have similar rates because they offer fixed interest payments over essentially the same period of time. Given that securities with longer maturities tend to reflect expectations about the future path of the interest rates of short-term securities, short-term rates generally provide a picture of the path of their longer-term counterparts. Therefore, over history, movements in constant maturity rates have generally tracked each other, regardless of length of maturity. As Figure 3 shows, the maturity rates of both long-term and short-term Treasury securities have declined significantly after peaking in the early 1980s. Increases in the maturity rates of short-term securities from 2004 through 2007 were followed by sharp declines in rates during and after the economic recession. Trends in nominal rates of Treasury securities varied by maturity length from 2012 to 2015, as securities with shorter maturity periods experienced small increases while those with longer periods decreased. However, as of 2015 all securities remained well below their historical averages. The average spread between 30-year and 1-year securities was about 3.1% from 2011 to 2015, which is much higher than the average 5-year average spread since the creation of the 30-year security in 1977 (1.2%). In a recent statement following a meeting of the Federal Open Market Committee, Federal Reserve Chairman Janet Yellen reiterated a desire to increase the federal funds rate to a target rate of 2% in the medium term, though the Federal Reserve opted to keep the federal funds rate at between 0.25% and 0.50% in July 2016. Newly issued Treasury securities, sold to finance the operations of the federal government, are offered at a mix of maturities in order to satisfy the provisions of the regular and predictable debt management strategy and to minimize interest payments over time. The profile of securities is also important due to its influence on liquidity. In addition, Treasury must make sure that it has adequate cash balances available to pay federal obligations. Balancing all of these objectives leads to a strategy which offers a mix of short- and long-term securities. Longer-term securities generally command higher interest rates compared to shorter-term securities because investors demand greater compensation for incurring risk over a longer period of time. Generally, a strong economy will be accompanied by higher interest rates. If Treasury issues long-term debt during this time, they are committing to paying higher interest rates for a longer period and may decide to purchase short-term securities. However, this leads to uncertainties over the longer term, since the interest rate will likely change. During periods of economic downturn and low interest rates, Treasury may decide to finance at shorter maturities to take advantage of lower borrowing costs. This, however, may lead to more volatile and uncertain yearly interest payments because Treasury has to enter the market more often. Figure 4 shows the average length of marketable interest-bearing public debt securities held by private investors between 1974 and 2015, as of the end of each fiscal year. Since 1974, the average maturity period of Treasury securities reached its minimum point in FY1976 at 31 months and its peak in FY2000 at 75 months. In the mid-1970s, before the initiation of the regular and predictable debt management strategy, the average maturity of Treasury securities declined due to the rapid increase in the deficit during FY1975. To meet the unexpected financing needs, numerous debt offerings took place. However, Treasury officials were generally reluctant to offer long-term securities because they were unsure of investor demand. In contrast, during the surplus years of the late 1990s and the resulting decline in federal debt levels, Treasury did not have immediate financing needs and did not auction new securities as older ones matured. This effectively increased average maturity since greater numbers of long-term bonds remained outstanding. Given the nature of current borrowing requirements, coupled with expected future demands on borrowing needs due to long-term obligations related to Medicare and Social Security, Treasury's Borrowing Advisory Committee recommended that Treasury increase the size of issues across the maturity spectrum to allow the Treasury to meet its financing needs over the short to intermediate term and reduce the uncertainty surrounding interest rates over the long term. Effectively, this should reduce risk and ensure adequate financing over the long term, while increasing average maturity. The average maturity period of Treasury securities has increased since the end of the Great Recession, rising from an average length of 49 months in 2009 to 61 months in 2015. Legislative activity can affect Treasury's ability to issue debt and can impact the budget process. The statutory limit on the debt can constrain debt operations, and, in the past, has hampered traditional practices when the limit was approached. The accounting of asset purchases in the federal budget has created differences between how much debt Treasury has to borrow to purchase assets and how much the same purchases will impact the budget deficit. If budget deficits continue to rise, thereby requiring devotion of more resources to paying interest on the debt, fewer funds are available to spend on other federal programs, all else equal. Some economists have expressed concerns that persistent deficits could drive up interest rates, making it more expensive for the government, businesses, and consumers to borrow money. The government cannot add infinitely to the national debt without facing market consequences or hindering future ability to borrow. In recent testimony to Congress, Federal Reserve Chairman Janet Yellen warned that failing to address the government's growing debt will likely cause the United States to face higher interest rates, lower levels of investment, and reduced productivity growth in future years than it otherwise would have with more manageable levels of federal debt. Congress sets a statutory limit on federal debt levels in an effort to assert its constitutional prerogatives to control spending and impose a form of fiscal accountability. At times, the debt limit has restricted the Treasury's ability to manage the federal government's finances. Standard methods of financing federal activities or meeting government obligations can be hobbled when federal debt nears its legal limit. If the limit prevents the Treasury from issuing new debt to manage short-term cash flows or to finance an annual budget deficit, the government may be unable to obtain the cash it needs. In recent years, when federal debt levels approached the statutory debt limit, Congress and the Treasury were compelled to intervene. Such actions to stay under the debt limit included the authorization of a "debt issuance suspension period" and the implementation of "extraordinary measures" by the Treasury Secretary, and suspension of the statutory debt limit by Congress. Because the law requires that the government's legal obligations be paid, the debt limit may prevent it from issuing the debt that would allow it to do so. While the debt limit has never caused the federal government to default on its obligations, at times it has added uncertainty to Treasury operations. In 1990, the Federal Credit Reform Act (FCRA; Title V of P.L. 101-508 ) revamped the way that federal credit (direct loans and loan guarantees) is accounted for in the budget process. Before the creation of this law, asset purchases were recorded on a purchase price or net cash flow basis. If a subsequent sale led the government to recoup some of its investment, that would be recorded in a later fiscal year as negative outlays. Beginning in FY1992, asset purchases were recorded on an accrual basis, which reported the budgetary cost of a credit program equal to the estimated subsidy costs at the time the credit is provided. The subsidy cost was defined 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." Accounting under FCRA became a more prominent issue due to the federal financial interventions and resulting loans and asset purchases made by the federal government to stabilize the economy during the most recent recession. Because the ultimate value of these assets once they were sold was unknown, the ultimate increase in the federal debt as a result of these interventions was also unknown. Asset purchases financed under the Troubled Asset Relief Program (TARP; P.L. 110-343 ) required outlays to equal the purchase price, which increased the debt held by the public by the same amount. Subsequent proceeds from government sales of those assets are returned to the Treasury's General Fund, thereby decreasing the federal debt. However, the budgetary impact of this program was somewhat different. The TARP law (Title II of Division A) contained a provision which required budgetary accountability for these asset purchases to follow the provisions of FCRA with an additional adjustment for market risk. This means that for budgetary purposes, the cost of these purchases was recorded on a subsidy basis, which takes into account the asset's expected return. What the government paid to purchase the assets led to an increase in the debt held by the public, in the amount of the purchase price, that exceeded the increase in the budget deficit, in the amount of the subsidy. The most recent estimates project that the government's financial intervention through TARP will result in total asset purchases of $442 billion ($431 billion of which had already been disbursed in March 2016) at a net cost to the government of $30 billion. Interest paid on the federal debt increases the overall cost of borrowing. As discussed earlier, interest costs can be affected by various conditions, including legislative activity and the economy, as well as actions taken by the Treasury and the Fed. The level of budget deficits and federal debt can also affect the interest rates on Treasury securities . If interest rates are low, interest payments on Treasury securities may also be low, thereby making debt less costly. However, increased borrowing will increase the supply of Treasury securities, which generally leads to higher interest rates and future net interest payments. Despite the recent increases in federal borrowing during the recent economic recession and subsequent recovery, the actions of the Fed have kept interest rates near zero since late 2008. Therefore, borrowing costs to the Treasury currently remain low. When setting interest rates, the Fed considers potential effects on employment, prices, and long-term interest rate levels. The Fed cited soft business investment measures and uncertainty surrounding global economic and financial developments in its decision to keep interest rates low in FY2016. However, the Fed also suggested that it will raise interest rates in the near future if the labor market continues to strengthen and economic inflation increases. Interest payments are projected to match historically low levels both as a percentage of gross domestic product and as a percentage of total outlays even as overall debt is increasing. Over the long term, however, borrowing costs are projected to grow, likely leading to increasing interest payments. Part of Treasury's mission is to secure America's economic and financial future. In part, this is achieved by maintaining a regular and predictable debt management strategy as well as ensuring global trust and confidence in U.S. currency. However, Treasury's actions are affected by Congress, the Fed, and different types of investors, as well as economic conditions. As long as the United States continues to issue Treasury securities to finance government operations, the actions of the Treasury will continue to play a key role in maintaining stability in the financial and credit markets and the U.S. economy. | The U.S. Department of the Treasury (Treasury), among other roles, manages the country's debt. The primary objective of Treasury's debt management strategy is to finance the government's borrowing needs at the lowest cost over time. To accomplish this Treasury adheres to three principles: (1) to issue debt in a regular and predictable pattern, (2) to provide transparency in the decisionmaking process, and (3) to seek continuous improvements in the auction process. Within the Treasury, the Office of Debt Management (ODM) makes all decisions related to debt issuance and the management of the United States debt portfolio. When federal spending exceeds revenues, the ODM directs the Bureau of the Fiscal Service to borrow the funds needed to finance government operations by selling securities to the public and government agencies through an auction process. The Bureau of the Fiscal Service manages the operational aspects of the issuance of Treasury securities, including the systems related to and the monitoring of security auctions. During the mid-1970s, Treasury faced a period of rising nominal federal budget deficits and debt requiring unanticipated increases in issuances of securities. Up to that point, debt management was characterized by an ad-hoc, offering-by-offering survey of market participants. At that time, Treasury implemented a new debt management strategy that provided greater transparency and reduced the potential for market volatility. The resulting debt management process modernized the market for Treasury securities, realizing the benefits of predictability in an environment of large deficits. A reliance on auctions became a central part of the strategy's increased focus on regular and predictable debt management. Most of the debt sold by the federal government is marketable, meaning that it can be resold on the secondary market. Currently, Treasury offers five types of marketable securities: Treasury bills, notes, bonds, inflation protected securities (TIPS), and floating rate notes (FRNs), sold in about 270 auctions per year. A small portion of debt held by the public and nearly all intragovernmental debt (debt held by government trust funds) is nonmarketable. Investors examine several key factors when deciding whether they should purchase Treasury securities, including price, expected return, and risk. Treasury securities provide a known stream of income and offer greater liquidity than other types of fixed-income securities. Because they are also backed by the full faith and credit of the United States, they are often seen as one of the safest investments available, though investors are not totally immune from losses. Security prices are determined by investors according to the value of such characteristics in the context of the financial marketplace. Legislative activity can affect Treasury's ability to issue debt and can impact the budget process. Congress sets a statutory limit on the permissible amount of federal debt to assert its constitutional prerogatives to control spending and impose a form of fiscal accountability. The statutory limit on the debt can constrain debt operations, and, in the past, has hampered traditional practices when the limit was approached. The accounting of asset purchases in the federal budget has created differences between how much debt Treasury has to borrow to make those purchases and how much the same purchases will impact the budget deficit. If budget deficits continue to rise, thereby causing more resources to be devoted to paying interest on the debt, there will be fewer funds available to spend on other federal programs, all else equal. This report will be updated as events warrant. |
Partly as a result of the increased use of horizontal drilling and hydraulic fracturing to extract natural gas from shale formations in the United States, the domestic supply of natural gas has increased relative to demand, leading to lower domestic prices. Domestic oil production has also increased after decades of decline thanks to new drilling technologies These production increases have generated new interest by some U.S. companies in exporting liquefied natural gas (LNG) to take advantage of relatively higher prices in world markets. This new interest in exporting natural gas has also produced renewed interest in the laws and regulations governing the export of other fossil fuels, including crude oil and coal. This report reviews federal laws and the regulatory regime governing the export of natural gas, crude oil, and coal. This report provides an overview of federal laws and regulations and agency roles in authorizing and regulating the export of these fossil fuels. The report addresses several categories of federal laws and regulations, including (1) statutes that establish the authorization process for the actual export of any of the three listed fossil fuels; (2) statutes that govern the permitting of the facilities that export any of the listed fossil fuels; and (3) generally applicable trade statutes and treaties that affect exports of fossil fuels. In general, transactions involving the export of items from the United States to a foreign country are subject to the Export Administration Regulations (EAR) enforced by the Department of Commerce's Bureau of Industry and Security (BIS). However, transactions that fall within the scope of the EAR do not necessarily require an export license from BIS. Whether an export license is required depends on several factors, including the nature of the item, its end use, and its ultimate destination. The EAR provides instructions for exporters to follow when determining whether an export transaction is subject to the EAR and, if so, whether the transaction requires a license. Other general requirements may apply to transactions involving the export of items from the United States. For example, for exports of items subject to the EAR that do not take place electronically or in another intangible form, an exporter is required in certain circumstances to submit a Shipper's Export Declaration (SED) or Automated Export System (AES) Record to BIS and the International Trade Administration in the Department of Commerce's Bureau of the Census. A declaration or record typically contains an identification of the exporter and the commodity being shipped; the date of exportation; and the country of ultimate destination, among other information. The Energy Policy and Conservation Act of 1975 directed the President to "promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States, except that the President may ... exempt from such prohibition such crude oil or natural gas exports which he determines to be consistent with the national interest and the purposes of this chapter." The act further provides that the exemptions to the prohibition should be "based on the purpose for export, class of seller or purchaser, country of destination, or any other reasonable classification or basis as the President determines to be appropriate and consistent with the national interest and the purposes of this chapter." This general prohibition on crude oil exports and the exemptions to that prohibition are found in the BIS regulations on Short Supply Controls at 15 C.F.R. §754.2. The regulations provide that a license must be obtained for exports of crude oil, including those to Canada. The regulations further provide that BIS will issue licenses for certain crude oil exports that fall under one of the listed exemptions, including (i) exports from Alaska's Cook Inlet; (ii) exports to Canada for consumption or use therein; (iii) exports in connection with refining or exchange of strategic petroleum reserve oil; (iv) exports of heavy California crude oil up to an average volume not to exceed 25,000 barrels per day; (v) exports that are consistent with certain international agreements; (vi) exports that are consistent with findings made by the President under certain statutes; and (vii) exports of foreign origin crude oil where, based on satisfactory written documentation, the exporter can demonstrate that the oil is not of U.S. origin and has not been commingled with oil of U.S. origin. The regulations also direct BIS to review applications to export crude oil that do not fall under one of these exemptions on a "case by case basis" and to approve such applications on a finding that the proposed export is "consistent with the national interest and the purposes of the Energy Policy and Conservation Act." However, the regulations also seem to suggest that only certain specific exports will be authorized pursuant to this case-by-case review. The regulations provide that while BIS "will consider all applications for approval," generally BIS will approve only those applications that are either for temporary exports (e.g., a pipeline that crosses an international border before returning to the United States), or are for transactions (1) that result directly in importation of an equal or greater quantity and quality of crude oil; (2) that take place under contracts that can be terminated if petroleum supplies of the United States are threatened; and (3) for which the applicant can demonstrate that for compelling economic or technological reasons, the crude oil cannot reasonably be marketed in the United States. The regulations also provide for a few enumerated exceptions to the general license requirement. These exceptions include foreign origin crude oil stored in the Strategic Petroleum Reserves, small samples exported for analytic and testing purposes, and exports of oil transported by pipeline over rights-of-way granted pursuant to Section 203 of the Trans-Alaska Pipeline Authorization Act. These exports do not require a license from BIS. Section 3 of the Natural Gas Act (NGA) provides that "no person shall export any natural gas from the United States to a foreign country or import any natural gas from a foreign country without having first secured an order of the Commission authorizing it to do so." This authorization is to be issued "unless, after opportunity for hearing, [the Commission] finds that the proposed exportation or importation will not be consistent with the public interest." The Commission is further empowered to grant authorizations in part and to modify or place terms and conditions upon authorizations and to supplement its orders as appropriate. At the time of the NGA's enactment in 1938, the "Commission" referred to the Federal Power Commission. However, in 1977 the Federal Power Commission was dissolved and its responsibilities were transferred to the Department of Energy (DOE) as well as the Federal Energy Regulatory Commission (FERC), an independent agency operating within DOE, pursuant to the Department of Energy Organization Act. Title III of this act transferred all functions of the Federal Power Commission to DOE except for those subsequently assigned to FERC in Title IV. Title III of the DOE Organization Act thus transferred the authority to authorize natural gas imports and exports from the Federal Power Commission to DOE. Title IV provides added clarity on this point. Section 402(f) of the act specifically states that "[n]o function ... which regulates the exports or imports of natural gas or electricity shall be within the jurisdiction of [FERC] unless the Secretary assigns such functions to [FERC]." Natural gas exporting responsibilities are handled by the Office of Fossil Energy within DOE. The procedures for filing for authorization to import or export natural gas are set forth in DOE regulations found at 10 C.F.R. Part 590. The regulations establish filing requirements as well as the procedures for review of applications, including procedures that allow interested parties to participate in the process prior to the issuance of orders by DOE. The regulations also provide for an expedited filing and review process for one-time small volume imports and exports for "scientific, experimental or other non-utility gas use" without necessitating a permit. The Energy Policy Act of 1992 amended the NGA Section 3 generic requirement for a permit in order to export natural gas to create a more streamlined authorization process for imports from and exports to certain countries. Subsection (c) of Section 3 provides that the importation of natural gas from or exportation of natural gas to a country with which the United States has in effect "a free trade agreement requiring national treatment for trade in natural gas shall be deemed to be consistent with the public interest, and applications for such importation and exportation shall be granted without modification or delay." This provision eased the authorization process for certain countries in the interest of free trade, including Canada and Mexico, the only countries with whom natural gas importation and exportation takes place via pipeline. Section 3 of the NGA also protects the role of the states in the permitting decisions. State rights under various environmental statutes are protected with respect to both export authorization by DOE and permitting by FERC (discussed infra ) in Section 3(d), and Section 3(e) mandates the notification of relevant state authorities in order to gather their input during the process. Although the Energy Policy and Conservation Act of 1975 authorized the President to restrict coal exports, the President does not appear to have exercised this authority to impose any significant export restrictions specific to coal. In fact, there have been legislative efforts aimed at expanding coal exports. For example, Section 1338 of the Energy Policy Act of 1992 directed the Secretary of Commerce to create a plan for expanding coal exports. Almost all U.S. coal exports pass through ports on the East Coast or in the Gulf of Mexico, so laws and regulations applicable to such facilities would potentially affect coal exports. Such laws and regulations are briefly discussed below. The previous section of this report discusses federal authorization of the export of natural resources, not the construction and operation of export facilities. However, in many cases approval for the export facility itself also must be obtained from the federal government. This section discusses various approval requirements for different types of facilities that enable the export of oil and natural gas. Note that, in addition to the facility approvals described below, a facility used in the export or import of fossil fuels may require additional federal approvals or authorizations. For instance, construction and operation of ports in any navigable waters in the United States are regulated by the U.S. Army Corps of Engineers (ACE). In order to construct any port facility, permits must be obtained from ACE, which will review applications to see that they are in compliance with the Clean Water Act, the Rivers and Harbors Act, and the Marine Protection Research and Sanctuaries Act. Because coal is generally not exported via a special facility designed to transport the commodity, there are no special facility permitting requirements applicable to coal exports, but facilities through which coal (or any fossil fuel) may be exported must satisfy these generic federal requirements. Crude oil can be exported either by pipeline or via tanker or other vessel. If an oil pipeline crosses the border with Canada or Mexico, the border crossing facility must be authorized by the federal government. The executive branch exercises permitting authority over the construction and operation of "pipelines, conveyor belts, and similar facilities for the exportation or importation of petroleum, petroleum products" and other products pursuant to a series of executive orders. This authority has been vested in the U.S. State Department since the promulgation of Executive Order 11423 in 1968. Executive Order 13337 amended this authority and the procedures associated with the review, but did not substantially alter the exercise of authority or the delegation to the Secretary of State in Executive Order 11423. Executive Order 11423 provides that, except with respect to cross-border permits for electric energy facilities, natural gas facilities, and submarine facilities: The Secretary of State is hereby designated and empowered to receive all applications for permits for the construction, connection, operation, or maintenance, at the borders of the United States, of: (i) pipelines, conveyor belts, and similar facilities for the exportation or importation of petroleum, petroleum products, coal, minerals, or other products to or from a foreign country; (ii) facilities for the exportation or importation of water or sewage to or from a foreign country; (iii) monorails, aerial cable cars, aerial tramways and similar facilities for the transportation of persons or things, or both, to or from a foreign country; and (iv) bridges, to the extent that congressional authorization is not required. Executive Order 13337 designates and empowers the Secretary of State to "receive all applications for Presidential Permits, as referred to in Executive Order 11423, as amended, for the construction, connection, operation, or maintenance, at the borders of the United States, of facilities for the exportation or importation of petroleum, petroleum products, coal, or other fuels to or from a foreign country. " Executive Order 13337 further provides that after consideration of the application and comments received: If the Secretary of State finds that issuance of a permit to the applicant would serve the national interest, the Secretary shall prepare a permit, in such form and with such terms and conditions as the national interest may in the Secretary's judgment require, and shall notify the officials required to be consulted ... that a permit be issued. Thus, the Secretary of State is directed by the order to authorize those border crossing facilities that the Secretary has determined would "serve the national interest." Note that the source of the executive branch's permitting authority is not explicitly stated within the executive orders. Powers exercised by the executive branch are authorized by legislation or are inherent presidential powers based in the Constitution. Executive Order 11423 does not reference any statute or constitutional provision as the source of its authority, although it does state that "the proper conduct of foreign relations of the United States requires that executive permission be obtained for the construction and maintenance" of border crossing facilities. Executive Order 13337 refers only to the "Constitution and the Laws of the United States of America, including Section 301 of title 3, United States Code. " Section 301 of Title 3 provides that the President is empowered to delegate authority to the head of any department or agency of the executive branch. Courts that have addressed the legitimacy of this exercise of authority have found that it is a legitimate exercise of "the President's constitutional authority over foreign affairs and his authority as Commander in Chief." As discussed above, Executive Orders 11423 and 13337 explicitly exclude cross-border natural gas pipelines (among others) from their reach. Instead, permitting for these facilities is addressed in Executive Order 10485, which governs the issuance of Presidential Permits for natural gas facilities. Executive Order 10485 designates and empowers the now-defunct Federal Power Commission: (1) To receive all applications for permits for the construction, operation, maintenance, or connection, at the borders of the United States, of facilities for the transmission of electric energy between the United States and a foreign country. (2) To receive all applications for permits for the construction, operation, maintenance, or connection, at the borders of the United States, of facilities for the exportation or importation of natural gas to or from a foreign country. (3) Upon finding the issuance of the permit to be consistent with the public interest, and, after obtaining the favorable recommendations of the Secretary of State and the Secretary of Defense thereon, to issue to the applicant, as appropriate, a permit for such construction, operation, maintenance, or connection. The Secretary of Energy shall have the power to attach to the issuance of the permit and to the exercise of the rights granted thereunder such conditions as the public interest may in its judgment require. In many ways, this authority resembles the authority over oil pipelines granted to the State Department in Executive Orders 11423 and 13337. However, as mentioned above, Executive Orders 11423 and 13337 do not describe the source of the executive branch permitting authority granted by the orders. Judicial opinions strongly suggest the permitting authority is an exercise of the President's "inherent constitutional authority to conduct foreign affairs." By contrast, Executive Order 10485 cites federal statutes which may at least partially form the basis for the permitting authority granted to the DOE by the order. The order states that "section 202(e) of the Federal Power Act, as amended ... requires any person desiring to transmit any electric energy from the United States to a foreign country to obtain an order from the Federal Power Commission authorizing it to do so" and that "section 3 of the Natural Gas Act ... requires any person desiring to export any natural gas from the United States to a foreign country or to import any natural gas from a foreign country to the United States to obtain an order from the Federal Power Commission authorizing it to do so." These appeals to statutory authority should be considered and possibly addressed in any legislation seeking to amend the current Presidential Permit process for border crossings for energy facilities. The Department of Energy Organization Act of 1977 eliminated the Federal Power Commission and transferred its functions to either the newly created DOE or the FERC, an independent regulatory agency within DOE. Section 402(f) of that act specifically reserved import/export permitting functions for DOE rather than FERC. As a result, DOE took over the FPC's Presidential Permit authority for border crossing facilities under Executive Order 10485 pursuant to the act. The authority to issue Presidential Permits for natural gas pipeline border crossings was subsequently transferred to FERC in 2006 via DOE Delegation Order No. 00-004.00A. Section 3(e) of the NGA, adopted in Section 311 of the Energy Policy Act of 2005, assigns the "exclusive authority to approve or deny an application for the siting, expansion or operation of a Liquefied Natural Gas (LNG) terminal" to FERC. Section 3 designates FERC as the "lead agency for the purposes of coordinating all applicable Federal authorizations" and for complying with federal environmental requirements. Section 3(e) also directs FERC to promulgate regulations for pre-filing of LNG import terminal siting applications and directs FERC to consult with designated state agencies regarding safety in considering such applications. FERC implements its authority over onshore LNG terminals through the agency's regulations at 18 C.F.R. §153. These regulations detail the application process and requirements under Section 3 of the NGA. The process begins with a pre-filing, which must be submitted to FERC at least six months prior to the filing of a formal application. The pre-filing procedures and review processes are set forth at 18 C.F.R. §157.21. Once the pre-filing stage is completed, a formal application may be filed. FERC's formal application requirements include detailed site engineering and design information, evidence that a facility will safely receive or deliver LNG, and delineation of a facility's proposed location. The regulations also require LNG facility builders to notify landowners who would be affected by the proposed facility. To facilitate natural gas infrastructure projects, which includes LNG projects, FERC has adopted rules to provide "blanket certificates" that provide authorization to interstate pipelines to improve or upgrade existing facilities or construct certain new facilities pursuant to a streamlined process. The Marrakesh Agreement Establishing the World Trade Organization (WTO) contains the agreements relating to international trade that are binding for all WTO members. Although there is no specific agreement relating to trade in energy products, such as liquefied natural gas, coal, or oil, the trade in these products is regulated under the General Agreement on Tariffs and Trade (GATT). Several of these sections could potentially impact a nation's ability to limit or restrict fossil fuels. Article I of the GATT 1994 requires that "any advantage, favour, privilege or immunity granted by any [WTO member] to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other [WTO members]." Article I applies to all rules and formalities in connection with importation and exportation. This broad category of rules and formalities appears likely to include prerequisites for exportation such as licensing requirements or other preliminary measures. More favorable treatment given to imports from particular countries in the context of import licensing requirements has been held to confer an advantage within the meaning of Article I. Generally, this means that as soon as the United States provides for certain treatment of fossil fuel exports to one country, the United States has to treat exports to all other WTO members in the same fashion. A licensing regime that provided for more favorable treatment for exports of fossil fuels to some countries, but subjected other WTO countries to a slower process could potentially be inconsistent with Article I of the GATT. However, there are exceptions to the Most Favored Nation Treatment requirements for Free Trade Agreements (FTA). Article XXIV of GATT 1994 allows countries to provide more favorable treatment to countries with which they have established an FTA. In order to qualify for the Article XXIV exception, the FTA must meet certain requirements outlined in the Article. Most notably, the free trade agreement must generally eliminate duties—such as tariffs—and restrictions on commerce between the parties to the agreement for "substantially all the trade in products originating in those territories." Therefore, in order for an agreement to qualify, it is likely that the FTA would have to cover more than just energy products flowing between the two territories. However, if the countries have a qualifying FTA, more favorable treatment towards energy products moving between those countries could be included in that FTA without violating the GATT, although this may require a WTO panel to find that these provisions regarding energy products are essential to the agreement. Article XI of the GATT covers import and export restrictions. Article XI:1 of the GATT bars the institution or maintenance of quantitative restrictions on exports to any WTO member's territory. Quantitative restrictions limit the amount of a product that may be exported—common examples are embargoes, quotas, minimum export prices, and certain export licensing requirements. Under Article XI, duties, taxes, and other charges are the only GATT-consistent methods of restricting exports. Any government action that expressly precludes the exportation of certain goods is inconsistent with the GATT. Although there are few WTO panel decisions on export bans, panels have consistently found that import bans implemented through licensing systems violate Article XI. This jurisprudence can be expected to inform any WTO panel decision on the GATT-consistency of export bans and licensing. WTO Panel decisions have also held that "discretionary" or "non-automatic" licensing requirements are prohibited under Article XI—therefore, a licensing program that gives discretion to an agency to deny an export license to potential exporters on the basis of vague or unspecified criteria would violate Article XI. Moreover, a GATT panel held that export licensing practices that cause delays in issuing licenses may be a restraint of exports that is inconsistent with Article XI. A fossil fuel export licensing regime that restricts exports could have the effect of keeping domestic prices of fossil fuels lower than they otherwise would be. This raises the question of whether such a licensing program could be considered an actionable subsidy to downstream users of the fossil fuels such as members of the petrochemical industry. Under the GATT 1994 and the Agreement on Subsidies and Countervailing Measures (SCM Agreement), an actionable subsidy may be the subject of countervailing measures or challenge before a panel by a WTO member when the subsidy adversely affects the interests of that member. Adverse effects might result if export restraints on fossil fuels lead to lower input costs for downstream manufacturers that use the fuels, giving the manufacturers' products a competitive edge over the products of the other members' manufacturers in domestic or foreign markets. The SCM Agreement defines a "subsidy" as "a financial contribution by a government or any public body within the territory of a Member" that confers a benefit. Under the agreement, one way that a "financial contribution" may occur is when a government directs a private body to sell goods to a domestic purchaser. In U.S. — Measures Treating Export Restraints as Subsidies , the United States Trade Representative (USTR) argued before a WTO panel that a government's restriction on exports could be considered "functionally equivalent" to that government directing private parties to sell a good to domestic purchasers. The USTR argued that this resulted in a subsidy to downstream producers that used the good as an input in their production processes. The panel rejected this argument, stating that although a restriction on exports of a good may result in lower prices for domestic users of that good, the restriction was not an explicit command or direction by the government to private parties to sell the good within the meaning of the SCM Agreement. This ruling suggests that future panels may be reluctant to find that a restriction on exports or a similar government intervention in a market is a "financial contribution" by a government. Thus, it seems unlikely that licensing procedures could constitute a subsidy under WTO rules, even if they lead to restrictions on exports. Article XX of the GATT provides for certain exceptions that a member country may invoke if it is found to be in violation of any GATT obligations. In order for the defense to be successful, the member country must show that its action fits under one of these general exceptions and that it satisfies Article XX's opening clauses, known as the "chapeau." When dealing with trade in energy products, a country will most likely use the exceptions under Article XX(b) or XX(g). A country may justify a GATT inconsistent practice under Article XX(b) if the practice in question is "necessary to protect human, animal, or plant life or health." Article XX(g) may permit otherwise GATT inconsistent measures that "relat[e] to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." If a WTO member invokes an Article XX exception to the application of any quantitative export restrictions, Article XIII potentially requires that those export restrictions must be administered in a nondiscriminatory manner—that is, the restrictions must comport with the most-favored nation treatment discussed above. Restrictions on fossil fuels for reasons of international or domestic security that would otherwise violate the GATT 1994 may potentially be justified under the broadly worded exception for essential security interests contained in Article XXI. One paragraph of this article allows a member to take "any action which it considers necessary for the protection of its essential security interests ... taken in time of war or other emergency in international relations." While there is a lack of WTO case law on Article XXI, the nearly identical security exception under Article XXI of the General Agreement on Tariffs and Trade 1947 (GATT 1947) provides some guidance. Under the GATT 1947, the contracting parties had broad discretion with respect to identifying an "emergency." According to one source, each party was the judge of what was essential to its own security interests. Measures that parties sought to justify under Article XXI of the GATT 1947 included trade embargoes, import quotas, and suspensions of tariff concessions. Parties pointed to both potential and actual dangers as "emergencies" to justify measures otherwise inconsistent with the GATT 1947. With respect to who determines whether a WTO member's use of a national security exception is valid, the United States has taken the position that Article XXI is "self-judging." That is, each member invoking Article XXI judges whether its use of the exception is valid. While there is currently no WTO case law on the use of Article XXI of the GATT 1994, some scholars have speculated that, in the future, a WTO panel or the Appellate Body may decline to defer to a WTO member's judgment that its use of Article XXI is appropriate and, instead, may subject a member's use of the exception to scrutiny. For example, a panel may consider whether there is an emergency in international relations justifying national security screening for exports of fossil fuels to certain countries but not others. In addition to the GATT, the United States is party to numerous FTAs. It is beyond the scope of this report to discuss fully the provisions of each FTA signed by the United States. However, as an example, several FTAs require national treatment for trade in natural gas. These include FTAs with Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea, and Singapore. The FTAs with Costa Rica and Israel do not require national treatment for trade in natural gas. As a further example, under the North American Free Trade Agreement (NAFTA) the United States has certain obligations related to energy trade with Mexico and Canada. Chapter 6 of NAFTA deals with "Energy and Basic Petrochemicals." Chapter 6 reconfirms the Parties' obligations under the GATT and imposes additional obligations on the Parties, such as certain requirements for export taxes. NAFTA also imposes barriers to invoking some of the general exceptions to the GATT. For example, a country may only invoke the "conservation of exhaustible natural resources" exception if it does not result in a higher price for exports than for domestic consumption of the energy products. These additional obligations illustrate that compliance with FTAs must be considered when establishing export regulations for energy products. In addition, according to news reports, two proposed FTAs—the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP)—could potentially include international obligations regarding the automatic approval by the United States of LNG exports to countries such as Japan (TPP) or the European Union (TTIP). S. 192 , the Expedited LNG for American Allies Act of 2013, was introduced in the Senate on January 31, 2013, by Senator John Barrasso. An identical bill, H.R. 580 , was introduced in the House of Representatives by Representative Michael Turner. The bills would amend Section 3 of the NGA to provide that expedited approval of LNG exports would be granted to four different categories of foreign countries: (1) nations for which there is in effect a free trade agreement (FTA) requiring national treatment for trade in natural gas; (2) a member country of the North Atlantic Treaty Organization (NATO); (3) Japan, so long as the Treaty of Mutual Cooperation and Security of January 19, 1960, between Japan and the United States remains in effect; and (4) "any other foreign country if the Secretary of State, in consultation with the Secretary of Defense, determines that exportation of natural gas to that foreign country would promote the national security interests of the United States." At least two other bills that pertain to the export of natural gas have been introduced. H.R. 1189 , the American Natural Gas Security and Consumer Protection Act, was introduced in the House by then-Representative Ed Markey. The bill would amend the NGA to require the Secretary of Energy to develop regulations for determining whether an export of natural gas from the United States to a foreign country is in the public interest for the purposes of issuing an export authorization. Under the regulations, the public interest determination would have to be made after the Secretary's consideration of several factors, including the energy security of the United States; the ability of the United States to reduce greenhouse gas emissions; and an environmental impact statement issued under the National Environmental Policy Act that analyzes the impact of extraction of exported natural gas on the environment in communities where the gas is extracted. H.R. 1191 , the Keep American Natural Gas Here Act, was also introduced in the House by then-Representative Ed Markey. Among other things, it would provide that the Secretary of the Interior could accept bids on new oil and gas leases of federal lands (including submerged lands) only from bidders certifying that all natural gas produced pursuant to such leases would be sold only in the United States. With regard to oil, H.R. 1190 , the Keep America's Oil Here Act, was introduced in the House by then-Representative Ed Markey. The bill would provide that the Secretary of the Interior could accept bids on new oil and gas leases of federal lands (including submerged lands) only from bidders certifying that oil produced pursuant to such leases, and any refined petroleum products produced from that oil, would be sold only in the United States. The bill would allow the President to waive this requirement for a lease in certain circumstances, including when a waiver is necessary under an international agreement. In addition, S. 435 , the American Oil for American Families Act of 2013, was introduced in the Senate by Senator Robert Menendez. The bill would ban the export of crude oil or refined petroleum products derived from federal lands (including land on the Outer Continental Shelf). Various other bills introduced in the 113 th Congress seek to loosen restrictions on, or expedite the federal government's consideration of approvals for, the export of oil or natural gas to certain foreign countries. Recent advances in natural gas exploration and production technology have led to a newfound interest in the possibility of expanding U.S. fossil fuel exports. Such exports, and the facilities needed to conduct export operations, are subject to a panoply of federal laws and regulations. These include the authorizations required by the Natural Gas Act, a generic ban on crude oil exports, and various laws and regulations applicable to construction and operation of export facilities. Currently, any party wishing to export fossil fuels must comply with these laws and regulations. Under international trade rules, restrictions on exports of fossil fuels could potentially be difficult to reconcile with Articles I and XI of the GATT 1994. Article XXI, the exception for essential security interests, may be cited in order to justify potential violations of GATT Articles I and XI. The United States has traditionally considered this exception to be self-judging. However, it is possible that a panel or the Appellate Body might scrutinize the United States' use of the exception. Article XX of the GATT provides additional exceptions that a member country may invoke if it is found to be in violation of any GATT obligations. However, Article XIII potentially requires that if an otherwise GATT inconsistent measure is permitted to remain in force due to an Article XX exception, the measure must be administered in a nondiscriminatory manner. Export restrictions that treat WTO members differently would appear not to satisfy the potential nondiscriminatory requirements of Article XIII. | Recent technological developments have led to an increase in domestic production of natural gas and crude oil. As a result, there is interest among some parties in exporting liquefied natural gas (LNG) and crude oil to take advantage of international markets. This has placed new attention on the laws and regulations governing, and in many cases restricting, the export of fossil fuels. In most cases, export of fossil fuels requires federal authorization of both the act of exporting the fuel and the facility that will be employed to export the fuel. For example, the export of natural gas is permitted by the Department of Energy's Office of Fossil Energy, while the construction and operation of the export facility must be authorized by the Federal Energy Regulatory Commission (FERC). Oil exports are restricted, but an export that falls under one of several exemptions can be authorized by the Department of Commerce's Bureau of Industry and Security. Oil pipelines that cross international borders must be permitted by the State Department. Coal exports do not require special authorization specific to the commodity; however, as with natural gas and crude oil, other generally applicable federal statutes and regulations may apply to the export of coal. Restrictions on exports of fossil fuels could potentially have implications under international trade rules. They may possibly be inconsistent with the most favored nation requirement of Article I of the General Agreement on Tariffs and Trade 1994 (GATT 1994) if certain World Trade Organization (WTO) members are treated differently than others. Limits on exports could also potentially violate the prohibition on export restrictions contained in Article XI of the GATT 1994 if they prescribe vague and unspecified criteria for export licensing. However, an export licensing regime does not appear to constitute a "subsidy" to downstream users of fossil fuels under WTO rules. Article XXI, the exception for essential security interests, may provide justification for potential violations of GATT Articles I and XI. The United States has traditionally considered this exception to be self-judging. However, it is possible that a panel or the Appellate Body might scrutinize the United States' use of the exception. Article XX of the GATT provides additional exceptions that a member country may invoke if it is found to be in violation of any GATT obligations. For example, WTO members may maintain an otherwise GATT inconsistent measure if it is necessary to protect an exhaustible natural resource or necessary to protect human health or the environment. Article XIII potentially requires that if an otherwise GATT inconsistent measure is permitted to remain in force due to an Article XX exception, the measure must be administered in a nondiscriminatory manner. Export restrictions that treat WTO members differently would appear not to satisfy the potential nondiscriminatory requirements of Article XIII. |
At the November 2001 Ministerial meeting of the World Trade Organization (WTO) in Doha, Qatar, WTO member countries launched a new round of trade talks known as the Doha Development Agenda (DDA). One of the negotiating objectives in the DDA called for "clarifying and improving disciplines" on trade remedies addressed in the WTO Antidumping Agreement, known formally as the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (hereinafter known as the Antidumping Agreement or ADA) and the WTO Agreement on Subsidies and Countervailing Measures (hereinafter the Subsidies Agreement or ASCM). DDA talks are being conducted as a "single undertaking," meaning that nothing will be agreed on unless a consensus is reached in all areas of the discussions. As of this writing, talks in agriculture and on non-agricultural market access are at an impasse. Regarding discussions on trade remedies, during the December 2005 WTO Ministerial in Hong Kong, a "high level of constructive engagement" in trade remedy negotiations was reported, and negotiators were directed to "intensify and accelerate" their work. Since that time, discussions in the WTO Negotiating Group on Rules have continued based on two draft texts of the ADA and ASCM (in November 2007 and December 2008, respectively) prepared by the group's chairman "with the objective of stimulating serious reflection by Participants on the broad parameters of possible outcomes to the negotiations." In March 2010, significant progress was reported in the rules negotiations, but it was also acknowledged that no consensus was likely to be reached on the "big political issues" until the overall direction of the DDA became clearer. Trade remedies are laws implemented by the United States and many of its trading partners to attempt to mitigate the adverse impact of various trade practices on domestic industries and workers. Antidumping (AD) laws, for example, provide relief to domestic industries that have been shown to have suffered material injury or are threatened with material injury as a result of competing imports being sold at prices shown to be less than their fair market value. Countervailing duty laws provide a similar form of relief to domestic industries that have been (or may be) injured by foreign subsidies on competing exports. Historically, multilateral negotiations on trade remedies, particularly on antidumping issues, have been extremely contentious; some analysts claim that a failure to reach consensus on what became the ADA and ASCM was largely responsible for delaying the completion of the Uruguay Round negotiations by as long as two years. In the DDA, a coalition of developed and developing nations known as the "Friends of Antidumping" are pushing for reforms in antidumping and other trade remedies that many in Congress oppose and U.S. negotiators are resisting. Many WTO members regard trade remedy reform as a "make or break" issue in terms of their acceptance of any final DDA agreement. This report analyzes the issue in three parts. First, background information and contextual analysis are presented. This section briefly discusses U.S. trade remedy laws and how they are implemented, and the scope of the trade remedy debate in the United States. This section also provides statistics on U.S. and worldwide use of antidumping and countervailing duty measures. Second, the report focuses on the WTO discussions on trade remedies and their part in the overall negotiations within the DDA. The general mandate to negotiate is described, and negotiating activity to date summarized. Some of the major reforms suggested are described in general terms. Third, the report presents a more specific overview of major reform proposals; for example, those that seek to end "zeroing," to mandatorily shorten the length that trade remedy duties can be assessed, or to provide special treatment for developing country WTO members. Some of these proposals, if implemented, could significantly reduce the number of permissible investigations conducted by the United States or lower the amount of duty margins assessed, thus potentially reducing the protective impact of the remedies. Other proposals might benefit U.S. companies because they could provide more transparency in the AD and CVD investigations on U.S. products being conducted by other WTO members. The third section also mentions negotiations in two areas not previously discussed in the context of the WTO. First, limitation on the use of subsidies in the fisheries industry are being discussed in the context of the ASCM; and second, a mechanism for WTO monitoring of regional trade agreements (which technically violate WTO non-discrimination principles but are permitted under certain conditions) is also being negotiated. The report ends with some general observations and options for Congress. This section provides an overview of U.S. trade remedy laws and procedures as well as an overview of the disciplines that the United States and other WTO members agreed to in the Antidumping and Subsidies Agreements. The three most frequently applied U.S. trade remedy laws are antidumping, countervailing duty, and safeguards. Antidumping (AD, 19 U.S.C. § 1673 et seq .) laws provide relief to domestic industries that have been, or are threatened with, the adverse impact of imports sold in the U.S. market at prices that are shown to be less than fair market value. The relief provided is an additional import duty placed on the dumped imports. Countervailing duty (CVD, 19 U.S.C. § 1671 et seq .) laws are designed to give a similar kind of relief to domestic industries that have been, or are threatened with, the adverse impact of imported goods that have been subsidized by a foreign government or public entity, and can therefore be sold at lower prices than similar goods produced in the United States. The relief provided is an additional import duty placed on the subsidized imports. Safeguard (also referred to as escape clause) laws, though not being addressed in the DDA negotiations, are other important trade remedy measures that are designed to give domestic industries relief from import surges of goods that are fairly traded. In the WTO, the Agreement on Safeguards (Safeguard Agreement or ASG) provides disciplines for international use of safeguards. In the United States, the most frequently applied safeguard law is Section 201 of the Trade Act of 1974 (19 U.S.C. §§ 2251-2254). "Section 201" safeguards are designed to give domestic industries the opportunity to adjust to the new competition and remain competitive. The relief provided is generally an additional temporary import duty, a temporary import quota, or a combination of both. As with all safeguard laws, "section 201" safeguard measures require presidential action in order for relief to be put into effect. Three region-specific U.S. safeguard laws are (1) Section 406 of the Trade Act of 1974 (19 U.S.C. § 2436), which provides a remedy against market disruption caused by imports from Communist countries; (2) Section 421 of the Trade Act of 1974 (19 U.S.C. § 2451) a China-specific safeguard; and (3) Section 302 of the North American Free Trade Agreement (NAFTA) Implementation Act provides safeguard relief due to surges of imports originating in Canada or Mexico (19 U.S.C. § 3352). Since many of the discussions on trade remedies in the WTO deal with suggested changes to trade remedy procedures, it is important to understand how these methods apply to trade remedy investigations. What follows is, first, a very brief description of the AD and CVD investigative process in the United States; and second, a look at the way that safeguard investigations are conducted. Trade remedy actions are presented here in a U.S. context because they are illustrative of how these investigations are conducted by authorities worldwide, and because many of the proposals being presented in the DDA seem to be directed at U.S. methods for implementing these measures. Although AD and CVD investigations address fundamentally different forms of "unfair" trade, the investigative process is similar. First, cases generally begin with the filing of a petition by a U.S. domestic industry or its representative (e.g., a labor group, industry association) alleging that certain products are being imported into the country at less than fair value, thus causing material injury, or threat of material injury, to the petitioners. These petitions are analyzed for accuracy and completeness, and, if initiated by the relevant agencies, trigger an exhaustive and detailed investigative process. These investigations are carried out by two agencies: the International Trade Administration (ITA) of the Department of Commerce, which investigates allegations of sales at less than fair value (in antidumping cases) or existence of subsidies (in countervailing duty cases); and the International Trade Commission (ITC), an independent U.S. Government agency, which investigates injury allegations. These agencies conduct both preliminary and final investigations within specified time lines. If affirmative final determinations are made by both agencies, an AD (or CV) duty order imposes an additional duty on the targeted merchandise equivalent to the "dumping margin" or amount of subsidy. This duty—assessed over and above any applicable tariffs—is intended to offset the effects of dumping or subsidies, in order to create a "level playing field" for the domestic producer. U.S. law also allows the ITA to suspend an investigation (called a "suspension agreement") at any point in favor of an alternative agreement to (1) eliminate completely sales at less than fair value or to cease exports of the subject merchandise; (2) eliminate the injurious effect of the subject merchandise; or (3) limit the volume of imports of the subject merchandise into the United States, provided the foreign exporters agree to certain specific conditions. In each case, the ITA must be satisfied that the agreement is in the public interest and that effective monitoring by the United States is practicable. All AD and CV duty orders and suspension agreements are subject to annual review if requested by any interested party to an investigation or deemed necessary by the ITA. "Changed circumstances" reviews may be requested at any time, but the ITA must determine whether there is sufficient cause to conduct the review. During the review process, the ITA recalculates the dumping margin for each exporter, thus the AD duties assessed on the subject merchandise may be raised or lowered depending on the price of sales transactions during the period of review (POR). In a changed circumstances review, the ITA or the ITC "as the case may be" conduct a review of the AD or CVD determination or suspension agreement. In a changed circumstances review involving the ITC, the agency reviews whether revoking the order or suspension agreement is likely to lead to continuation or recurrence of material injury, and, in the case of a suspension agreement, whether it continues to eliminate completely the injurious effects of the imports of subject merchandise. Five-year or "sunset" reviews must be conducted on each AD and CVD order no later than once every five years. The ITA determines whether dumping would be likely to continue or resume if an order were to be revoked or a suspension agreement terminated, and the ITC conducts a similar review to determine whether injury to the domestic industry would likely continue or resume. If determinations by both agencies are affirmative, the duty or suspension agreement remains in place. If the determination by either agency is negative, the duty order is revoked or the suspension agreement is terminated. Of all the trade remedy measures in U.S. law, antidumping actions are by far the most commonly implemented. Thus, the antidumping laws also tend to be the focal point of debates on trade remedies in Congress, the WTO, and the international business community. U.S. stakeholders in favor of preserving and strengthening AD laws include many import-competing industries vulnerable to the effects of increased trade liberalization. The steel and chemical industries are historically the largest U.S. users of trade remedies, but smaller industries (such as honey, candles, shrimp, and crawfish) have also initiated successful petitions. Some in Congress have also expressed a compelling interest in ensuring that the firms and workers they represent are able to compete on a "level playing field" in the face of increased global competition from firms that they believe to use unfair trade practices to gain greater U.S. market share. These Members believe that the trade remedy laws—especially AD actions—are essential tools to that end. However, many U.S. stakeholders, especially domestic retailers and importers of intermediate goods used in the manufacturing process, favor eliminating or scaling back these actions. Some consuming industry groups have called for equal status as "interested parties" with allegedly injured petitioners, and/or for a "public interest test" to be added to the AD investigative process to determine whether or not the imposition of an AD duty is in the overall economic interest of the United States. Some U.S. exporters have also expressed support for relaxing trade remedy laws because they face the effects of similar actions in other countries—which they perceive to be in retaliation for U.S. measures. Exporters may also bear the immediate effects of any trade retaliation if any U.S. laws are determined not to conform to WTO disciplines. In an era where the supply chain for goods is increasingly globalized, many manufacturers also favor trade remedy reform because they would have greater freedom to ship products at various stages of development across national boundaries for further transformation. These stakeholder groups often accuse users of trade remedies and their supporters of being protectionist, and administrative officials that carry out investigations of making arbitrary and politically motivated decisions. Arguments for and against countervailing duty actions are generally similar to those in the AD debate. However, one U.S.-specific subsidies issue is that of conducting investigations in non-market economy countries. The ITA—the same organization tasked with determination of the existence of subsidies in CVD cases—is also responsible for designating certain countries as non-market economy (NME) countries. The Tariff Act of 1930, as amended, defines an NME country as "any foreign country that the administering authority [ITA] determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise." After making initial attempts to apply countervailing remedies to allegedly subsidized imports from NME countries in 1983, the ITA determined that subsidies could not be quantified in nonmarket economies. These determinations were challenged in court and were eventually upheld on appeal. In October 2007, the ITA reversed its ruling that subsidies could not be quantified in NME countries—only with respect to China—in the context of a final affirmative determination of subsidies on Chinese coated free sheet paper. Countervailing duties were not ultimately imposed in this specific case because the ITC made a negative final determination of injury. However, in July 2008, CVD duties were imposed on China in a case involving Circular Welded Carbon-Quality Steel Line Pipe from China. These were the first countervailing duties assessed on imports from China for the first time since 1983. Since the ITA's ruling only pertained to China, the issue remains for other nonmarket economies, such as Vietnam. As a result of the definitive imposition of AD and CV duties on these and other products, China requested consultations with the United States through the WTO dispute settlement process on September 19, 2008. China requested the establishment of a panel in December 2008, and a WTO dispute settlement panel was constituted on January 20, 2009. In a related development, as a result of WTO consultations in the WTO, China terminated all subsidies that the United States and Mexico alleged were WTO-illegal (because they seemed to be tied to exports or favor the use of domestic goods over imported goods) by January 1, 2008. China signed separate Memoranda of Understanding (MOU) with the United States and Mexico promising to permanently eliminate the WTO-prohibited subsidies. The United States reserved the right to re-initiate the dispute if China does not meet its MOU commitments. The USTR has monitored the Chinese implementation of these commitments, and has confirmed that China eliminated these subsidies as agreed. Another subsidies dispute was initiated in December 2008 by the United States and Mexico alleging that China provides export subsidies in an effort to promote recognition and sales of famous brands of Chinese merchandise. As of this writing, consultations are continuing. Article VI of GATT 1994 authorizes WTO members to impose AD duties in addition to other tariffs if domestic officials find that (1) imports of a specific product are sold at less than normal value, and (2) the imports cause or threaten injury to a domestic industry, or materially retard its establishment. The ADA clarifies and expands Article VI by laying out specific guidelines for determining if dumping has occurred, identifying the "normal value" of the targeted product, and assessing the dumping margin. The Agreement also provides rules for administrative authorities to follow when conducting injury investigations. Detailed methodology is set out for initiating anti-dumping cases, conducting investigations, and ensuring that all interested parties are given an opportunity to present evidence. Specific criteria are set for investigations, including a requirement that investigations must be dropped if authorities determine that the volume of the dumped imports is negligible (less than 3% of imports of the product from any one country, or less than 7% for investigations involving several countries). Antidumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would continue to result in injury. According to the ADA, all WTO member countries must contribute to greater multilateral transparency by informing the Committee on Antidumping Practices about changes to antidumping laws, any antidumping actions taken, and all ongoing investigations. Article XVI of the GATT and the ASCM regulate the use of subsidies and countervailing measures. The ASCM defines the term "subsidy" as a financial contribution by a government or public body within the territory of a WTO member, which confers a benefit. Three categories of subsidies are identified in the ASCM: prohibited subsidies : subsidies contingent on export performance or on use of domestic over imported goods. These subsidies are prohibited because they can be designed to distort international trade, and may hurt the trade of other countries. They may be challenged in WTO dispute settlement proceedings under an accelerated timetable. Countervailing duties may also be imposed in the receiving market (ASCM Part II, Article 3). actionable subsidies : subsidies that could cause adverse effects to the interest of other WTO members. In this category, the complaining country has to show that the subsidy has an adverse effect on its interests. Three types of damage are defined: (1) injury to the domestic industry of another Member; (2) nullification or impairment of benefits (e.g., favorable tariff benefits); or (3) serious prejudice to the interests of another WTO member. These subsidies may be challenged in dispute settlement proceedings, but the complaining country must prove that subsidy has an adverse effect. If the Dispute Settlement Body rules in favor of the complaining country, the subsidy must be withdrawn or its adverse effect must be removed. Countervailing duties may also be imposed in the receiving market (ASCM Part III, Article 5). non-actionable subsidies : This category was provided for five years (until December 31, 1999) and was not extended. These subsidies related mainly to research and development or providing economic development to disadvantaged regions of an exporting country (ASCM Part IV, Article 8). In order to be covered by the SCM Agreement, subsidies need to be specific to an industry, except that prohibited subsidies (i.e., export subsidies and import substitution subsidies) are considered per se specific. The ASCM also provides transitional rules for developed countries and members in transition to a market economy, as well as special and differential treatment rules for developing countries. Many WTO members have long been concerned about an apparent escalation in the use of trade remedies worldwide, especially since the implementation of the ADA and ASCM in 1995. Some have expressed concern especially about the rapid increase of trade remedy actions by "nontraditional" users (developing countries who may or may not have experience implementing these measures in a transparent manner) such as India. In addition, some countries who are frequent targets of trade remedy actions (many of whom are "nontraditional users") by "traditional" users (the United States, the European Union, and Australia, for example) claim that their industries are adversely affected by the use of trade remedy actions against them. These are some of the reasons that led to the pressure for including WTO disciplines in trade remedies in DDA negotiations. Supporters of trade remedy action acknowledge that the incidence of AD activity has increased rapidly, but also point to a marked increase in the volume of international trade as a whole, suggesting that, as overall trade increases, the frequency of claims of unfair trading practices, such as dumping, will also have a natural tendency to increase. In addition, many supporters believe that the existence of trade remedy laws helps to build support for increased trade liberalization because industries and workers that could be adversely affected by competing imports know that there is a "safety valve" that they can use to protect them from unfair trading practices or import surges. WTO statistics on worldwide trade remedy activity may help illustrate the scope and magnitude of the issue. According to antidumping statistics for 1995 through 2008 (see Figure 1 ), the total number of yearly trade remedy measures rose sharply from 1996 to 2000, decreased in 2001, and peaked again in 2002 and 2003. Worldwide trade remedy activity declined in 2004 and 2005, increased slightly in 2006, and declined once more in 2007. In 2008, AD activity, in particular, appeared to be on the rise, with 208 initiations, as opposed to 163 in 2007. A May 2010 World Bank report on trade protectionism indicates that trade remedy initiations decreased by 20% in the first quarter of 2010 relative to the same period in 2009. Fluctuations in trade remedy activity in recent years could mean several things. First, some have mentioned that declines in activity during 2004-05 could have been due to active discussions on trade remedies in the Doha Development Agenda. Second, as some observers have mentioned, the process of globalization—especially foreign ownership of factories and industries—is causing industries to become more globally integrated. One notable example of this is the 2005 purchase of Ohio-based International Steel Group (ISG) by the multinational firm Mittal Steel. Moves toward global integration could reduce trade remedy petitions in the future because the domestic producers and the importers could increasingly become one and the same. A third factor that may have influenced a decline in trade remedy action is that there seem to be fewer trade remedy measures initiated in times of economic prosperity. This may also explain the increase in antidumping investigations reported by the WTO in 2008, since in the latter part of 2007 the world began to experience an economic downturn. Trade remedy usage by "nontraditional" users (i.e., developing countries) has escalated at a rapid pace in recent years, as Figure 2 (below) illustrates. Prior to the mid 1990s, the club of "traditional" users of these measures was quite small and consisted primarily of developed countries like Australia, South Africa, the United States, Japan, France, New Zealand, and the United Kingdom. Since the mid-1990s, trade remedy investigations by developing countries, such as India, Argentina, Brazil, Thailand, and Indonesia, have rapidly escalated. Many of these countries did not have trade remedy laws until the 1990s—or if they did have them on the books, did not exercise them. For example, India's first trade remedy action was not until 1992, against imports of PVC resin from Brazil, Mexico, South Korea, and the United States. It was also a group primarily composed of developing country users—known as the "Friends of Antidumping"—that forced U.S. negotiators to accept negotiations on trade remedies as one of the primary objectives in the DDA. Some trade analysts assert that developing countries resorted to using AD and CVD measures because they had frequently become the targets of such action by the "traditional" users of these actions. The application of AD actions initiated (see Figure 2 ) by developing countries as opposed to developed countries diverged sharply during the global financial crisis. From the beginning of the crisis (about the 1 st quarter of 2008) to the present, developing countries have initiated about 69% of all investigations, while developed country initiations were on a steady decline until the first quarter of 2009. Data collected over the period also indicates an increasing use of trade remedy measures in "South-South" (developing country importers initiating actions against developing countries) trade, with exports from China being a major target. In the 4th quarter of 2009, AD initiations by both developed and developing countries decreased, and in the first quarter of 2010, developed country initiations increased slightly, while developing country initiations continued to fall. Figure 3 shows worldwide trade remedy initiations from 1995 to 2008. Worldwide real GDP growth (2000 base) is illustrated for the same time period. Trade remedy initiations reached a peak in 1999 (412 initiations), following a 1998 drop in worldwide GDP growth (2.32% in 1998, down from 3.7% in 1997). As GDP growth increased in 2000, trade remedy initiations decreased. In 2001, trade remedy initiations reached another peak, which coincided with a sharp decrease in worldwide GDP growth (1.5%, down from 4.11% in 2000). This figure illustrates that increases in global trade remedy activity seem to roughly coincide with decreases in worldwide GDP growth. Figure 4 illustrates the leading initiators (importing countries bringing trade remedy cases) of trade remedy initiations from 1995 to 2008. India leads this group, with 564 AD initiations; followed by the United States (418AD, 94 CVD); the European Community (391 AD, 48 CVD); Argentina (241 AD); South Africa (206 AD, 13 CVD); Australia (170 AD, 9 CVD); Brazil (170 AD, 23 CVD); Canada (145 AD, 23 CVD), China (151 AD); Turkey (137 AD, 1 CVD); South Korea (108 AD); Mexico (94 AD, 2 CVD); Indonesia (73 AD); Egypt (65 AD); and Peru (64 AD, 4 CVD). Figure 5 depicts the leading targets (exporting countries) of worldwide antidumping and countervailing actions for the same time period. China is currently at the head of this list, with 677 AD initiations and 24 CVD initiations. South Korea is second (252 AD, 16 CVD); followed by the United States (189 AD, 7 CVD); Chinese Taipei (Taiwan, 145 AD); India (137 AD, 46 CVD); India (137 AD, 46 CVD); Indonesia (144 AD, 11 CVD); Japan (144 AD); Thailand (142 AD; 9 CVD); Russia (109 AD); Brazil (90 AD, 7 CVD); Malaysia (48 AD, 3 CVD); Germany (83 AD; 3 CVD); the European Community (69 AD; 10 CVD); Ukraine (61 AD); and South Africa (58 AD). As Figure 6 illustrates, the products that seem to be targeted most in trade remedy initiations tend to be primary products and/or intermediate goods frequently used in the manufacturing process. For example, steel pipe and wire are used in the construction industry, and steel sheet is used to manufacture automobiles. Base metals, such as steel and products manufactured from steel (e.g., steel pipe and wire) head the list of targeted products, followed by chemicals and items made of plastics and rubber. Reasons that these products are dumped or subsidized more than others might include possible government support for these industries, or overcapacity in the home countries. In developing economies, for example, domestic steel industries are often supported by governments so that the industry can supply the large quantities of steel required for building infrastructure in the initial stages of development. As the industry expands, it reaches a level of overcapacity, and pushes some of the excess into exports (sometimes also with government support to expand the export market). Industries may also face market contractions, fail to gauge future capacity, have certain fixed costs that require manufacturing to continue, or have difficulty retooling factories to make items that may be in limited supply. When the trade ministers of WTO member nations convened at the November 2001 Ministerial of the World Trade Organization in Doha, Qatar, many countries placed launching a new round of trade negotiations high on the agenda. Some Members expected that a new trade round would give the world economy a much-needed stimulus after the economic shock associated with the September 11, 2001 terror attacks. A primary goal of U.S. officials was to negotiate expanded market access for U.S. agriculture, services, and industrial products. The DDA is being conducted as a "single undertaking," meaning that nothing is agreed to individually unless consensus on an entire package is reached. Thus, agreements must be reached in talks on non-agricultural market access, agricultural talks, and in negotiations on trade in services, as well as in the rules negotiations, before any concessions made can go into effect. As a result of mounting international concern on expanding trade remedy activity in general and antidumping in particular, a coalition of developed and developing WTO member countries called the "Friends of Antidumping" (FANs—a group consisting of the European Union, Brazil, Chile, China, Colombia, Costa Rica, Hong Kong, India, Israel, Japan, Korea, Mexico, Norway, Singapore, Switzerland, Thailand, and Turkey—asserted that any new framework for negotiations should include talks on improving WTO trade remedy rules. The European Union may have joined the coalition, in part, because it is a leading target of antidumping measures, and also because it may have issues with the trade remedy practices employed by other developed countries. EU trade officials expressed concern at Doha primarily over major differences among countries in their interpretation and application of WTO rules on AD and CVD investigations. Many of the developing nations in the FANs group argued that trade remedy action disproportionately affects their economies, and that the ADA should require developed nations to provide some form of "special and differential treatment" when investigating products originating in developing nations. Then-USTR Robert B. Zoellick, aware of congressional interest in preserving the effectiveness of U.S. trade remedy laws, initially resisted opening negotiations on trade remedies. However, U.S. negotiators relented when it seemed evident that the new round of talks would not go forward without some concessions on antidumping. The United States was able to insert language in the final negotiating documents that limited radical change, and also successfully injected a certain amount of ambiguity in terms of the mandate. The final language of the Doha Ministerial Declaration regarding trade remedies read as follows: In light of experience and of the increasing application of these instruments by members, we agree to negotiations aimed at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures, while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking into account the needs of developing and least-developed participants. In the initial phase of the negotiations, participants will indicate the provisions, including disciplines on trade distorting practices, that they seek to clarify and improve in the subsequent phase ... Ambassador Zoellick later defended the decision to compromise on negotiations on trade remedies by stressing that the United States would push an "offensive agenda" on trade remedies in order to address the increasing "misuse" of these measures by other WTO Member countries against U.S. exporters. He added that since WTO dispute panels had gone against the United States in several cases involving trade remedy cases, U.S. negotiators were especially interested in tightening dispute panel and Appellate Body "standard of review" provisions so that panels do not add to the obligations of, nor diminish the rights of, WTO member nations—another matter of concern for many in Congress. During the DDA, work on trade remedies is being carried out in the Negotiating Group on Rules. Negotiations in the group have taken place in three overlapping phases. First, negotiators presented formal written papers indicating general areas in which they would like to see changes made in the agreements. In the second phase, negotiators are continuing to elaborate on their positions, sometimes proposing legal drafts of suggested changes. This phase helps negotiators develop a clearer idea of what proponents of specific changes are seeking, and develop "a realistic view of what may and may not attract broader support in the group." The third phase has consisted of ongoing bilateral and multilateral discussions and technical consultations, partly aimed at developing a possible standardized questionnaire which administering officials could use in AD and other investigations in order to reduce costs and increase transparency. Given the mandate to preserve "the basic concepts, principles, and effectiveness" of trade remedy rules, negotiators "are not dealing with ... big picture issues, but with a very large number of highly specific issues" and the final result of the talks will be based on the "precise details of the drafting." Furthermore, negotiators concede that any consensus on changing the ADA, ASCM, or other trade remedy agreements is likely to involve internal trade-offs on trade remedies in exchange for external linkages—that is, for perceived successes in other areas of DDA negotiations, such as improved agricultural market access or services trade. Therefore, many observers speculate that any agreement on substantive changes to WTO trade remedy obligations is not likely to take place until the end of the round. The DDA mandate also specifies that negotiations on trade remedies are intended to "clarify and improve" the AD and ASCM rather than to eliminate them. Given the narrow parameters of the mandate, as well as the vocal opposition expressed by many in Congress to any agreement that would lessen the effectiveness of U.S. trade remedy laws, any substantive changes that could result in limiting their effectiveness in granting relief to U.S. import-competing industries are likely to be resisted by U.S. negotiators. In addition, since all WTO negotiations are conducted on a consensus basis, any proposal submitted by the United States—or any proposal submitted by any WTO member—requires the agreement of all other members. Thus, the submission of any substantive proposal on trade remedies is likely to be accompanied by certain calculations on the part of the USTR on whether any consensus can be reached on the issues, and to what concessions the United States may have to agree. This calculation may be especially significant considering the generally defensive nature of U.S. negotiating positions in the Rules talks. In the negotiating documents in Hong Kong, WTO members reaffirmed that "achievement of substantial results on all aspects of the Rules mandate" is important to the further development of the rules-based multilateral trading system. The group further recognized that negotiations, especially on antidumping procedures, have intensified and deepened and that "participants are demonstrating a high level of constructive engagement." The Negotiating Group on Rules was directed "to intensify and accelerate the negotiating process" and "complete the process of analyzing proposals by participants on the AD and ASCM as soon as possible." The chairman was directed to prepare consolidated texts of the Agreements based on previously distributed negotiating papers. These draft texts were intended to become the "basis for the final stage of the negotiations." The first draft texts were issued on November 30, 2007. In part, because the group was still far apart on many issues in the negotiations, the chairman attempted to reflect "a balance that takes into account the interests of all participants" and intended to stimulate discussion rather than directly reflecting previously submitted proposals. Because the texts, in some respects, seemed to favor the U.S. approach on key negotiating issues such as zeroing, members such as the FANs found little in the draft texts to support. U.S. officials were also "very disappointed with important aspects" of the draft. Thus, the draft texts, while achieving the chairman's objective of provoking discussion, pleased almost no one. In mid-July 2008, WTO negotiators met for critical meetings to establish modalities in agriculture and non-agricultural market access. Anticipating that these negotiations would be successful and would accelerate the Round's completion, the chairman reported to the Rules negotiations group that "we must be in a position to move quickly to insure that our work is effectively synchronized with that of other Groups so that Rules can make its contribution to the overall package of results in the Round." The chairman also acknowledged that "few if any delegations believe that my first Chair's texts struck a proper balance," and that "Members at this stage would prefer that I pursue a bottom-up approach and that I adequately reflect the actual negotiations among Members." On November 14 and 15, 2008, a summit of G-20 heads of state meeting in Washington, DC, agreed to work toward reaching an agreement by year's end on modalities leading to an "ambitious outcome" in the Doha Development Agenda, and to resist raising new barriers to international trade and investment. New draft negotiating texts were issued in December in anticipation of a proposed ministerial to finalize modalities, yet that summit never materialized as differences between the parties remained intractable. In that light, in December 2008, the chairman released a second draft text that provided new language "only in areas where some degree of convergence appears to exist." Since, as in all WTO negotiations, the Rules negotiations are consensus-based "a great deal of work remains to be done in order to ensure that we have Rules texts reflecting the greatest convergence possible. Not only are there large gaps where on issues of great importance to delegations no solutions are proposed; but few, if any, of the textual proposals that can be found in these new texts can be considered to attract consensus support." In November 2009, the Chairman reported progress in the talks, especially in technical areas. However, he acknowledged that "we are no nearer consensus on the big political issues that we were in December 2008, and we are not likely to see the type of engagement that could lead participants to negotiate compromises on these issues until the overall direction of the Round becomes clearer." A similar message was conveyed in a March 2010 report to the Trade Negotiations Committee. The ADA, perhaps by design, is somewhat ambiguous. Many countries, especially the "Friends of Antidumping," would like to see more specific definitions and guidelines in order to provide some harmonization of nations' implementation of trade remedy laws. Some have suggested a kind of "template" format for conducting AD investigations in order to make the procedure more efficient and cost-effective for developing countries. The United States could also benefit from modifications to the ADA, particularly if they enhance the transparency of antidumping investigations in WTO member countries in which the United States has become a target of antidumping action. However, there are trade-offs between these and other proposals which, if adopted, could ultimately have the effect of raising the threshold for domestic petitioners' ability to obtain relief, lead to lower calculated dumping duty levels, or limit the duration of antidumping orders. Because the ADA largely consists of administrative guidelines for investigations, including calculating dumping margins, determining injury, and granting relief, many of the proposals offered involve highly technical changes that are beyond the scope of this report. However, there are major themes that have emerged for which there seems to be broad support among WTO members. These include proposals for a ban on "zeroing," a mandatory "lesser duty" rule, and increased use of procedures known as "price undertakings." Some of these proposals, if adopted, could result in significant amendments to U.S. laws. Most of these recommendations would also primarily affect administrative methodology. Another proposal seeks mandatory termination of antidumping measures after a certain period. Many WTO members believe that the methodology used by some countries to calculate duty margins—particularly the United States and its use of "zeroing"—leads to highly inflated duty margins. As a consequence, revisions in the ADA that could lower dumping margins have been a major focus of submissions and discussions in the Rules negotiations. Many WTO members are opposed to the U.S. practice of calculating dumping margins using "zeroing," and achieving an outright ban on the practice is a primary objective of the Friends of Antidumping group. This is also an area in which WTO dispute settlement panels have consistently ruled against the United States. U.S. antidumping laws specify that any AD duties imposed on targeted merchandise must be equal to the dumping margin or "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise." The International Trade Administration typically calculates the margin by first identifying, to the extent possible, all U.S. transactions, sale prices, and levels of trade for each model or type of targeted merchandise sold by each company in the exporting country. These model types are then aggregated into subcategories, known as "averaging groups," which are used to calculate the "weighted-average export price." These export prices for each subgroup are then compared to the corresponding agency-calculated "weighted-average normal value." Finally, the results of all of these comparisons are added up to establish an overall dumping margin of the targeted product. This amount is the amount of antidumping duty assessed on the targeted imports in the event that an AD investigation results in final affirmative determinations of dumping and injury. When authorities add up the dumping margins of each of the subgroups to establish the overall margin, they sometimes encounter negative margins in a subgroup, which could indicate that that particular subgroup is not being dumped. However, rather than including the negative result in their calculations—which could result in a lower overall dumping margin, or, as opponents also charge, a ruling that the targeted merchandise is not being dumped—ITA officials factor in the results of that subgroup as a zero. Officials use a similar practice when re-calculating dumping margins in administrative reviews of AD orders or suspension agreements. One justification for the zeroing practice is that the dumping margin could be skewed if the subgroup that has the negative dumping margin represents a substantial percentage of export sales. Since zeroing is neither required, nor prohibited, by U.S. law, ending the practice could be brought about largely through administrative actions. Since the U.S. practice has been successfully challenged in WTO dispute settlement proceedings, U.S. negotiators are primarily on the defensive when zeroing comes up in negotiations. In addition, since the European Communities has already dropped its use of zeroing as the result of a dispute settlement case brought by India, it is eager to pressure the United States to also abandon the practice. There is still strong domestic support for zeroing among U.S. import-competing industries and some in Congress, despite the WTO determinations. The position of the FANs is that "zeroing is a biased and partial method for calculating the margin of dumping and inflates anti-dumping duties" that could "nullify the results of trade liberalization efforts" in the multilateral trading environment. U.S. negotiators have consistently maintained that dispute settlement panel and Appellate Body rulings have illustrated that WTO members "still have different views on whether 'offsets' are required, and when and under what circumstances they must be provided." Additionally, U.S. officials maintain that, "A prohibition of zeroing, or a requirement to provide offsets for non-dumped transactions, simply cannot be found in the text of the AD Agreement." Further, U.S. negotiators submitted draft language to be added to the ADA that would permit zeroing, stating, in part, that, "When aggregating the results of comparisons of normal value and export price to determine any margin of dumping, ... authorities are not required to offset the results of any comparison in which the export price is greater than the normal value against the results of any comparison in which the normal value is greater than the export price." The November 2007 draft text on Antidumping contained language that would have specifically permitted the use of zeroing in all sunset reviews and administrative reviews of dumping margins, and would have allowed zeroing in original investigations if officials used particular methodologies. This position angered many opponents to zeroing, while it also failed to please U.S. officials, who believe that zeroing should be allowed in all cases. In the 2008 "bottom-up" approach, the Chairman's draft of the ADA contained no language on zeroing on the basis that "delegations remain profoundly divided on the issue." The USTR's official statement after the draft's release stated, "We are deeply disappointed that the chairman has eliminated the limited language on zeroing contained in the November 2007 text. As we have said repeatedly, the United States cannot envision an outcome in the Rules Negotiations that fails to adequately address this critical issue." Article 9.1 of the ADA encourages—but does not specifically require—the imposition of an antidumping duty lower than the full dumping margin if investigating authorities determine that the lesser amount is sufficient to offset the injury suffered by or threatened to the domestic industry. Many WTO members favor amending the ADA to require an obligatory, rather than discretionary, "lesser duty rule." Several WTO members have already implemented lesser duty rules in their antidumping laws and investigations, including Argentina, Australia, Brazil, the European Community, India, New Zealand, and Turkey. These members "acknowledge that the current provision is not mandatory, but they chose to implement provisions to foster a better system," and ask that "the positive actions of these Members should not be undermined under the DDA, the spirit of which is, we understand, to increase trade flows, enhance predictability and provide more transparency." There is currently no "lesser duty rule" in U.S. law or practice, and implementation of a mandatory rule would require congressional action. Developing countries are especially interested in seeing a mandatory rule applied to exports from their countries, and have also proposed that this practice could be included as part of a "special and differential treatment" package of trade concessions offered by developed nations to developing countries. U.S. negotiators have resisted these proposals. First, U.S. negotiators contend that if a lesser duty rule were required by the ADA, that would create onerous new obligations and procedures. Second, says the United States, there is no common practice used among WTO members that have implemented such a rule. Third, U.S. negotiators say that a lesser duty rule would fundamentally change the form of remedy currently provided. Fourth, if a lesser duty rule were to be implemented, there is no guarantee that the duty amount would be sufficient to offset the injury, and there might be no way for injured parties to appeal or ask for an increased duty amount. Fifth, any lesser duty proposals would fail to address the threat of material injury, for which the ADA also provides relief. Sixth, if the investigated parties know that the duty amount charged would be minimal, U.S. negotiators say that it could create an incentive for targeted exporters not to participate in the investigation, which would make it even harder for authorities to make AD duty determinations. The Rules chairman's November 2007 draft ADA text did not suggest that a lesser duty rule be imposed, and in fact, removed the sentence in the original text that suggested its implementation. Rather, the draft of Article 9.1 emphasized that procedures for calculating dumping margins are a matter for national authorities to determine, and that the application of such procedures should not be subject to dispute settlement. The December 2008 draft text did not contain any draft language on this point, instead citing that WTO members were sharply divided on the issue. Article 8 of the ADA permits authorities to accept "voluntary undertakings from any exporter to revise its prices or to cease exports to the area in question at dumped prices" or "price undertakings," provided that investigating authorities are satisfied that the injurious effect of the dumping is eliminated. Some common negotiated arrangements might involve the exporting country agreeing to (1) import quotas, (2) minimum selling prices, (3) eliminate non-tariff barriers that prevent exporters from the receiving country from entering the market, or (4) any combination thereof. The injured country could agree to a lesser duty amount ("price undertaking") or agree to limit the duration of the trade measure. Many WTO members, particularly members of the FANs coalition, favor increased or mandatory use of such alternative arrangements because they believe that these alternatives are less damaging to exporters and to the world market for the targeted merchandise. They contend that these arrangements are sufficient to mitigate the injury to domestic producers. U.S. antidumping laws already permit the use of alternative arrangements, referred to as "suspension agreements" in U.S. law. In antidumping cases, the ITA may suspend an investigation if the exporters accounting for "substantially all" of the targeted merchandise agree to (1) to stop exporting the targeted merchandise to the United States within six months of the suspension agreement or (2) revise their prices so that the amount of dumping is eliminated. U.S. authorities may also agree to a suspension agreement if they determine that there are extraordinary circumstances, if the agreed-upon settlement will eliminate completely the injury to the import-competing U.S. industry, and if the exporters are willing to revise their prices to completely eliminate the injury. In practice, however, U.S. authorities do not use suspension agreements very often. As of this writing, there are 8 U.S. suspension agreements in place. Neither the 2007 nor the 2008 draft AD texts make substantive changes to price undertakings or introduce new language that proposes to make them mandatory. Article 11.3 of the ADA specifies that each antidumping order must be terminated after five years unless authorities determine in a review that its expiration would be likely to lead to a recurrence of dumping and subsequent injury to the domestic producer. Some WTO members are critical of the length of time that AD measures remain in force. For example, the United States has three AD measures that have been in effect since the 1970s, and about 40 that have been in force since the mid-1980s. In particular, the FANs, Japan, and China, support the mandatory termination of antidumping measures in no later than five years. South Africa also supports mandatory sunset but believes that the ADA should allow for an extension of a measure for up to three years if the investigating authorities believe that its termination is likely to lead to a recurrence of dumping and injury. Canada favors, in part, a provision that would provide authorities with a list of criteria that they must investigate (such as whether dumping continued once the duty was in place and current market conditions) before reaching the conclusion that a recurrence of dumping is likely to continue. U.S. negotiators have pointed out that the elimination of "underlying trade-distorting practices" that bring about antidumping actions in the first place should be the central objective of the Rules negotiations. Furthermore, implementing a "fully effective dispute settlement system which enjoys the confidence of all members" would also strengthen the effectiveness of trade remedy actions. The United States favors any revisions to the trade remedy rules that would "provide greater predictability in global trade and reduce the need to resort to trade remedy actions," because they would provide greater stability to world trade than any mandatory limits to the duration of trade remedy measures. The November 2007 draft text of the ADA would have specified that a sunset review must be initiated no later than six months from the imposition of the duty, or the five-year period following the most recent review of the antidumping duty. It, further, proposed to limit the duration of the review to six months (in many instances, the reviews themselves can last more than a year). In addition, the 2007 text would have enabled authorities to continue imposition of a duty for an additional five years, but would have required the duty to be terminated after 10 years. The provisions in the 2007 text were not included in the December 2008 draft. Rather, the 2008 draft stated that delegations remained widely apart on the mandatory sunset of AD orders, and that convergence on the duration and circumstances had not been reached. Many developing countries assert that antidumping actions on their products disproportionately affect their economies because they are particularly vulnerable to unpredictable shifts in market access. Article 15 of the ADA recommends that developed countries show "special regard" for the economic situation of least-developed and developing country members, and suggests that "constructive remedies" be used instead of assessing antidumping duties. However, it does not specifically require developed countries to apply such treatment, nor does it specify any particular course of action that developed countries should employ when conducting antidumping proceedings against industries in developing countries. As stated in the background section, some developing countries are also becoming avid users of AD measures, possibly in retaliation for the use of these actions by developed nations on their products. For example, in 2007, India was the most frequent user of antidumping action, with 35 new AD measures implemented. In that same year, the United States implemented 4 new AD measures. The "Friends of Antidumping" and others have proposed that the ADA should include specific provisions that will provide developing countries with "meaningful special and differential treatment" when facing antidumping actions. Some general recommendations for providing special treatment have included requiring developed countries to negotiate/accept mandatory price undertakings (suspension agreements) when investigating products of developing countries, and raising the de minimis threshold (i.e., the margin at which the amount of dumping is found to be insignificant). Member delegations have also suggested that various combinations of the modifications mentioned above—lesser duty rule, mandatory sunset, price undertakings—be part of a package of special and differential treatment in the WTO reserved for developing countries. Many developing countries also assert that the cost of initiating antidumping proceedings under the existing requirements of the ADA is especially prohibitive for developing countries. One recommendation calls for standardizing certain investigative procedures in order to make AD action less costly for all countries. Another suggests that developing countries be provided with technical assistance in bringing trade remedy actions. Some suggestions in this vein include requiring shorter periods for investigations, mandatory deadlines for reviews, and development of a questionnaire so that all investigators know precisely what information is necessary to extract when investigating a case. One submission advocated that developed WTO members should be required to invite developing country members to pre-initiation consultations before the initiation of an AD investigation, and that the consultations should explore other constructive remedies (such as price undertakings) that could lead to a "mutually agreed upon solution short of investigation or imposition of measures." Neither the 2007 nor the 2008 draft texts made any substantive changes to Article 15 of the ADA. However, the December 2008 draft noted that further consideration of the proposal is required due to the proposal presented by two groups of developing country members following the release of the November 2007 draft. Since the investigative procedures involved in subsidies actions are very similar to those used to investigate the existence of dumping—and the remedy imposed is also similar—many suggestions related to improved disciplines in the ADA mentioned above (such as price undertakings and compulsory sunset) are also being discussed in relation to proposed modifications to the Agreement on Subsidies and Countervailing Measures. Since they have previously been presented in the context of the ADA, they will not be discussed here. AD and CVD measures, however, address very different forms of price discrimination. In the case of antidumping investigations, the principal actors are exporting companies who sell goods in the foreign market at less than fair market value. Thus, there is little that exporting governments can do to assist in the elimination of dumping. In the case of subsidies, however, the actors that provide them are governments and other public entities. Therefore, the ASCM addresses disciplines that exporting governments have agreed to that seek to limit the granting of subsidies in the first place, as well as those related to investigative procedures and mitigation of their injurious effects. The ASCM's role in limiting subsidies has been a primary focus of the Rules negotiations in two major respects. First, developing country members, who maintain that subsidies play an important role in the development programs of many developing nations, seek additional special and differential treatment under the ASCM. Second, the development of a new set of disciplines that seek to limit fisheries subsidies has been a major focus of attention. In the WTO context, there is no specific definition of what constitutes a "developing country" member. Members, during the WTO membership process, may declare for themselves whether they are "developed" or "developing" countries. Unlike the ADA, the ASCM identifies three categories of development in WTO members: (1) least-developed members (LDCs); (2) those with GNP per capita of less that $1,000; and (3) other developing countries. Article 27 of the ASCM described temporary special and differential treatment available to each member category. The preferential treatment was usually in the form of longer transition periods for compliance with disciplines (such as phasing out export subsidies) agreed to in the ASCM. The lower the member's level of development, the more favorable treatment it received. For example, LDCs and those with a GNP per capita of less than $1,000, were exempted from the prohibition on export subsidies (Article 3, paragraph 1(a)) The special and differential treatment provisions were designed to expire within 5 years for developing country members and 8 years for least-developed countries, unless granted an extension by the Committee on Subsidies and Countervailing Measures. Therefore, a significant portion of the work in the DDA negotiations on the ASCM—especially in the early stages of the talks—deals with negotiations on clarifying and extending the special and differential treatment provisions. A submission from India provides a representative summary of developing country concerns. India's position is that the special and differential treatment provisions in the ASCM are "inadequate to meet the concerns of developing countries," and that any imposition of CV duties, or the threat thereof, can have a serious adverse impact on the labor-intensive small and medium enterprises that develop products for export in developing countries. In developing countries, India says, where there is a "high cost of capital, low level of infrastructure development, inadequate integration and organization of the economy, poorly developed information networks" it is necessary for the state to assume "a more active and positive role in assisting its industry." India pointed out that "out of the 67 cases which countervailing duty action was taken by various countries during the period 1 January 1995 to 30 June 2001, more than 65% was against developing countries. This is disproportionate in relation to the share of such countries in international trade." India continues by recommending changes and extensions to Article 27. These proposals include the recommendation that subsidies contingent on the use of domestic over imported goods should always be permitted because they are "crucial to the process of industrialization and development of developing countries." India also proposed restricting the application of CV duties when the total volume of imports is negligible (i.e., 7% of total imports), banning CV duties on export subsidies when they account for less than 5% of the value (free on-board) of the imported product, and raising the level below which CV duties cannot be imposed on all developing countries ( de minimis level) to 3%. U.S. negotiators have expressed the belief that the ASCM envisioned that over time, all countries should be subject to a single set of disciplines on subsidies. They maintain that the special and differential treatment provisions were not meant to be in effect for perpetuity. The United States has also noted that there is "longstanding and widespread agreement" among economists that subsidies can undermine the efficient allocation and utilization of resources, and that they create artificial advantages that distort market signals. Although the ASCM provided transition rules for developing country members of the WTO, the United States views them as "temporary deviations from the normal disciplines necessary to promote trade liberalization and growth that should be used only to the extent necessary and consistent with an individual country's particular economic, financial, and development needs." Consequently, the United States does not support the continued expansion of special and differential treatment in the ASCM. Neither the 2007 nor the 2008 draft texts made any substantive changes to ASCM Article 27. One subsidies area that has not been given much attention in previous trade rounds is that of developing disciplines on subsidies to the fishing industry. During the discussions leading up to the Doha Development Agenda, a loose coalition of countries including the United States, known as the "Friends of Fish," pressed for discussions on restricting or prohibiting government subsidies to the fisheries sector. The group acknowledged that the disciplines in the ASCM deal adequately with market distort ions that caused harm to fisheries industries in other WTO members. They asserted, however, that the ASCM does not cover the additional negative impacts that fisheries subsidies can have by leading to overcapacity and overfishing, thus causing the depletion of fish stock and environmental destruction of fisheries habitats. Therefore, this group pressed for the insertion of language in the Doha Development Agenda that would specifically provide for the discussion of subsidies on fisheries in the context of the round. The language in the Doha mandate read as follows: In the context of these [Rules] negotiations, participants shall also aim to clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries. Supporters of placing limits on fisheries subsidies (estimated to be between $14 billion and $20.5 billion annually) asserted that they directly contribute to over-capacity and over-fishing in the fisheries sector. These so-called "Friends of Fish" argued that these subsidies cause direct commercial harm to trading partners because they lead to stock depletion, thus limiting other countries' access to the resource. Other countries that rely heavily on fishing, such as Korea, Taiwan, and Japan, argued against discussing fishing subsidies separately from the ASCM. They pointed to other data that estimated the amount of government subsidies to fisheries industries at a much lower $6.3 billion. They say that these subsidies are used primarily to fund research, management, and enforcement—activities that would not address fisheries resources or trade negatively. They further asserted that stock depletion is caused by poor management of fisheries, not by subsidies. Some developing countries have called for special and differential treatment with regard to fisheries subsidies because the fisheries sector "is a vital source of food security, employment, and foreign exchange." In addition, coastal states such as Antigua and Barbuda, Papua New Guinea, and St. Kitts and Nevis, have pressed for broad exemptions to any disciplines in this area, given the small-scale, "artisanal" nature of their fisheries sector and the importance of fishing to their economies. A sub-group of developing countries has also emphasized the need to preserve small-scale artisanal fishing as necessary as economically important and as a key factor in the drive to eradicate poverty. As the international discussion on fisheries subsidies evolved over several years, it seemed that a consensus was reached that WTO disciplines should address these issues. Many WTO members believe that any subsidies that directly contribute to overcapacity, unsustainable fishing efforts or illegal, unreported, and unregulated (IUU) fishing need to be addressed most urgently, but the structure and scope that any prohibitions would take are still a matter of debate. Other issues being discussed involve whether aquaculture (i.e., fish farming) should also be addressed within disciplines on fisheries subsidies or in the context of the ASCM. The November 2007 draft text on fisheries subsidies largely reflected the growing consensus that fisheries subsidies should not be continued. Article I of the draft proposed to prohibit any subsidies conferred on the acquisition, construction, or repair of fishing vessels—including any subsidies to boat building or shipbuilding facilities. Any subsidies for operating costs or operating losses would be prohibited, as would be any subsidies that support fishing infrastructure in ports or any facilities that are predominantly used to support "marine wild capture" fishing. Subsidies for transferring boats to third countries would also be prohibited, as well as any price or income supports for people engaged in fishing, or any subsidies supporting IUU fishing. Article II of the draft sought to permit subsidies for improving vessel or crew safety, provided that they do not involve new vessel construction or lead to an increase in new fishing capacity. The text also proposed permitting subsidies for gear or improvements related to improving selective fishing techniques such as techniques aimed at reducing environmental impact or aiding in compliance with fisheries management regimes aimed at preservation and sustainable development. Government subsidies for personnel costs, re-education, re-training, re-deployment, and retirement of fisheries workers would have been permitted, as well as subsidies for the scrapping or decommissioning of vessels. Article III contained special and differential treatment provisions that proposed exempting developing country members from most of the prohibited subsidies in Article I, provided that all fisheries activities receiving these subsidies (1) are conducted within the territorial waters of the member, and (2) with non-mechanized net retrieval. Furthermore, subsidized fishing would have been required to be carried out by individuals, including family members, and associations of the same, and there should be no major employer-employee relationship. The catch must be consumed principally by fishing workers, and any commercial activities must not go beyond a "small-profit trade." Any subsidies permitted to developing countries for (1) enhancements, repair, or rebuilding of vessels or (2) operating costs or operating losses are limited to boats under 10 meters (31 ft). Article IV of the draft proposed prohibiting any subsidies that would cause harm to any straddling or migratory fish stocks whose range extends into the Exclusive Economic Zone (EEZ) of another member, or to fish stocks in which another member has "identifiable fishing interests." Article V would have required that any WTO member that grants or maintains any subsidy permitted by Article II or III in the draft text must operate a fisheries management system. This system would have regulated marine wild capture fishing within its jurisdiction and is designed to prevent over-fishing and promote sustainability and conservation. The management program was required to be based on internationally-recognized best practices for fisheries management, supported by the adoption and implementation of "pertinent" domestic legislation and administrative and judicial enforcement mechanisms. Article VI of the draft would have required each WTO member to notify the WTO Subsidies committee in advance of implementing any of the approved subsidies, except those implemented for natural disaster relief (in which case, the committee should be notified "without delay"). Any transfer of fishing rights from one member to another must also be disclosed. Any applicable legislation and notifications made to other organizations should also be reported to the committee. Articles VII and VIII of the draft dealt with transitional and dispute settlement provisions. Many WTO members expressed the belief that the broad approach taken by the Chair's draft was necessary and appropriate in light of the crisis confronting fisheries worldwide. Others acknowledged that effective management of fisheries is still the exception rather than the rule, and that even where perfect management is implemented, subsidies can distort trade, reduce economic flexibility, and create social contexts in which effective management faces political obstacles. Many noted as appropriate the Article V "sustainability criteria" that were included as a core element of the proposed fisheries disciplines. However, in a negotiations process where agreements must be established by consensus, the major parties remained very far apart. Some members criticized the fact that the Chair's draft did not address subsidies for aquaculture. Others were concerned that the draft—in a similar manner as the ASCM—required subsidies to be "specific" because this could still permit the imposition of certain more general subsidies, such as those to support multi-use port facilities. There was a sense among some members that the Article II exceptions for developing countries were appropriate, as well as the condition that subsidies should not increase capacity. However, many developed country members were concerned about the potential for abuse of these exceptions—such as the provision of subsidies for environmental improvements that could also increase fishing capacity (e.g., subsidies for fuel-efficient engines). There was also some disagreement as to whether the special and differential treatment provided to developing countries should be permanent or time-limited (i.e., to give the countries time to catch up to developed country standards). Due to the lack of consensus expressed following the 2007 draft, the December 2008 ASCM draft, rather than including any draft language, contained instead a summary statement of the status of negotiations on fisheries thus far. The Chair recognized that the issue of fisheries subsidies "continues to be the subject of vigorous debate." At issue in the debate are (1) varied perceptions as to the scope and meaning of the DDA mandate; (2) which subsidies should not be prohibited, especially as they relate to small-scale operations or special and differential treatment for developing countries; (3) how the existence of overcapacity and overfishing can be judged in an objective manner; and (4) how to ensure adequate implementation, monitoring, and surveillance. In this light, the draft provided a series of detailed questions for continued discussion with a view toward arriving at a consensus on these issues. Many WTO members seem to have reached "substantial common ground" toward creating disciplines restricting fisheries subsidies. Most believe that "the current situation cannot continue and that we must develop fisheries in ways that are economically sustainable and conserve the resource for future generations." Possible exceptions to this consensus might be Japan, Taiwan, and Korea, who have expressed no written positions on fisheries subsidies since the chairman's draft appeared. In addition, although developing countries (referred to also as Small Vulnerable Economies or SVEs) welcome the special and differential treatment in Article III, they have expressed concern about restrictions on operational costs for fuel, ice, bait, license fees, insurance, landing, handling, and processing because "they are precisely the kinds of government assistance which SVEs could provide to their fishers." They also suggested that the length of the vessels permitted subsidies for building and repairs should by extended to 25 meters, rather than 10 meters, "to take into account the size of the small scale fishing vessels used in our maritime space." They also maintained that additional flexibility is necessary if fisheries subsidies disciplines "are to have real and practical meaning for the developing small island and coastal states of the WTO." In a March 2010 report to the WTO Trade Negotiating Committee, the Chair of the rules negotiating committee acknowledge that the urgency to implement disciplines on fisheries subsidies "has been emphasized at some point in all of our meetings by virtually all delegations, from every region and at all levels of development." However, he reported that consensus has not been reached on limiting fishing subsidies, and expresses concern that, in order to reach agreement, the group may lower its sights too low, thus reaching "a result that is contrary to our mandate." In April 2010, the United States suggested some changes to the Chair's November 2007 draft that seek to "tighten up" some of the language, thus trying to eliminate some of the ambiguity in the text. For example, the U.S. proposal provides specific definitions of terms such as "fishing activity;" and gives example of specific situations that could represent "harm" to fish stocks. The proposal also lays out the elements of a global fisheries management system. Under the GATT, WTO members must grant immediate and unconditional most-favored-nation (MFN) treatment to the products of other WTO members with respect to customs duties and import charges, internal taxes and regulations, and other trade-related matters. While entering into Regional Trade Agreements (RTAs) or Free Trade Agreements (FTAs) would appear to be inconsistent with this obligation, the GATT contains a specific exception to allow such agreements because RTAs are generally viewed as promoting trade liberalization. Article XXIV of the GATT requires that all parties must notify the WTO of these agreements, and that all RTAs are subject to WTO review. The exception applies both to completed RTAs as well as to any interim agreements leading up to their implementation. The WTO Secretariat estimated that, if all RTAs currently in some stage of the negotiating process actually enter into force, a total of nearly 400 RTAs worldwide could be scheduled to be implemented by the end of 2010. FTAs and partial scope agreements account for over 90% of these agreements, while customs unions account for less than 10%. Interpreting the WTO rules governing regional trade agreements has proven to be a challenge to the WTO Regional Trade Agreements Committee, the WTO committee tasked with the oversight of these agreements. As a result, the committee has had some difficulty assessing the individual trade agreements to ensure that they comply with WTO guidelines. In the Doha Ministerial Declaration, WTO members also agreed to "negotiations aimed at clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements." These negotiations are also being carried out as part of the talks in the Negotiating Group on Rules. As a result of the Doha negotiations, on December 14, 2006, the WTO General Council established a provisional transparency mechanism for all RTAs. The new mechanism provides for early announcement of these measures and notification to the WTO. On the basis of a factual presentation by the WTO Secretariat, the Committee on Regional Trade Agreements will consider RTAs falling under Article XXIV of General Agreement on Tariffs and Trade (GATT) and Article V of the General Agreement on Trade in Services (GATS). The Committee on Trade and Development will consider RTAs falling under the Enabling Clause (trade arrangements between developing countries). In an effort to further increase the transparency of RTAs, the WTO maintains a Regional Trade Agreements Information System which, as of this writing, has information on 266 RTAs currently in force. This mechanism is provisional, however, and WTO members are still evaluating its implementation. Some WTO members believe that this mechanism needs to be modified, therefore, the implementation and the structure of the mechanism may continue to be negotiated as a part of the Doha Development Agenda. In a March 2010 report to the WTO Trade Negotiations Committee, the Chair of the rules negotiating group reported that the provisional mechanism is functioning well, but that consensus on the methodology for a implementing a permanent Transparency Mechanism has not been reached. When Congress granted presidential Trade Promotion Authority (TPA) in 2002 ( P.L. 107-210 ), it agreed to consider legislation to implement trade agreements under special legislative procedures that limited debate and allowed no amendments. Since TPA expired in July 2007, these requirements no longer apply. There is some speculation that it will be more difficult to reach any kind of consensus in the WTO without TPA being extended to the current administration. Observers advocating this view argue that the principal actors in other WTO member countries will be reluctant to agree to a WTO pact that could be substantially amended by U.S. lawmakers. However, in keeping with its constitutional role, as part of the TPA legislation, Congress also gave itself considerable oversight authority over trade negotiations by requiring the President and other executive agencies (particularly the USTR) to consult with Congress, to provide congressional committees with regular, detailed briefings on the status of negotiations, and to coordinate closely with a Congressional Oversight Group consisting of chairmen, ranking members, and other representatives from the House Ways and Means and Senate Finance committees. Since modifications to the trade remedy laws were of particular concern to many Members, the TPA legislation required the President to report within 180 days prior to acceptance of a trade agreement if any of the proposals could require amendments to trade remedy laws. The law also provided specific language for a procedural resolution of disapproval to be introduced in either House if Congress determined that the proposed changes to the trade remedy laws in any agreement are inconsistent with U.S. negotiating objectives on trade remedies. Although the disapproval resolution would not have been binding on the President or on the USTR, such a resolution, if passed, would have sent a clear message that Congress resisted any modifications to the WTO Agreements that would lead to any weakening of U.S. trade remedy laws. Most of the proposed changes in the ADA, if adopted, could further restrict the ability of all WTO members to grant relief to import-competing industries. Import-competing industries in the United States could find it more difficult to obtain relief, could have lower dumping margins assessed on targeted merchandise, or could be authorized to receive the relief for a shorter time period. Industries in other countries would face the same restrictions, however, which could benefit U.S. exporters. U.S. consuming industries, and ultimately consumers, might also benefit from lower prices for production inputs and finished goods. Proposals to change dumping margin calculations (through "zeroing," for example) might only require administrative changes in the way in which authorities calculate the level of relief. However, there is considerable debate in Congress about whether or not authorities should be permitted do so. For example, H.R. 496 (Rangel, introduced January 14, 2009) seeks to express the sense of Congress that, in light of "fatally flawed" WTO Appellate Body decisions, that the Department of Commerce should revisit its February 22, 2007 decision to modify its methodology in AD investigations "with respect to the calculation of the weighted- average dumping margin" to ensure that "100% of dumping is addressed under United States antidumping law and practice, while also ensuring that the United States complies with its WTO obligations." H.R. 496 would also prohibit the Department of Commerce from implementing any further changes unless and until it consults with the appropriate congressional committees and the USTR, and provides an opportunity for public comment by publishing proposed modifications in the Federal Register. Further, the legislation would state that a final rule or other modification should not go into effect before the end of a 60-day period beginning on the day consultations were requested. During the 60-day period, the House Ways and Means and the Senate Finance Committee may conduct a non-binding vote to indicate their agreement or disagreement with the proposed rule or modification. The legislation also proposes to extend the final modification on "zeroing" already approved by the Department of Commerce until March 1, 2009, after which the Department is directed to return to the original methodology "unless or until" it issues a revised modification according to the process described in the legislation. Suggestions for changes in improved transparency in injury determinations would probably result in fewer changes to U.S. laws and administrative procedures because U.S. trade remedy actions already provide considerably more quantitative guidance, more specific definitions, and narrower timetables than those in some other WTO member countries. In addition, U.S. exporters could benefit from increased transparency in AD investigations in foreign markets, while U.S. domestic industries' ability to seek AD action in the United States might be only minimally affected. However, since the overall objective of many WTO members seems to be to restrict the ability of domestic industries in the importing countries to receive relief, it is still possible that concessions to modifications in this area could lead to changes that diminish the use and effectiveness of AD actions. Proposals for modifying the duration of AD orders, such as requiring mandatory sunset after five years, could also have a significant effect on U.S. industries seeking relief through the trade remedy laws. The United States currently has about 190 AD orders that have been in effect longer than five years (the oldest as of this writing, on polychloroprene rubber from Japan, dates from 1973). Statistics on five-year reviews conducted from January 2000 to January 2005 indicate in the 116 reviews initiated during the period, the ITA and ITC decided to revoke 37 AD orders, continued 52 orders, and an additional 27 investigations are still pending. These statistics indicate that a number of U.S. AD orders do continue in place beyond the five-year period. Therefore, adoption of a mandatory five-year revocation of AD orders could have a substantial impact on U.S. trade remedy policy, as well as on industries that have benefitted from the protection of these orders. In addition, since the United States was found to be in violation of its WTO obligations with regard to the CDSOA and the usage of zeroing when conducting initial investigations, some observers suggest that it might be advantageous for the United States to concede on these issues in DDA negotiations, especially if by doing so U.S. negotiators can avoid other changes to the Agreement that might adversely affect U.S. trade remedy laws. Two issues unique to the WTO subsidies debate are (1) special and differential treatment of developing countries relative to relaxing disciplines on subsidies that governments may provide to fledgling industries, and (2) the ongoing discussion on limiting subsidies to fisheries industries worldwide that could contribute to overcapacity and overfishing. U.S. negotiators have formally opposed any extension of the special and differential treatment on subsidies beyond that which was previously provided in Article 27 of the ASCM. The United States bases this position on economic research indicating that providing subsidies in the long term creates artificial advantages that can lead to distortion of market signals. In turn, the distortions created by subsidies can undermine efficient allocation and utilization of resources. If concessions were made in favor of extending or granting additional favorable subsidies treatment to developing country WTO members, it would do little to weaken the effectiveness or the administration of U.S. trade remedy laws. However, it could lead to further injury to U.S. import-competing producers who, depending on the nature and duration of the special treatment provided, might not have recourse to subsidies action. On the issue of fisheries subsidies, the United States is one of the countries in favor of developing disciplines in the fisheries sector. U.S. negotiators have written that the United States especially favors a broad prohibition on any subsidies that contribute to overcapacity and overfishing. Those who oppose this viewpoint include Japan and Korea, who believe that injurious fisheries subsidies can already be dealt with in the context of the ASCM, and developing countries who believe that their small-scale and artisanal fisheries merit special and differential treatment. Even if consensus is not reached on this issue in the context of the DDA, limits on overcapacity and overfishing could possibly be addressed in a context other than international trade through other ongoing international discussions on fisheries conservation. In the area of Regional Trade Agreements, WTO members have already reached consensus on a provisional mechanism designed to enhance transparency. What remains is for WTO members to evaluate its effectiveness and reach consensus on any recommended modifications. While modifications to WTO oversight may be agreed to in the context of the DDA rules negotiations, any provisions that seek to limit the ability of the United States or other WTO members to enter into these agreements are not on the table. The DDA is being conducted as a "single undertaking," meaning that no individual concessions are binding unless a total package of obligations and concessions is agreed to by all parties. As of this writing, negotiations on agriculture and non-agricultural market access—not trade remedies—appear to have brought the discussions to an impasse. However, given the desire of Congress and others to preserve the trade remedy laws and the ability to implement them effectively, reaching consensus on trade remedy issues could prove to be another sticking point. The gap between the U.S. position ― especially with regard to antidumping ― and that of U.S. WTO trading partners appears to be very wide and may be difficult to narrow. However, trade negotiators from all countries face a weighing of concessions made against gains in other areas in the WTO negotiations. | At the November 2001 Ministerial meeting of the World Trade Organization (WTO) in Doha, Qatar, member countries launched a new round of trade talks known as the Doha Development Agenda (DDA). Discussions continue, although negotiations at this time seem to be at an impasse. One of the negotiating objectives in the DDA called for "clarifying and improving disciplines" under the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Antidumping Agreement or ADA) and the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement or ASCM). The frequent use of trade remedies by the United States and other developed nations—and increasingly, developing countries—has come under criticism by some WTO members as being protectionist. In a March 2010 report, the chairman of the rules negotiations mentioned that consensus had been reached on many technical issues, but that there was no agreement on the larger "political" issues. Some in Congress cite U.S. use of trade remedies as necessary to protect U.S. firms and workers from unfair competition. Some also credit the existence of trade remedies with helping to increase public support for additional trade liberalization measures. These groups would like increased trade enforcement of trade remedies and intellectual property laws. Others in Congress, especially those who represent U.S. importers, manufacturers, and export-oriented businesses, tend to support liberalizing the ADA and ASCM, in ways that could make use of U.S. trade remedy laws less frequent and relief harder to obtain. For example, there is support in Congress for legislation that would require administering authorities to determine whether or not a trade remedy action is in the overall public interest before such a measure can be imposed. DDA negotiations involve Congress because any trade agreement made by the United States must be implemented by legislation, thus Congress also has an important oversight role in trade negotiations. For example, preserving "the ability of the United States to enforce rigorously its trade laws" was included as a principal negotiating objective in legislation granting presidential Trade Promotion Authority—the Trade Act of 2002 (P.L. 107-210). In the WTO talks, the positions of major players in trade remedy talks are well-documented by position papers written by WTO members that are circulated through the WTO Negotiating Group on Rules. Major themes that have emerged include limiting the use of trade remedy actions in favor of "price undertakings," reducing the level of duties assessed per action by ending mandatory offsets (also known as "zeroing"), or limiting the duration of trade remedy measures through mandatory "sunset" reviews. Some members also support placing more restrictions on the ability of officials to grant relief to domestic industries through the use of economic interest tests and other administrative procedures and "special and differential treatment" for developing countries. Some countries see revision of the ADA and ASCM and other WTO disciplines on trade remedies as a "make or break" issue if the Doha Development Agenda is to succeed. This report examines trade remedy issues in DDA in three parts. The first part provides background information and contextual analysis. The second section focuses on how these issues fit into the DDA. A third section provides a more specific overview of major reform proposals that are being considered. |
As the Internet has become a significant venue for facilitating commercial transactions, it may be more common in this day and age for a consumer to first turn to the Internet to purchase goods rather than to go to a store. This could be said for almost all types of goods, including firearms and ammunition. A simple search for the terms "sale" and "firearm" results in a multitude of websites devoted to the sale of firearms or ammunition. Accordingly, questions and concerns have arisen regarding the extent to which federal law regulates the sale of such goods. A review of applicable federal laws, discussed below, establishes that Internet-based firearm sales are not imbued with a special character by virtue of their medium of transfer, and are in fact subject to the same degree of regulation as any other type of firearm transaction. The unique qualities of Internet transactions, however, may pose significant obstacles to enforcing these firearm regulations. The sale of ammunition, however, is subject to less federal regulation than firearms. It is this latter fact that has become the subject of heightened scrutiny in the aftermath of the tragic mass shooting that occurred in a Colorado movie theater in July 2012. The suspected shooter, who killed 12 persons and injured at least 58, reportedly purchased at least 6,000 rounds of ammunition online. Following this incident, Senator Frank Lautenberg and Representative Carolyn McCarthy have introduced new legislation, the Stop Online Ammunition Sales Act ( S. 3458 / H.R. 6241 ), that would more strictly regulate the online sale of ammunition. Congress enacted the Gun Control Act of 1968 (GCA or Act) to "keep firearms out of the hands of those not legally entitled to possess them because of age, criminal background or incompetency, and to assist law enforcement authorities in the states and their subdivisions in combating the increasing prevalence of crime in the United States." To this end, the GCA prohibits certain classes of individuals from possessing firearms and establishes a comprehensive regulatory scheme designed to prevent the transfer of firearms to such individuals. In particular, the GCA establishes nine classes of individuals who are prohibited from shipping, transporting, possessing, or receiving firearms in interstate commerce. The individuals targeted by this provision include (1) persons convicted of a crime punishable by a term of imprisonment exceeding one year; (2) fugitives from justice; (3) individuals who are unlawful users or addicts of any controlled substance; (4) persons legally determined to be mentally defective, or who have been committed to a mental institution; (5) aliens illegally or unlawfully in the United States, as well as those who have been admitted pursuant to a nonimmigrant visa; (6) individuals who have been discharged dishonorably from the Armed Forces; (7) persons who have renounced United States citizenship; (8) individuals subject to a pertinent court order; and, finally, (9) persons who have been convicted of a misdemeanor domestic violence offense. These nine categories of persons are also prohibited from shipping, possessing, or receiving ammunition in interstate commerce. When the GCA was enacted, the transfer and sale of ammunition appear to have been regulated in the same manner as firearms. In 1986, Congress passed the Firearm Owners' Protection Act (FOPA), which repealed many of the regulations regarding ammunition. Consequently, as discussed below, the transfer and sale of ammunition are not as strictly regulated as the transfer and sale of firearms. In order to effectuate the general prohibitions outlined above, the GCA imposes significant requirements on the transfer of firearms. Pursuant to the Act, any person who is "engaged in the business" of importing, manufacturing, or dealing in firearms must apply and be approved as a Federal Firearms Licensee (FFL or licensee). FFLs are subject to several requirements designed to ensure that a firearm is not transferred to an individual disqualified from possession under the Act. For example, a licensee must verify the identity of a transferee by examining a government-issued identification document bearing a photograph of the transferee, such as a driver's license; conduct a background check on the transferee using the National Instant Criminal Background Check System (NICS); maintain records of the acquisition and disposition of firearms; report multiple sales of handguns to the Attorney General; respond to an official request for information contained in the licensee's records within 24 hours of receipt; and comply with all other relevant state and local regulations. Not all sellers of firearms are required to be approved FFLs, however. The GCA contains a specific exemption for any person who makes "occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms." Although private sellers are not required to conduct a background check or maintain official records of transactions under federal law, they are prohibited from transferring a firearm if they know or have reasonable cause to believe that the transferee is a disqualified person. When the GCA was originally enacted in 1968, the sale and transfer of ammunition were regulated in nearly the same manner as firearms. This meant that an individual "engaged in the business" of dealing ammunition, among other things, had to be licensed under the GCA, and was required to maintain records of the ammunition sale. In 1986, however, Congress enacted the Firearm Owners' Protection Act (FOPA), which repealed these types of regulations for sales and transfer of ammunition. Consequently, one does not need to be an FFL to deal in ammunition, nor are such sellers (including FFLs) required to keep a record of ammunition sales. Notably, while FFLs have never been required under federal law to conduct a background check for purchasers of ammunition, they still may choose to do so because it remains unlawful for any seller of ammunition to transfer ammunition knowing or having reasonable cause to believe that such person is a prohibited possessor. In addition to the aforementioned requirements imposed upon the sale of firearms by licensed and unlicensed individuals generally, federal law also places significant limitations on the actual interstate transfer of weapons. These provisions are of particular interest in analyzing Internet-based firearm sales, given the inherently interstate quality of such activity and the perceived potential for abuse in the Internet sale context. Although FFLs have the ability to sell and ship firearms in interstate or foreign commerce, the GCA places several restrictions on the manner in which a transfer may occur. Specifically, while a licensee may make an in-person, over-the-counter sale of a long gun (i.e., shotgun or rifle) to any qualified individual regardless of her state of residence, a licensee may only sell a handgun to a person who is a resident of the state in which the dealer's premises are located. Relatedly, a licensee is prohibited from shipping firearms, both handguns and long guns, directly to consumers in other states. Instead, FFLs making a firearm sale to a non-resident must transfer the weapon to another FFL that is licensed in the transferee's state of residence and from whom the transferee may obtain the firearm after passing the required NICS background check. Firearm transfers between non-FFL sellers are also strictly regulated. Specifically, whereas FFLs may transfer a long gun to a non-resident non-licensee in an over-the-counter sale, the GCA specifically bars a non-FFL from directly selling or transferring any firearm to any person who is not a resident of the state in which the non-FFL resides. Instead, interstate transactions between non-FFLs result in the transferring party shipping the firearm to an FFL located in the transferee's state of residence. On the other hand, ammunition sales are currently less extensively regulated than firearm sales. Prior to 1986, however, not only were sales of ammunition conducted through FFLs who were required to be licensed to engage in the business of dealing ammunition, but FFLs were prohibited from shipping ammunition to a private person (non-FFL). The transfer of ammunition to an out-of-state purchaser, therefore, had to be conducted much like a handgun sale to an out-of-state purchaser, with the FFL transferring the ammunition to another FFL located in the state of the purchaser. After FOPA repealed these provisions in 1986, sellers are no longer required to have a license to deal in ammunition, and they are not prohibited from shipping ammunition directly to a private person regardless of the purchaser's state of residence. While there is less regulation of ammunition at the federal level, a few states have enacted legislation that requires either, or both, a seller and purchaser of ammunition to be licensed by the state. It is these aforementioned provisions on interstate transfers that arguably control the present inquiry regarding the extent to which Internet-based firearm and ammunition transactions are regulated under federal laws. The panoply of provisions discussed above establishes a federal scheme that regulates every firearm sale, irrespective of the medium of transaction. Even though these laws do not specifically address online or Internet sales, they broadly address the transfer of any firearm in interstate or foreign commerce. The mere fact that a firearm transaction is negotiated over the Internet does not exempt it from the requirements that apply to traditional sales conducted in person or those facilitated through classified advertisements in newspapers. In other words, FFLs who advertise firearms over the Internet are still prohibited from directly shipping a firearm to a non-FFL purchaser. If an out-of-state non-FFL purchaser desired to buy a firearm (i.e., a handgun or long gun) from the FFL, then the FFL would have to arrange for the firearm to be transferred to another FFL located in the purchaser's state and from whom the non-FFL purchaser could obtain the firearm after passing a background check. Similarly, private sellers of firearms who advertise the sale of firearms over the Internet could only make a direct transfer to a purchaser who is a resident of the seller's own state. The private seller would still be prohibited from directly transferring his firearms to an out-of-state non-FFL purchaser, and would be required to arrange for the firearm to be transferred to an FFL located in the purchaser's state. Internet-based sales and transfers of ammunition, on the other hand, may be conducted freely by FFL and non-FFL sellers to in- or out-of-state purchasers, given the GCA's lack of proscription against such conduct. Although existing GCA provisions encompass Internet-based firearm transactions and freely permit the direct transfer of ammunition between seller and purchaser, concerns have arisen since the beginning of the Internet revolution that there is ample opportunity for abuse of the existing firearm regulations or an increased potential for violations of federal law. Almost 12 years ago, the Department of Justice (DOJ) identified several factors it found unsettling regarding firearm sales over the Internet. In addition to the possibility that prohibited persons may be successful in acquiring firearms over the Internet, DOJ stated that the Internet "provides convenient fora" for the advertisement and sale of firearms by non-licensed individuals who are not required to conduct background checks or retain records of sales. Because non-FFL transactions are regulated less strictly, DOJ observed that non-licensed individuals might be encouraged to illegally engage in the business of dealing in firearms. Furthermore, there could be an increase in violations of federal law, as the prospect of quick profits from Internet sales may "create a temptation on the part of FFLs to circumvent" existing federal laws. During this time, the Working Group on Unlawful Conduct on the Internet (Working Group), established by President Clinton in 2000, stated that the sale of firearms over the Internet poses "unique problems" for law enforcement. The Working Group first maintained that illegal online sales would be more difficult to detect than sales facilitated through traditional venues such as print advertisements, since "the [I]nternet provides people with the means to advertise guns for sale on message boards, through e-mail, in chat rooms, or other websites that will be difficult to find and may even be inaccessible to law enforcement." Another hindrance to law enforcement efforts suggested by the Working Group is the lack of a fixed physical location for the execution of Internet-based sales. Whereas the Bureau of Alcohol, Tobacco, Firearms and Explosives may conduct inspections and review records of transactions with traditional sales made at gun stores or gun shows, Internet-based transactions would be much more difficult to monitor. It is unclear the extent to which law enforcement has experienced problems in detecting illegal firearm transactions, or whether it has the investigatory resources or capabilities to devote to enforcing firearm laws over the Internet. It should also be noted that when these reports were issued, there was little substantive evidence to support the assumption that individuals advertising firearms over the Internet were more likely to ignore firearm laws than those employing traditional methods of sale. Even though the observations from DOJ and the Working Group have an intuitive appeal and appear logically sound, an investigation by the General Accounting Office (GAO) from 2001 on Internet-based firearm sales detected no illegal activity with respect to FFLs. The GAO investigation was limited in scope, but none of the FFLs solicited by the undercover investigator agreed to engage in any illegal activity. More recently, however, the city of New York issued a report in December 2011 on its undercover investigation, which specifically examined online gun sales from private sellers. The results from this investigation present a marked contrast from the earlier GAO investigation. The city of New York's investigation examined 125 private sellers from 14 states who advertised on 10 different websites. Investigators indicated to these private sellers that they "probably couldn't pass a background check." Of the 125 private sellers, 77 agreed to sell a gun to someone who said he could not pass a background check. While these investigations were conducted several years apart and were both limited in scope, results from the GAO investigation could be interpreted as undermining the contention that the use of the Internet to facilitate firearm transactions will result in increased illegal activity with respect to FFLs. In contrast, the city of New York's investigation could give credence to the observation that the Internet increases the potential for abuse by private sellers to make unlawful sales of firearms to prohibited purchasers. In addition to these long-existing concerns regarding the sale of firearms over the Internet, concerns have also been raised with respect to online ammunition sales, especially in light of reports that the suspected gunman in the Colorado movie theater shootings purchased at least 6,000 rounds of ammunition online. In response to this, Senator Frank Lautenberg and Representative Carolyn McCarthy introduced S. 3458 and H.R. 6241 , the Stop Online Sales Ammunition Act of 2012. Primarily, this legislation would reinstitute the ammunition regulation that had been repealed when FOPA was passed in 1986. It would require an individual who wishes to sell ammunition to be a licensed dealer, irrespective of whether such business is conducted with the principal objective of livelihood and profit, because the amendment does not include the phrase "engaged in the business." Accordingly, the bill would arguably prevent any secondary sales of ammunition, that is, sales between non-FFLs, an action that is currently permitted with respect to secondary sales of firearms. Although a licensee selling ammunition would not be required to conduct a NICS background check under the bill, the licensee would be required to examine a valid photo identification of the transferee before completing the transfer. It would also make it unlawful for a licensee to directly transfer or deliver ammunition to any non-licensee and would require licensees to keep track of ammunition transfers to the same extent that they keep track of firearm transfers. These requirements would have the likely effect of requiring the seller and buyer to meet in person to complete the transaction. Furthermore, one component of the bill that was not a part of the original ammunition regulations from 1968 is the requirement that licensees prepare a report of multiple sales for federal and local authorities whenever the licensee disposes of more than 1,000 rounds of ammunition to a non-licensee during any five consecutive business days. In contrast to the proposed ammunition bill discussed above, proposed gun control measures have primarily focused on extending the background check requirements to private sellers rather than targeting the interstate scheme under the GCA. Such measures, like the Fix Gun Checks Act of 2011 ( H.R. 1781 / S. 436 ), would effectively require some in-person contact to be made through an FFL or a law enforcement agency because they would require a background check be conducted for every firearm sale. These measures perhaps focus on extending background check requirements because, as discussed above, the existing scheme on the interstate transfer of firearms arguably encompasses Internet-based firearms transactions, such that most firearm transactions are transferred through FFLs, unless it is an intrastate sale between two non-FFLs. | As the Internet has become a significant venue for facilitating commercial transactions, concerns have arisen regarding the use of this medium to transfer firearms. This report discusses the sale of firearms and ammunition over the Internet, with a focus on the extent to which federal law regulates such activity. A review of the relevant factors indicates Internet-based firearm transactions are subject to the same regulatory scheme governing traditional firearm transactions. Over the years, this has raised concern about the possibility of increased violation of federal firearm laws, as well as challenges that law enforcement may face when attempting to investigate violations of these laws. A review of the relevant factors also indicates that the sale and transfer of ammunition are not as strictly regulated as firearms, and that these changes came into effect in 1986. Lastly, this report highlights recent legislative proposals, S. 3458 and H.R. 6241, companion measures introduced by Senator Frank Lautenberg and Representative Carolyn McCarthy in the 112th Congress that would affect online ammunition transactions. |
The federal False Claims Act (FCA), codified at 31 U.S.C. §§ 3729-3733, provides for judicial imposition of civil monetary penalties and damages for the knowing submission of false claims to the U.S. government. The FCA, as amended, is considered a vital tool used by the U.S. government to recover losses due to fraud, and, in particular, it has been utilized with respect to false claims made to defraud government health care programs such as Medicare and Medicaid. Reports indicate that in FY2007, the U.S. government recovered $2 billion dollars in settlements and judgments in FCA cases, and more than 75% of these recoveries were from health care entities. Under three key provisions of the FCA, civil liability may be imposed on any person that (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval [31 U.S.C. § 3729(a)(1)]; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government [31 U.S.C. § 3729(a)(2)]; or (3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid [31 U.S.C. 3729(a)(3)]. Penalties under the FCA include treble damages, plus an additional penalty of $5,500 to $11,000 for each false claim filed. Civil actions may be brought in federal district court under the False Claims Act by the Attorney General or by a private person referred to as a relator ( i.e ., a "whistleblower"), for the person and for the U.S. government, in what is termed a qui tam action. The ability to initiate a qui tam action has been viewed as a powerful weapon against fraud, in that it may be initiated by a private party who may have direct and independent knowledge of any misconduct. Popularity of qui tam actions brought under the FCA may be attributed in large part to the fact that successful relators can receive between 15% and 30% of the monetary proceeds of the action or settlement that are recovered by the government. In Allison Engine Co. v. U.S. ex. rel. Sanders , the Navy contracted with two shipyards to build destroyers. The shipyards subcontracted with Allison Engine Company to build generator sets (Gen-Sets), which would provide electrical power for the destroyers. Allison Engine subcontracted with General Tool Company (which also used a subcontractor) to manufacture different parts needed for the Gen-Sets. The Navy's contracts with the shipyards required that all parts of the destroyers, including the Gen-Sets, be constructed in accordance with Navy specifications. This requirement was included in the contracts with the subcontractors. In addition, the contracts required that each Gen-Set come with a certificate of conformance that certified the unit met the Navy's requirements. All of the money used to pay the contractors for the work on the Gen-Sets ultimately came from the U.S. Treasury. Former employees of General Tool Company, Roger Sanders and Roger Thacker (the relators), brought actions against Allison Engine Company and other subcontractors under §§ 3729(a)(1)-(3) of the FCA, alleging fraud with respect to the construction of the Gen-Sets. The relators contended that the subcontractors knew that there were defects in the construction of the Gen-Sets and that the Gen-Sets did not conform to Navy specifications. Still, the subcontractors submitted invoices to the shipyards for payment, which constituted "false or fraudulent claims" paid by the government in violation of the FCA. During the jury trial before the district court, the relators produced evidence that the subcontractors had issued certificates of conformance containing false statements that the Gen-Sets complied with Navy requirements, as well as invoices that the subcontractors presented to the shipyards. However, the relators did not provide evidence of the subcontractors or the shipyards submitting a false claim to the Navy. While the subcontractors argued that the relators' claim failed because there was no demonstration that the false claims were presented to the government, the relators asserted that their claim under the FCA was sufficient because government funds had been used to pay the invoices that were presented to the shipyards. The district court agreed with the subcontractors and granted their motion for judgment as a matter of law. The court concluded that in order to sustain a claim under §§ 3729(a)(1) and (a)(2) of the FCA, there must be a showing that a false claim was presented to the U.S. government. On appeal, the Sixth Circuit reversed the district court in relevant part and found the subcontractors liable under the FCA. The court of appeals evaluated the statutory language and found that, while liability under § 3729(a)(1) depends on whether a claim has been presented to the government, the language in §§ 3729(a)(2) and (a)(3) contains no indication that presentment is required, so as long as there is a showing that the claim was paid with government funds. The court of appeals opined that the legislative history of the FCA supported this view. Additionally, while the Sixth Circuit articulated that § 3729(a)(2) requires a "causal connection" between the defendant's false statement and the payment or approval of the claim by the government, the court focused its decision on the idea that proof of presentment is not required in order to bring a successful FCA claim under § 3729(a)(2) and (a)(3). The Supreme Court granted certiorari on the issue of whether false claims for federal government money made by subcontractors are actionable under § 3729(a)(2) or § 3729(a)(3) of the FCA, if the claims were not presented to the U.S. government. In a unanimous decision, the Supreme Court vacated the Sixth Circuit decision and remanded the case for further proceedings. While the Court held that a false claim does not have to be presented to the government under §§ 3729(a)(2) and (a)(3), the Court found that under § 3729(a)(2), a plaintiff "must prove that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim." Similarly, under § 3729(a)(3), a plaintiff must demonstrate that the conspirators agreed to make use of the false record or statement in an effort to defraud the government, and that the statement would have a material effect on the government's decision to pay the false or fraudulent claim. The Court found that the language of § 3729(a)(2) did not support the Sixth Circuit's finding that a plaintiff can establish liability under the FCA by showing that a false statement resulted in the use of government funds to pay a false or fraudulent claim. The Court pointed to the language of the subsection, in particular, the phrase " to get a false claim paid by the government." As the Court articulated, "'[t]o get' denotes purpose, and thus a person must have the purpose of getting a false claim 'paid or approved by the Government' in order to be liable under § 3729(a)(2)." Without this element of intent, the Court elaborated, the reach of the FCA would expand beyond its role of "combating fraud against the government." Further, the Court explained that "[r]ecognizing a cause of action under the FCA for fraud directed at private entities would threaten to transform the FCA into an all-purpose antifraud statute." Additionally, the Court agreed with the Sixth Circuit that, while a plaintiff must present a claim to the government under § 3729(a)(1), § 3729(a)(2) does not require proof that a defendant's false record or statement was submitted to the government, but instead that the defendant submitted the claim for the purpose of getting the claim paid by the government. The Court also found that under § 3729(a)(3) it is not necessary to show that conspirators presented a false claim to the government, but instead that conspirators agreed that the false record or statement would have a material effect on the government's decision to pay the claim. As mentioned above, the FCA is often invoked due to fraud in federal health care programs such as Medicare and Medicaid. Although Allison Engine does not address its application to health care cases, there has been speculation over how the case could affect FCA health care litigation, especially since claims for payment from federal health care programs like Medicare and Medicaid can be paid for with federal funds, but are often paid through some type of intermediary. Some commentators have suggested that Allison Engine could make it more difficult for plaintiffs to bring an FCA claim against health care entities. While lower courts have begun to evaluate cases in light of the Allison Engine decision, it remains to be seen whether the decision will have a significant effect on health care litigation under the FCA. The Social Security Act gives private entities a large role in the administration of Medicare, which includes making coverage determinations, as well as processing and paying claims. For example, under Medicare Parts A and B, non-government organizations contract to serve as the fiscal agent between health care providers and the federal government. It has been proposed that on the basis of Allison Engine , defendants may be able to argue for dismissal of an FCA claim by alleging that the claim at issue was merely relied upon by the private entities that processed and paid the claim; that the claim was not submitted with the purpose of inducing payment by the government; or that the falsehoods were not material to the government's decision to pay the claim. On the other hand, a plaintiff may be able to argue that health care providers and others submitting a Medicare claim are fully aware that, while they are submitting a claim to a contractor, the claims are ultimately paid by Medicare. This awareness could possibly demonstrate an intent to defraud the government, as opposed to a private contractor. Perhaps a more difficult question is how Allison Engine will affect Medicaid claims. Medicaid is a state-administered program that is jointly financed by states and the federal government. When some Medicaid beneficiaries receive care from a health care provider, the provider bills the state Medicaid program for the services. Other Medicaid enrollees receive their care through managed care organizations (MCO), entities that are usually paid monthly, in advance for each enrollee. Typically, the state pays the provider or MCO from a combination of state funds and federal funds, which the Centers for Medicare and Medicaid Services (CMS) advances to the state each quarter. The state later files an expenditure report with CMS in which the state may claim federal reimbursement for Medicaid expenditures, and there is a reconciliation of the expenditures with the federal advance. Applying the reasoning of Allison Engine , it has been suggested that plaintiffs will have difficulty proving that a defendant intended to defraud the federal government when the claim was submitted to a state Medicaid program. However, it still seems possible that plaintiffs may be able to bring successful FCA claims for Medicaid fraud under the reasoning of Allison Engine . For example, if a plaintiff could demonstrate that a defendant intended a state Medicaid program to rely on a false record or statement in order to receive federal reimbursement, a court may be willing to find that the plaintiff meets the requirements of § 3729(a)(2). In United States ex. rel. Romano v. New York Presbyterian Hospital , one of the first court opinions to rely on the Supreme Court's decision in Allison Engine , the relator alleged that the defendant hospital was liable under the FCA for its complicity in submitting false bills to Medicaid. The hospital argued that it was entitled to summary judgment because, as a matter of law, it could not have violated the FCA's requirement of presentment to a federal officer "for payment or approval" because the Medicaid claims were submitted to and approved by state agencies. The court denied the hospital's motion for summary judgment and found that based on the Allison Engine decision, the question to be addressed was whether or not the hospital acted with the requisite intent when it submitted false claims to state Medicaid agencies, and this was a question of fact to be determined at trial. Members of the111 th Congress have introduced legislation which would make several changes to the FCA and could, if enacted, make it easier for certain plaintiffs to bring an FCA claim. These bills include the False Claims Act Clarification Act of 2009 ( S. 458 ), introduced by Senator Grassley, and the False Claims Act Correction Act of 2009 ( H.R. 1788 ), introduced by Representative Berman. According to congressional reports accompanying similar versions of these bills from the 110 th Congress, the legislation aims to clarify the meaning of several provisions of the FCA due to "restrictive" judicial interpretations of the statute that are said to run contrary to congressional intent. In addition, the Fraud Enforcement and Recovery Act of 2009 ( S. 386 , as reported in the Senate), which was introduced by Senator Leahy and Senator Grassley to enhance federal enforcement capabilities to counteract mortgage fraud, securities fraud, and fraud with respect to federal financial assistance, would also amend the FCA to "clarify that the False Claims Act was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee … and whether or not the defendant specifically intended to defraud the U.S. government." Proposed amendments to the FCA included in S. 458 , H.R. 1788 , and S. 386 (which all contain similar, but not identical, provisions) could potentially limit the application of Allison Engine . For example, section 2 of S. 458 would amend 31 U.S.C. § 3729(a)(2) to provide that a person who "knowingly makes or uses ... a false record or statement to get a false or fraudulent claim paid or approved" can be liable to the government for penalties. The bills all remove the phrase "by the government" from § 3729(a)(2), presumably for the purpose of clarifying that this section of the FCA covers false claims which are paid for by private parties with government grant or contract funds. While S. 458 and H.R. 1788 retain the phrase "to get," which the Allison Engine Court relied on as a basis for its determination that must be an element of intent to defraud the government in a successful § 3729(a)(2) claim, S. 386 would amend § 3729(a)(2) to provide that any person who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim" is liable under the FCA. According to a Senate report, the purpose of this language is to eliminate the intent requirement articulated in Allison Engine . Depending on how a court interprets what records or statements are "material to" a false claim, relators may have a considerably greater opportunity to bring an FCA claim in cases where a false claim was submitted to a recipient of government funds. However, it should be noted that while all three bills could make it easier for a relator to bring a claim under § 3729(a)(2) in situations where the false claim was not submitted directly to the government, under these bills a relator still must prove that a defendant knowingly made or used the false or fraudulent claim. | The False Claims Act (FCA), an important tool for combating fraud against the U.S. government, generally provides that a person who knowingly submits, or causes to be submitted, a false or fraudulent claim for payment to the U.S. government may be subject to civil penalties and damages. Recently, the Supreme Court examined the scope of the FCA in Allison Engine v. United States ex rel. Sanders, in which a former employee of a subcontractor brought an action against other subcontractors who had allegedly submitted a false claim to the prime contractor on a U.S. defense contract. The Court struck down the FCA claim against the subcontractors, holding that a demonstration that a false claim was paid for with government funds, without more, does not establish liability under 31 U.S.C. §§ 3729(a)(2) and (a)(3). Under these sections, the Court found that a plaintiff must prove that the defendant intended to defraud the government (and not just a recipient of government funds) when it submitted or agreed to make use of the false claim. Given that the FCA is frequently invoked in the health care context, it has been questioned how this decision could affect these cases. This report provides an overview of the FCA and the Allison Engine decision, analyzes how this decision could affect certain FCA health care claims, and discusses proposed legislation that would amend the False Claims Act (i.e., the False Claims Act Clarification Act of 2009 (S. 458), the False Claims Act Correction Act of 2009 (H.R. 1788), and the Fraud Enforcement and Recovery Act of 2009 (S. 386)), which could limit the application of the Allison Engine decision. |
Several western states are experiencing varying degrees of drought, with much of the West experiencing severe to exceptional drought conditions. Drought conditions persist in all counties in California, with a majority classified as in either extreme or exceptional drought. Notwithstanding March rains, California is experiencing its third consecutive dry year, which has resulted in abnormally low reservoir levels, as well as low surface and groundwater levels. Current drought conditions in California and much of the West have fueled congressional interest in drought and its effects on water supplies, agriculture, and fish and wildlife. Water deliveries to the federal Central Valley Project (CVP) and the California State Water Project (SWP), among others, have received significant attention during the drought. Deliveries to the CVP and SWP are sometimes limited due to federal and state endangered species regulations, as well as state water quality regulations. Such regulations often limit how much and when water is released from reservoirs and pumped from the San Francisco Bay and San Joaquin and Sacramento Rivers Delta (Bay-Delta), and thus result in reduced water deliveries to project water users. Additionally, the amount of available water that is allocated to water contractors during drought is based on state water rights allocations, with "senior" water rights holders—those who were first in line to receive water historically—receiving first priority for available water. In drought years such as 2014, water contractors with rights "junior" to senior water rights might see their CVP water deliveries reduced to zero supply. Reductions to water deliveries from all of the above factors are controversial and are at the crux of management disputes among water contractors, environmental groups, fisheries interests, and others. Additional water delivery curtailments resulting from the drought have resulted in some calling for increased operational flexibility and limits on these environmental restrictions. Several bills have been introduced in the 113 th Congress to address different aspects of drought in California and other regions. This report focuses on Sections 4 through 8 of the Senate-passed version of S. 2198 , the "Emergency Drought Relief Act." The original version of the bill was introduced April 2, 2014, and went to the Senate floor, bypassing committee consideration, under an expedited rule, Senate Rule XIV. S. 2198 as introduced was largely a revision of a previous emergency drought bill, S. 2016 , the "California Emergency Drought Relief Act." Some provisions in S. 2198 as introduced were broadened to apply to states outside of California; however, the Senate-passed version of S. 2198 dropped many of these provisions. Additionally, S. 2016 contained numerous direct spending provisions that are not included in S. 2198 as introduced or as passed by the Senate. S. 2198 as passed by the Senate would direct the Secretary of Agriculture (added since introduction), the Secretary of Commerce, the Secretary of the Interior, and the Administrator of the Environmental Protection Agency (EPA) to undertake numerous actions that would address emergency drought impacts in California and other states, by aiming to increase water supplies for California water users, prioritizing and expediting program funding for certain drought mitigation activities (e.g., projects providing drinking water and avoiding loss of permanent crops, and including grants for pilot projects increasing reservoir supplies in the Colorado River Basin), providing for emergency environmental reviews, and addressing Klamath River Basin water issues. The Senate-passed version of S. 2198 includes eight sections, whose provisions range from mandating maximization of California water supplies—consistent with laws and regulations—through specific project development, management, and operations directives and addressing project environmental reviews, to prioritizing funding for certain emergency drought activities under existing water laws and directing development of a comprehensive National Academy of Sciences study on increasing water supplies through control of an invasive plant species known as saltcedar (Tamarix ramosissima). Senate-passed S. 2198 is narrower in scope than the bill as first introduced. Much of the bill focuses on specific issues related to water infrastructure and conveyance in California. For example, the bill would direct federal agencies to maximize water supplies and streamline environmental reviews while remaining "consistent" with laws and regulations. This policy approach is aimed at addressing drought, and in doing so, touches upon many long-standing and controversial issues associated with operations of the federal Central Valley Project (CVP), managed by the U.S. Bureau of Reclamation (hereinafter referred to as Reclamation), and the State Water Project (SWP), managed by the California Department of Water Resources. Key issues for Congress include whether the activities mandated and authorized under the bill would provide adequate supplies of water for irrigation of permanent and other crops and public health and safety needs, and whether such activities would hasten the decline of certain fish species protected under state and federal endangered species laws. While the bill would direct federal agencies to operate within existing laws and regulations, it mandates certain CVP and SWP operational activities for which long-term consequences on listed species habitat and water supply are unknown. The proposed provisions related to these projects and operations raise several additional questions that are noted throughout the analysis of S. 2198 below. The remainder of this report discusses key provisions of the Senate-passed S. 2198 . The discussion focuses on selected provisions (including subsections) that have received the most attention in congressional debates and in media and stakeholder accounts. The Senate-passed version of S. 2198 includes numerous sections related to emergency drought relief. As noted above, these sections range widely. The first three sections of the bill cover the table of contents, findings, and definitions. The final five sections of S. 2198 are the focus of this report. Some parts of Section 4 of the bill have received significant attention and are thus discussed in detail, including specific emergency actions related to California water supply management, such as in Sections 4(a) and 4(c)(4) through 4(c)(6). Other sections apply to other activities, such as studying the water supply effects of saltcedar and directing participation in and funding for pilot water projects in the Colorado River Basin (Section 4(b)(7)). Many of the bill's provisions would expire upon suspension of the state emergency drought declaration. The Senate-passed version of S. 2198 would also modify implementation of financial assistance for some water resource and water quality programs. These include the WaterSMART program under Secure Water Act of 2009 (42 U.S.C. 10361 et seq.) and State Revolving Funds (SRFs) administered by the Environmental Protection Agency (EPA) under the federal Clean Water Act (33 U.S.C. 1231 et seq.) and the Safe Drinking Water Act (42 U.S.C. 300j-12). One such provision (Section 7) would direct the Secretary of the Interior to fund or participate in pilot projects to increase water supplies in the Colorado River Basin. Those provisions related to California water flow, infrastructure development and operations, and environmental permitting have one overarching theme: maximization of water supplies available for general agricultural and municipal and industrial demand while an emergency drought declaration is in effect—consistent with existing law and regulations. Other provisions under Title I would largely modify, expand, or reauthorize existing program authorizations. Section 4(a) would direct the Secretary of Agriculture, the Secretary of Commerce, the Secretary of the Interior, and the Administrator of the Environmental Protection Agency (together defined as "the Secretaries" under Section 3(4) of the act) to provide the "maximum quantity of water supplies possible" to CVP agricultural, municipal and industrial (M&I), and refuge service and repayment contractors; SWP contractors; the Klamath project or operations; and "any other locality or municipality in the State" of California, by approving, consistent with applicable laws and regulations, the following types of projects and operations: any project or operations "as quickly as possible based on available information" to address emergency conditions; projects that do not need congressional authorization; and projects that have followed procedures required by applicable law. This provision provides broad authority to the Secretaries to approve "any" project or operational change to address emergency provisions; however, limitations on this authority, provided in Section 4(b), prevent undertaking projects (operations are not addressed) that would otherwise require congressional authorization, or without following procedures required by applicable law. Projects that could be approved could include, for example, relatively small conservation or efficiency projects, or large projects not needing congressional approval that would expand storage or conveyance facilities to provide additional water to users throughout different seasons, or projects that adjust operations at reservoirs or in the Delta to increase water supplies. Additionally, this section would create the authority necessary for federal participation in state-driven projects intended to address the drought. California recently passed a law providing $687.4 million to address the drought. The intent of this section, which is similar to the bill as introduced, according to some sponsors of the bill, is to provide flexibility to increase water supplies and allow federal agencies to use water supplies during periods of increased precipitation. There are several questions or issues that might arise from this section. A brief summary of each is listed below. Section 4(a) raises the question of how agencies would provide the "maximum quantity of water supplies possible" to CVP and other contractors and, relatedly, how they would make such a determination consistent with laws and regulations. Implementation of the provision could be difficult and possibly contentious. For example, while "take" limits under the federal or state Endangered Species Acts may be possible to monitor, the effects of providing maximum water supplies on species survival and viability and water quality may not be apparent, quantifiable, or known for several years into the future. Conversely, agencies and water users may not agree that particular actions are providing maximum water quantities. Some observers already believe the agencies are maximizing water supplies to the detriment of species, while others believe the agencies are not doing enough and are advocating relaxation of some laws and regulations. Some may respond that if the bill is enacted, agency actions specified under this section would be directed to maximize water supplies for contractors as a priority over other considerations (e.g., water quality or habitat conservation). In response to this concern, others might contend that other factors such as water quality and species needs are addressed in laws and regulations that would prevent harm. Essentially, agencies would have to balance the new directives with parameters prescribed in existing law and regulations, thus making it difficult to estimate what effect the provision would have on projects, project operations, and the multiple interests that rely upon water supplies through project operations. Projects or operations that would be authorized under this section are to provide maximum quantities of water by approving projects and operations to provide "additional water supplies as quickly as possible"; however, there is no definition for additional water supplies in S. 2198 . The lack of specificity raises the question of whether the language is meant to apply to water supplies during parts of the year, the entire year, or several years. The broad variety of potential projects that could be authorized under this section is tempered by language stating that projects and actions must be consistent with applicable law. It appears that projects could be conducted throughout the state and not just limited to the CVP or SWP service areas. Projects and operational changes would have to be consistent with state and federal endangered species laws and regulations, as well as with the National Environmental Policy Act (NEPA; 42 U.S.C. §4321, et seq.), California Environmental Quality Act (CEQA), and water quality laws and regulations, among other laws and regulations. This provision by itself raises the question of how the term "consistent with the law" might be interpreted as opposed to "pursuant to" or "in compliance with" applicable laws. Some might question if the phrase "consistent with law" would allow for more agency discretion or flexibility than other phrases. However, the new limitation in Section 4(b) that would require that projects follow procedures required by applicable law may mitigate this issue. Regardless, ultimately, it may be left to the courts to determine what is or is not consistent with laws and regulations and whether all applicable legal procedures were followed. The authority in this section would also be limited by the duration of the drought emergency declaration. Specifically, Section 8 states that the authority for this section of the bill would expire when the governor suspends the state drought emergency declaration. It is unclear, however, if a project started under this authority would enjoy permanent authorization or how it would be funded after the drought emergency declaration is lifted. The provision also would mandate that projects or operations be implemented as quickly as possible. It appears that this provision could provide additional authority for agencies to streamline permit processes or feasibility studies for implementing projects, as long as such actions were consistent with existing laws and regulations. Although streamlining or shortening these processes would arguably lower the time it takes for operations and projects to become operational, and would therefore have a more immediate effect on reducing drought impacts, it is not clear whether such action would be helpful in the long run, for example, if full effects on species were not accounted for and species declined at a rapid pace. Section 4(c) of S. 2198 contains 13 subsections that would direct the Secretaries to implement several specific project-related and operational actions largely in California for carrying out Section 4(a). As with Section 4(a), Section 4(c) states that all actions are to be accomplished consistent with applicable laws and regulations. The intent of this section, according to some sponsors of the bill, is to provide flexibility to increase water supplies and allow federal agencies to use water supplies during periods of increased precipitation. Several provisions in Section 4(c) of S. 2198 as passed touch upon long-standing operational issues associated with managing the CVP and SWP. For example, project water deliveries from the CVP and SWP are sometimes limited due to federal and state endangered species regulations, as well as state water quality regulations. Such regulations often limit how much and when water is released from reservoirs and pumped from the San Francisco Bay and San Joaquin and Sacramento Rivers Delta (Bay-Delta), and thus result in reduced water deliveries to project water users. These reductions are controversial and are at the crux of management disputes among water contractors, environmental groups, fisheries interests, and others. Several subsections of Section 4(c) address specific projects and project operations that may have an effect on project water deliveries, as well as species viability and water quality. Following is a summary and analysis of the 13 subsections under Section 4(c). Section 4(c)(1) would direct the Secretaries to ensure that the Delta Cross Channel Gates (Delta Gates) will remain open to the greatest possible extent timed to maximize peak tide flood periods and to provide water supply and water quality benefits. This would be for the duration of the emergency drought declaration by the state. According to the section, this operation is to be consistent with the State Water Resources Control Board (SWRCB) order for a temporary urgency change (TUC) in terms of response to the drought, effective January 31, 2014, as modified by subsequent orders. There are some questions and potential issues that could arise from changes in the operations of the Delta Gates. The provision raises the question as to how it would change existing operations and ultimately, whether the provision would result in additional water being provided to CVP and SWP water contractors. Some might contend that existing operations are already implemented to maximize water supplies and that this provision does not add to existing authorities to operate the gates if such action would harm listed species or violate state water quality standards. Others might counter this sentiment by noting that the direction provided in Section 4(c)(1) would ensure that maximum flows are being sent through the Delta during peak flood tide, and that the provision would provide definitive authority for the Secretary of the Interior to maximize flows—as long as such activities are consistent with laws and regulations. The practical effect of the provision would depend on how the state and federal agencies or courts determine what and when such actions are consistent with laws and regulations. Section 4(c)(1) also specifically states that Delta Gates are to be operated consistent with SWRCB orders approving temporary urgency changes (TUCs) to D-1641. TUCs would allow the Delta Gates to be opened during the period that they were normally closed unless species are affected. If changes to the operations of the gates are outside the parameters of existing ESA permits for coordinated operations of the CVP and SWP, California Department of Water Resources (DWR) and the Bureau of Reclamation (Reclamation) would presumably be responsible for obtaining applicable new permits under the ESA. Section 4(c)(2)(A) would direct the Secretaries to collect data associated with the operations of the Delta Gates and the effect of operations on threatened and endangered species listed under the Endangered Species Act (ESA), water quality, and water supply. Section 4(c)(2)(B) would direct an assessment of the data collected, and require the Director of the National Marine Fisheries Service (NMFS) to make recommendations for changing the operations of the CVP and SWP, including, if appropriate, changes to reasonable and prudent alternatives in the BiOps issued by NMFS on June 4, 2009. The provision states that the changes should be likely to produce fishery, water quality, and water supply benefits. This provision would require NMFS to develop recommendations to change BiOps under ESA that regulate operations of the Delta Gates to address salmon populations in the Delta. It is uncertain if or how the recommendations would result in changes to the BiOps. For example, NMFS might reject recommendations for changes and implement a modified version of the recommendations, which might have unintended consequences for some stakeholders. Some might question if this provision would result in changes to NMFS's implementation of its 2009 BiOp. The 2009 NMFS BiOp has never been fully implemented due to court order. Section 4(c)(3)(A) would direct the Secretaries to implement turbidity control strategies that would allow for increased water deliveries while avoiding jeopardy to adult delta smelt at the SWP and CVP pumps. Section 4(c)(3)(B) would direct the Secretaries to manage reverse flow in the Old and Middle Rivers (OMR) according to the FWS Delta smelt biological opinion (BiOp) dated December 15, 2008, and the NMFS BiOp for salmonids, dated June 4, 2009, to minimize water supply reductions for the CVP and SWP. It is uncertain if existing strategies to address turbidity have been vetted and could be implemented rapidly to maximize their benefit in addressing drought conditions and still be consistent with laws and regulations. It appears that Section 4(c)(3) would provide direct authority to manage flows with the objective of minimizing water supply reductions to SWP and CVP users, as opposed to relying solely on discretionary actions allowed, or ranges specified, within reasonable and prudent alternatives (RPAs) under the BiOps. As such, it raises the question of how the agencies might balance the directive to minimize water supply reductions with the other legal requirements related to OMR flows, in particular with water quality and ESA requirements that at times result in water supply reductions. The outcome of this language would depend on how Reclamation and DWR implement this provision, as some discretion already exists, and whether the direction provided in S. 2198 would result in different management than under temporary operations or under the newly upheld 2008 FWS BiOp, and under the NMFS BiOp. As with Section 4(c)(1) above, at issue for implementing agencies would be how to balance the directives to maximize water supplies in the short term with obligations to protect species and habitat over the short and long terms. For example, the effects of the changed OMR flows may not be immediately visible or detectible for several years. Section 4(c)(4) would direct the Secretaries to adopt a 1:1 inflow-to-export ratio (I:E ratio) for increased San Joaquin River flows resulting from water transfers and exchanges, among other purposes. The flow would be measured on a three-day rolling average from April 1 through May 31 at Vernalis, as long as the governor's drought emergency declaration is in effect. The 1:1 I:E ratio for the increased San Joaquin River flows is currently allowed in "critically dry" years and is expected to be in effect from February through May of 2014. However, the I:E ratio under the 2009 NMFS BiOp changes based on water year type, and is 2:1 in "dry" years; 3:1 in "below normal" years; and 4:1 in "above normal" and "wet" years. The bill's original sponsor noted that the goal of an identical provision found in S. 2016 is to allow 100% of transferred or exchanged water to be moved through the Delta, instead of a fraction. According to Reclamation, the agency normally assumes a 10% conveyance or transport loss associated with transfers and exchanges "from the point of release and point of Delta diversion." Thus, typically, 90% would be available for export, not 100% as called for in S. 2198 . Reclamation is planning for a 1:1 ratio in 2014, and because other factors that might affect the ratio are not anticipated at this time, Section 4(c)(4) would not be expected to affect operations, assuming the critically dry hydrologic situation continues. However, according to Reclamation, the language could hamper operations if the hydrologic situation improves or if other opportunities arise where Reclamation could change operations to improve water supply. Determining the net effect this provision would have on water supply available for export and on fish and wildlife habitat is beyond the scope of this report. However, according to the Westlands Water District, the provision, combined with direction to manage reverse flow in the "Old and Middle Rivers (OMR) as prescribed" in the 2008 FWS Delta Smelt BiOp "to minimize water supply reductions" for the CVP and SWP (Section 103(b)(3)(B)), could generate more than 500,000 acre-feet of water for CVP and SWP exports from the Delta. On the other hand, some environmental groups state that this provision could be harmful to salmon species because hydrologic conditions may improve before a drought declaration is lifted. In either case, it is important to note that the 1:1 ratio in S. 2198 would be limited to water made available from transfers and exchanges, not the total San Joaquin River run-off. Section 4(c)(5) would direct the Secretaries to issue "all necessary permit decisions" under their authority for temporary barriers or operable gates in Delta channels to improve water quantity and quality for SWP and CVP south-of-Delta water contractors and other water users within 30 days of receiving a permit application from the state. According to this section, barriers or gates "should" provide species benefits and protection and in-Delta water quality and "shall" be designed so that formal Section 7 consultation under ESA would not be necessary. The directive in this provision could be controversial if such studies noted above are not completed and considered in the decision. For example, some boaters have already objected to proposed barriers. Further, a 30-day time limit might not be enough time to render a decision. On the other hand, temporary barriers and gates have been studied for several years (see box below). It appears the language could alter or obscure the priority of purposes for which the temporary and operable gates might be employed, particularly for the South Delta. According to the Delta Watermaster report, the objectives of the South Delta Temporary Barriers Project are "1) to reduce fisheries impacts by improving fishery conditions and 2) to increase water levels and improve circulation patterns in the Southern Delta area for local agricultural diversions." The priority in Section 4(c)(5) would appear to be first "to improve water quantity and quality for SWP and CVP South-of-Delta water contractors and other water users," as such is directed by the section, while species benefits and in-Delta water quality "should"—but would not have to be—provided (as long as such is consistent with existing laws and regulations, per Section 4(a)). Additionally, it is not clear how the barriers and gates could be designed such that formal Section 7 consultation is not necessary. Temporary gates and operable barriers could affect listed fish species and potentially affect their habitat, which presumably could trigger Section 7 consultation (if not covered elsewhere under CVP operations to which existing BiOps apply). The bill summary accompanying S. 2016 (which S. 2198 is based upon) states that such barriers and gates would "help protect the fish in order to allow additional flexibility for pumping of Delta channels and to improve water quantity and quality for water users." Section 4(c)(6)(A) would direct the head of the FWS and the Commissioner of Reclamation to complete all necessary NEPA and ESA requirements, within 30 days of receiving a request for a permit, for final permit decisions on water transfers associated with voluntary fallowing of nonpermanent crops in the state of California. Reclamation currently has programmatic NEPA documentation in place for certain CVP transfers, including within-basin transfers and a 25-year transfer program involving San Joaquin Exchange Contractors south of the Delta, and it is working on streamlined NEPA documentation for others. The transfer process involves both NEPA and the ESA in distinct steps, and where listed species are involved, appears to take much longer than 30 days. For uncomplicated transfers, Reclamation completes environmental analysis of water generated by a transfer proposal—taking into account how much water would have been used by the proposed fallowed crop and whether such water would have been available to the grower during the current water year. That analysis generally takes between 30 and 60 days. Upon completion, Reclamation issues a biological assessment (BA) of the proposed action if it finds its action may affect a listed species, pursuant to the ESA, thus initiating the consultation process with FWS. FWS then reviews whether the transfer may jeopardize the continued existence of species protected under the ESA. Reclamation issues an environmental assessment or environmental impact statement under NEPA. Transfer proposals involving fallowing of crops north of the Delta often require ESA consultation with FWS due to potential harm to threatened or endangered species, in particular, the giant garter snake ( Thamnophis gigas ), whose habitat includes watery areas such as irrigation canals and ditches and surrounding areas, including rice fields and marshy or wetland areas. The consultation process may take up to 135 days to complete once FWS receives the BA from Reclamation. According to Reclamation, the agency has been working closely with FWS "to shorten this process considerably." The result of the 30-day deadline in S. 2198 may be that FWS might deny permits where a listed species is involved in order to meet the statutory deadline. Reclamation issues environmental assessments or environmental impact statements for transfers under NEPA. Under NEPA, Reclamation had expected to issue a finding of no significant impact (FONSI) for the 2014 water transfer program by the end of April 2014; however, it is not clear from Reclamation's website if it has done so. Reclamation also notes that although water made available through fallowing is difficult to estimate, some contractors have indicated that perhaps up to 80,000 acre-feet might be made available from fallowing in 2014. Even so, Reclamation also notes that the current CVP BiOps allow for transfers of water through the Delta (north to south transfers) only from July through September, but the most demand for such water south of the Delta is during May and June. It appears that the proposed legislation would shorten the current time period for completing NEPA and ESA requirements, especially when a listed species is involved, but it is not clear how much water ultimately might be made available for export from the Delta under the expedited review process. Nor is it clear what effect the process could have on species habitat and survival. Section 4(c)(6)(B) would direct the head of FWS to allow "any water transfer request associated with fallowing" to maximize water supplies for non-habitat use, as long as the action would comply with federal law and regulations. Section 4(c)(6)(A) directs the head of FWS to allow "any water transfer request associated with fallowing" to maximize water supplies for non-habitat use, as long as the action would comply with federal law and regulations. This subsection again appears to be aimed at the garter snake issue in California related to fallowing; however, it is not explicitly stated, nor is the subsection identified as only applying to California. There may be other species listings for which the FWS might need to consult on fallowing of lands. By maximizing (as long as consistent with laws and regulations) allowance of water transfers for "non-habitat use," the provision raises the question of whether it would suggest prioritization of agricultural, municipal and industrial (M&I), power, or other uses over water supplies for wildlife refuges, or for rice fields that may support fish and wildlife while not in production. In other words, does such maximization result in water reductions for habitat uses? Section 4(c)(7) would direct the Secretaries, as soon as practicable, to participate in, provide grants to, or provide funding for, under existing authority available to the Secretary of the Interior, pilot projects to increase water in reservoirs in regional river basins that are experiencing "extreme, exceptional, or sustained drought." These basins would have to directly affect the water supply of California (including the Colorado River basin). Further, the Secretary (it is not explicitly stated whether this refers to the Secretary of the Interior), with respect to the Upper Division of the Colorado River, would be participating with or providing funding to the "respective State" in regards to grants, participation, or funding. (It appears that "State" in this instance refers to the state with which the Secretary is participating or providing funding.) Section 4(c)(7) appears to be aimed at addressing water supply concerns in the Colorado River Basin. The basin has experienced decreasing water supplies over the last 14 years, and many fear it is in danger of reaching levels in Lake Mead that would trigger implementation of water shortage allocations for Colorado River water users. Existing authority available to the Secretary of the Interior might include grants made under the Department's WaterSMART or other programs. Section 4(c)(8) would direct the Secretaries to maintain all rescheduled water supplies in San Luis Reservoir and Millerton Reservoir for the following year, unless unable to do so due to storage capacity limitations. Rescheduling is currently done under agency guidelines, not as a matter of law. Under agency guidelines, rescheduled water is released when San Luis Reservoir and Millerton Lake refill. According to Reclamation, the spill priority is included in agency guidelines. Such practices can cause operational problems when there are extreme low water supplies such that Reclamation cannot fill all following-year obligations, including senior water rights. This provision would address a situation that occurred earlier in the 2014 water year, whereby Reclamation suggested that 2013 rescheduled water supplies might not be able to be met because water supplies were not available from San Luis and Millerton Reservoirs. The uncertainty with such a policy given that it is in guidelines and not a matter of law is of concern to many water users who forgo water in one season or part of a season as an investment in the next water year. The issue relates not just to the opportunity costs of not using that water, but also to other costs that water contractors incur when they reschedule water. On the other hand, if rescheduled water is taking up storage space that otherwise might have been able to hold water for another year, balancing such demands becomes very difficult. Section 4(c)(9) would direct the Secretaries to "the maximum extent possible ... without causing land subsidence or violating water quality standards" to meet contract water supply needs of CVP refuges through the use of water conservation measures, water conveyance facilities, and wells for groundwater resources. To accomplish these activities, the Secretaries would use funding available under the Water Assistance Program or WaterSMART Program of DOI. Further, Section 4(c)(9)(B) would redirect a quantity of water obtained from measures in subparagraph (A) from refuges to CVP contractors. Currently, multiple state and federally owned wildlife refuges in the Central Valley are served by surface water contract deliveries and other means (including wells and water purchases) required under CVPIA. These water supplies are generally divided into two "levels": Level 2 and Level 4. Although Level 4 refuge supplies were directed for certain refuges in 2002 under the CVPIA, Reclamation has only recently delivered full Level 4 refuge water supplies to refuges. Instead, supplies have been largely limited to Level 2 supplies—422,000 acre-feet. Sections 3406(b)(3) and 3406(d) of CVPIA identify and authorize the use of many options for increasing water supply for fish and wildlife, including purchases, land fallowing, and project operations modifications. Further, the Secretary is directed under CVPIA to "endeavor to diversify sources of supply in order to minimize possible adverse effects upon Central Valley Project contractors." This language raises the question of whether it effectively could change temporarily the priority of CVP water delivery for wildlife refuges under CVPIA, in that Reclamation would be finding new sources of water for refuges and then transferring a like-kind of water to CVP contractors. The amount of water for refuges would still appear to be guaranteed; however, it is not clear that the quality of water would be the same, even though such activities are not to violate water quality standards. The provisions would authorize the Secretary to use existing programs to fund new conservation projects, conveyance facilities, and wells; however, there is no mention of whether CVP water users would have to pay an additional cost for water obtained by Reclamation through these new activities. It is possible that such contractor deliveries would be presumed to be supplementing contract water supply, for which the cost would be known, but this is not clear. That said, it is not clear if Reclamation would have the authority to provide the water under existing contracts from this new source. If Reclamation did not charge to offset the costs of the new activities, it appears that the provision would essentially be transferring a new cost for refuge water to the general public. Such an arrangement does not appear to be any more efficient than Reclamation providing grants to CVP contractors for conservation measures, water conveyance facilities, and wells for groundwater resources, all of which are allowed under existing authorities; however, there could be a conveyance or distributional aspect of such an arrangement that is not apparent. Section 4(c)(10) would authorize the Secretaries to coordinate with the Secretary of Agriculture to create an agreement with the National Academy of Sciences to conduct a study on the effectiveness and environmental impacts of saltcedar tree biological control activities and their effect on increasing water supplies and improving habitat on the Colorado River in California and elsewhere. Section 4(c)(11) would direct that any WaterSMART grant funding allocated to California be made available on a "priority and expedited basis": (1) for emergency drinking and municipal supplies to meet minimum public health and safety needs; (2) to prevent loss of permanent crops; (3) to minimize economic losses from drought; and (4) to provide conservation tools and technology with immediate water supply benefits. WaterSMART grants currently are made available for a host of conservation and efficiency projects with long-term benefits; Reclamation has a separate emergency drought assistance authorization for largely temporary projects, except in the case of wells. This provision would apply only to WaterSMART funding allocated to California. An earlier version of the bill, S. 2016 , would prioritize California projects within all limited funds available through this Reclamation-wide program. Section 4(c)(12) would direct the Secretaries to implement "offsite upstream projects" in the Delta and upstream Sacramento River and San Joaquin River basins in coordination with California Department of Water Resources and Department of Fish and Wildlife. Projects are to offset the effects of actions taken under this act on ESA listed species. It appears that this language could apply to a broad range of projects, including habitat restoration projects. Projects might include habitat restoration, water quality improvements, storage, or potentially flow adjustments as long as they offset the effects of other projects that might be implemented under this bill. Further, it is unclear what "offsite" refers to, both in terms of location and type and location of projects. Section 4(c)(13) would direct the Secretaries to use "all available scientific tools" to identify and implement any changes to the real-time operations of any Reclamation, state, and local water projects that could result in additional water supplies. This provision raises the question of what scientific tools might be available that Reclamation is not using or would not have the authority to use under current law. Note, however, that those changes would have to be consistent with law and regulations per Sections 4(a) and 4(c). Thus, it is uncertain how this provision adds to existing authorities or practices. Also, although most of the subsections in 4(c) clearly apply to California, this subsection does not explicitly indicate such. Section 4(d) states that the provisions of Section 4 shall apply to all federal agencies that have a role in approving projects in Sections 4(a) and 4(c) of this bill. Thus, although not specifically mentioned, if the Corps of Engineers or another agency has a permitting or approval role in one of the projects that could be implemented under Section 4, the provisions of Sections 4(a) and 4(c) would also apply to that agency. Section 4(e) would direct federal agencies, upon request of the state of California, to use "expedited procedures under this subsection" to make final decisions related to federal projects or operations that would provide additional water or address emergency drought conditions under Sections 4(a) and 4(c). Pursuant to Section 4(e)(2), after receiving a request from the state, the head of an agency referred to in Section 4(a), or the head of another federal agency responsible for reviewing a project, the Secretary of the Interior would be required to convene a "final project decision meeting" with the heads of all relevant federal agencies "to decide whether to approve a project to provide emergency water supplies." After receiving a request for resolution, the Secretary would be required to notify the heads of all relevant agencies of the request for resolution, the project to be reviewed, and the date of the meeting. The meeting would need to be convened within seven days of the request for resolution. Not later than 10 days after that meeting is requested, Section 4(e)(4) would require the head of the relevant federal agency to issue a final decision on the project. Under Section 4(e)(5), the Secretary of the Interior would be authorized to convene a final project decision meeting at any time, regardless of whether a request for resolution is requested under 4(e)(2). The accelerated project decision and elevation provisions would not mandate federal agency approval of a project. Instead, they would establish procedures to expedite the federal agency process for deciding whether to approve a project. As a result, it would appear that agencies could decide not to approve a project. Unlike several other provisions in Section 4, this provision would not expire at the time when the drought emergency declaration is withdrawn. This subsection would appear to apply to a broad set of projects and operations, as long as such are requested by the state or agency heads for final approval. Specifically, it appears that this subsection could supersede regular processes for final project decisions under various laws, including but not limited to NEPA and ESA. However, Section 4(a) notes that actions are to be consistent with current laws and regulations, and Section 4(b) would provide other limitations. Thus, it is not clear how this provision would be implemented. Given the short timeframe for deciding whether to approve the project—10 days from the request of the state or agency heads—it is difficult to determine whether a state or agency head may make a request for resolution for a project unless or until that project complies with applicable law. Also, a final decision related to a project pursuant to Sections 4(a) and 4(c) would be subject to the meetings convened by the Secretary instead of the traditional processes established by the federal agencies. The specific process for approving or not approving a project is not provided in the bill and therefore raises the question of how final project decisions would be made (e.g., by consensus, majority vote, etc.). Presuming that a meeting could be requested as soon as a project is submitted, it is uncertain how much analysis of a project could be done within the 10-day time frame to approve a project. A question to consider is, if not enough time is provided to make a decision, could the meeting result in a default rejection of the project? Section 5 would direct the "head of each applicable Federal agency" to consult with the Council on Environmental Quality (CEQ) to develop "alternative arrangements" to comply with NEPA in accordance with existing regulations "during the emergency." Emergency environmental review provisions in Section 5 could affect how certain emergency federal and federally funded drought projects in California would be required to demonstrate compliance with NEPA. Broadly speaking, NEPA requires federal agencies to identify and consider the environmental impacts of a proposed federal action before a final agency decision is made on that action. In doing so, NEPA intends to inform the federal decision-making process with regard to agency actions that would affect the environment. Emergency compliance arrangements are currently allowed in existing CEQ regulations implementing NEPA. These regulations provide that an agency may seek such alternative arrangements when an emergency makes it necessary to take "an action with significant environmental impact." Section 5 would apply in California only while the governor's drought emergency declaration is in effect. It is difficult to identify whether and/or to which projects such alternative arrangements would apply. For example, there is some question as to whether the projects and operations mandated in Section 4(c) would require review under NEPA. Although the statute is not explicitly repealed, and courts disfavor repeals by implication, courts have found that where a law gives no discretion to an agency, NEPA does not apply. The theory is that if the NEPA review would not inform agency decision making—because the actions are strictly mandated by Congress—NEPA does not apply. In making such a determination, a court would consider whether a federal agency had control over the action. Some of the Section 4(b) mandates are very specific (e.g., the mandated 1:1 inflow-to-export ratio for the increased flow of the San Joaquin River in Section 4(c)(4)). It is possible that the specificity of this action could lead a court to decide that the agency lacked discretion and that a NEPA review was not required. Other federal and state environmental laws may still apply, however. Regardless of whether NEPA applies or how NEPA compliance must be demonstrated, an agency would still be required to determine whether the project's impacts would require compliance with state or federal environmental requirements established under other laws, regulations, or executive orders. That is, even if compliance with NEPA were not required, the actions required or funded under S. 2198 would need to be consistent with applicable requirements such as those established under the ESA or state and federal water quality laws, among others. The language raises the question as to how such consistency could be demonstrated, and at what point that burden of demonstration would cease. Section 6 addresses California's use of monies in its State Revolving Fund programs that assist wastewater and drinking water infrastructure projects, pursuant to the federal Clean Water Act (CWA) and the federal Safe Drinking Water Act (SDWA), respectively. The SRFs provide loans and other types of financing assistance under specific terms set by California and other states. S. 2198 adds no new or supplemental funding for California's SRF programs. Rather, S. 2198 would direct the Environmental Protection Agency (EPA) Administrator, when allocating SRF funds, to require that the state of California review and give priority to projects that will "provide additional water supplies most expeditiously to areas that are at risk of having inadequate supply of water for public health and safety purposes or to improve resiliency to drought." For projects in California that are awarded assistance pursuant to Section 6, the bill would direct the EPA Administrator to expedite review of Buy American waiver requests, if such requests are submitted, and it authorizes 40-year loan repayments to the SRFs. Under both of the SRF programs, loans are normally to be repaid to a state within 20 years, but terms may be extended to 30 years in cases such as economically disadvantaged communities. Finally, the bill provides that nothing in Section 6 authorizes EPA to modify existing state-by-state funding allocations, funding criteria, or other requirements related to the CWA and SDWA SRF programs for the state of California. The bill does not appear to add new types of project eligibility under the SRF programs. Instead, it appears intended to direct the state's priorities when awarding assistance among projects that already are SRF-eligible. These could include water recycling projects (e.g., recycled water treatment works and recycled water distribution systems) and water conservation measures, which currently are eligible under the state's clean water SRF program. It also could include source water and water storage projects that address the state's public health priorities, which are eligible under California's drinking water SRF program. The California agencies that administer the SRF programs have well-established procedures for identifying and prioritizing projects eligible for assistance. Intended Use Plans are prepared annually and are open to public participation. While the apparent intention of this section of S. 2198 is to provide funds expeditiously, it is unclear how quickly this could occur, in light of the state's existing priorities. Under Section 8 of the bill, the authority under Section 6 would expire when a state-declared drought declaration is suspended by the governor. Section 7 of S. 2198 states that nothing in the act would preempt any California state law in effect on the date of such enactment, including area-of-origin and other water rights protections. Section 8 states that authorities under Section 4(a); Section 4(c), subsections (1) through (6), (8) and (9), and (11) through (13); Section 5; and Section 6 would permanently expire when the governor of the state suspends the drought emergency declaration. | Over the past five years, portions of the country have been gripped with extensive drought, including the state of California. Drought conditions in California are "exceptional" and "extreme" in much of the state, including in prime agricultural areas of the Central Valley, according to the U.S. Drought Monitor. Such conditions pose significant challenges to water managers who before this dry winter were already grappling with below-normal surface water storage in the state's largest reservoirs. Groundwater levels in many areas of the state also have declined due to increased pumping over the last three dry years. While March rain had improved the water year outlook somewhat—moving the year from the driest on record in terms of precipitation to date to the third-driest—water managers are fearful of the long-term impacts of a relatively dry winter and little existing snowpack to refresh supplies later in the year. Because of the extent of the drought in California, drought impacts are varied and widespread. Most of the San Joaquin Valley is in exceptional drought, and federal and state water supply allotments are at historic lows. The state has also had to restrict diversions from some rivers and streams, including the Sacramento and San Joaquin Rivers, two of the state's largest rivers. Many farmers are fallowing lands and some are removing permanent tree crops. Cities and towns have also been affected, and the governor has requested voluntary water use cutbacks of 20%. The effects of the drought are also likely to be felt on fish and wildlife species and the recreational and commercial activities they support, potentially including North Coast salmon fisheries. Congress is considering several bills that would address drought conditions in California. This report discusses S. 2198, as passed by the Senate on May 22, 2014. S. 2198 would address drought impacts in California and assist with drought response. The Senate-passed version of S. 2198 contains eight sections, whose provisions range from mandating maximization of California water supplies, through specific emergency project development, management, and operations directives and addressing project environmental reviews (as long as actions are consistent with applicable law and regulations and not highly inefficient), to prioritizing funding for certain emergency drought activities under existing water laws. In maximizing water supplies, the bill would address project operations that relate to long-standing and controversial issues associated with management of the federal Bureau of Reclamation's Central Valley Project (CVP) and the California Department of Water Resources' State Water Project (SWP), which are operated in coordination under a coordinated operations agreement (COA). Title II of S. 2198 as introduced, which would have expanded the assistance potentially available under an emergency declaration for drought (or other emergencies), was not included in the Senate-passed version of S. 2198. |
RS21761 -- Medicare Advantage: What Does It Mean For Private Plans Currently Serving MedicareBeneficiaries? Updated April 20, 2004 The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA, P.L. 108-173 ) added a voluntary prescription drug benefit to Medicare and made manychanges to the Medicare+Choice (M+C) program, now called Medicare Advantage (MA). Changes to MA include(1) increased payment rates, (2) a competition program in2006, (3) the addition of regional plans beginning in 2006, and (4) a six-year comparative cost adjustment programin 2010 that enhances competition between MA plans andrequires traditional Medicare to compete with MA plans. Although plan participation is likely to increase due tothe increased payments, long-term plan participation isunknown. MMA added a voluntary prescription drug benefit to Medicare. Starting in 2006, beneficiaries will have access to a drug plan whether they are in traditional fee-for-service(FFS) Medicare, or enrolled in managed care. The prescription drug coverage will be provided through either newlycreated prescription drug plans or for those beneficiaries inMA, Medicare Advantage Prescription Drug (MA-PD) plans. Managed care organizations will be required to offerat least one plan that includes the standard prescription drugbenefit, or an actuarially equivalent drug benefit, but may offer additional plans without a drug benefit, or with amore generous benefit. Generally, organizations offeringMA-PD plans will be required to comply with the rules and procedures required of companies offering a prescriptiondrug plan to beneficiaries in the FFS Medicare programunder the new Part D. Similar rules and procedures will be established for the prescription drug plans and MA-PDplans with respect to: enrollment, dis-enrollment,termination, coverage periods, appeals, information dissemination and the procedure of submitting a bid for the costof providing the drug benefit. Historically Medicare managed care plans were able to attract enrollees by offering additional benefits, one of the most popular being prescription drugs. Beneficiaries whoenrolled in these plans were willing to accept some of the restrictions of managed care, such as limitations onprovider choice, in order to have the additional benefits. Beginning in 2006, beneficiaries will be able to get prescription drugs whether they are in traditional FFS Medicareor an MA-PD plan. To compete with traditional Medicare,some plans may redesign their benefit packages to remain attractive to their enrollees. For example, they mayconsider adding vision or dental services, if they do not alreadyinclude them, reducing cost sharing, or enhancing the prescription drug benefit. In 2004, 36% of Medicare Advantage enrollees are enrolled in a plan that includes prescription drugs with no additional premium. (1) These plans are providingprescriptiondrug coverage to enrollees because their cost of providing all benefits covered by Medicare under Hospital Insurance(Part A) and Supplementary Medical Insurance (Part B) isless than the current payment rate. Starting in 2006, MA-PD plans will receive additional money from Medicareto pay for the prescription drug benefit. If a plan can continueto provide the standard Part A and B benefits at a lower cost (i.e., if its bid for covering Part A and B benefits is lessthan the benchmark, explained in more detail below), thenit can provide other additional benefits with some of the savings that might, in previous years, have gone towardsproviding prescription drugs. What can plans do to compete with traditional FFS Medicare? Managed care organizations will be allowed to make their plans more attractive to beneficiaries by reducingout-of-pocket expenses (copayments for Part A and Part B benefits, the premium for Part B coverage, or thepremium for the prescription drug coverage) or by adding benefitssuch as eyeglasses and earing aids. Plans may also add additional drug coverage beyond the basic Medicare benefit,but there is a disincentive for them to do this. Once anenrollee reaches the annual out-of-pocket threshold for catastrophic drug coverage ($3,600 in 2006, which wouldbe reached with $5,100 in total drug spending under a standardplan) Medicare provides reinsurance -- paying the plan a portion of the enrollee's additional drug costs. Third partypayments, including MA payments, do not count towardthe beneficiary's out-of-pocket threshold. Additional drug coverage would reduce the enrollees' out-of-pocketexpenses, so that fewer enrollees would reach the out-of-pocketthreshold, and those who did would reach it later in the year. The additional coverage would thus reduce the moneya plan would receive from Medicare. Alternatively, plans may decide to add or enhance a drug benefit in 2004 to increase enrollment and gain a competitive advantage in the managed care market prior to thebeginning of the Medicare drug benefit in 2006. Some plans have enhanced their drug benefits for 2004, asdiscussed below. Plans may also offer Medicare-endorsed drugdiscount cards to their own enrollees through the newly established drug discount card program under MMA. Thecards could provide discounts on drug prices even if the plandoes not have a drug benefit, or if the plan benefit cap is reached. (2) Beneficiaries who enroll in a plan in 2004 may be more likely to remain with the plan when theMedicaredrug benefit is added to the program in 2006. For 2004, MMA changed the payment rate calculation for Medicare managed care plans, resulting in increased payment rates for all counties. (3) Previously, plansreceived thehighest of three possible rates -- a floor rate, a minimum increase above the previous year's rate, or a blend of localand national rates -- subject to a budget neutralityprovision. (4) MMA made three major changes to thepayment formula for 2004, all designed to increase payment rates. First, a fourth payment type was added: 100%of percapita fee-for-service Medicare costs. (5) Second, thebudget neutrality adjustment was eliminated, allowing a blend payment to be paid when it is the highest of the fourrates,even when that would increase total expenditures. The blend payment uses a combination of local and nationalrates, and is designed to reduce variance in payments acrosscounties. Third, the minimum increase was changed from a 2% increase above the previous year's rate to the greaterof 2% or the percentage by which per capita Medicareexpenditures grew nationally in the previous year. In 2005 and beyond, payments will be annually updated by thenew minimum increase or, at the Secretary's discretion, but atleast once every three years, the higher of either the new minimum increase or 100% of the updated (rebased) FFSper capita payment. Payment rate increases beginning in March 2004 vary from county to county. The average increase (weighted by the number of enrollees) relative to the 2003 rate is 10.8%. The smallest increase for the same period is approximately 6.3%. Approximately 94% of enrollees live in countieswhere the increase is 20% or less. A small number of planswill receive increases of more than 45%. The higher payment rates may encourage organizations to stay inMedicare, and may attract other organizations, increasingcompetitive pressures on existing plans. It may also encourage plans to expand their service areas. Approximately21% of counties not currently served by a managed care planqualify for an average payment increase of 15% or greater. For six consecutive years private plans have withdrawnfrom Medicare or reduced their service areas citing lowpayment rates as the primary cause. CMS indicates that plans are using the increases to 2004 payments to: (1)strengthen provider networks with 43% of the funds; (2) reducepremiums with 31% of the funds; (3) enhance benefits, including prescription drug cards, with 17% of the funds;and (4) reduce cost sharing with 5% of the funds. Five percentof the additional funds are being held in the stabilization fund for use before the end of 2005. Until 2006, organizations participating in Medicare managed care must submit to CMS an estimate of the cost of providing Part A and B benefits to the average beneficiary. This estimate is called an Adjusted Community Rate (ACR) proposal and it is submitted each year for each planthe organization offers. The ACR is compared to the paymentthe plan would receive for serving beneficiaries. If the payment is larger than the cost of serving beneficiaries, theplan is required to return the full amount of the difference tothe beneficiary in the form of additional benefits, reduced cost-sharing or a reduction in the Part B premium. Theorganization may also save the difference in a "stabilizationfund" to defray future costs. Starting in 2006, plans will no longer file ACRs. Instead, their estimate of the cost of providing benefits to beneficiaries will be called a bid. The bid will be compared to a percapita benchmark for the area that is similar to a payment rate prior to 2006. If the benchmark is higher than thebid, the plans must return 75% of the difference to thebeneficiaries in the form of reduced cost-sharing for Part A and B benefits, additional MA benefits, or a credittowards any monthly MA premium, prescription drug premium,or Part B premium. If the bid is above the benchmark, Medicare will pay the plan the benchmark and the beneficiarywill pay the difference between the bid and thebenchmark. The bid portion of the competition program starting in 2006 differs from the ACR process in two ways. First, MMA grants the Secretary the authority to negotiate plan bids. Second, prior to 2006, plans return 100% of the difference to beneficiaries if the payment exceeds the ACR; after2006, plans will return only 75% of the difference if thebenchmark exceeds the bid, and the remaining 25% will be returned to the government as savings. It is unclear whether the Secretary's ability to negotiate will have an impact on plans currently in Medicare. It is also unclear whether returning 25% of plan savings to thegovernment instead of providing that amount to the beneficiary will have an effect on plans. Some observers expectplan bids to be close to the benchmark with little savingsreturned to either the beneficiary or the government. Others, including the Congressional Budget Office, estimateplan bids will be below the benchmarks, resulting in savingsfor both beneficiaries and the government. Sharing savings with the government could result in plans providingless generous supplemental benefits than they otherwise wouldhave, which could make it more difficult to compete with traditional Medicare It is possible that the bid process may be less burdensome than the ACR process, though that will depend on details of how the implementing regulations are written. The ACRprocess, in effect until 2006, requires a comparison that is not required in the bid. Under the Medicare+Choiceprogram, plans are not allowed to earn a higher return from theirMedicare business than their commercial market. One section in the ACR requires a calculation of the plan'sexpected returns from providing Medicare-covered benefits toMedicare beneficiaries versus providing the same benefits to their non-Medicare business. No such calculation isrequired under the bid process beginning in 2006. Private plans participating in Medicare specify the areas they want to serve. They define their service areas as sets of counties and county parts. Starting in 2006, plans will beencouraged (but not required) to serve entire regions designated by the Secretary as part of a new regional program. The regional program is designed to encourage plans,specifically preferred provider organizations (PPOs), to serve areas they had not previously served, particularly ruralareas, in an effort to make Medicare managed care moreclosely resemble the Federal Employees Health Benefits Program (FEHBP). A plan participating in the newregional program will (1) have a network of providers who agree toa contractually specified reimbursement for covered benefits, (2) provide for reimbursement for all covered benefits,regardless of whether the benefits are provided within thenetwork, and (3) serve one or more regions. The Secretary will establish between 10 and 50 regions throughout the country based on analyses of current insurance markets. Plans offered in the regional program will becalled MA regional plans, while non-regional plans will be called MA local plans. An MA regional plan maychoose to serve more than one region, or may serve the entirenation, but it can not segment its service area to offer different benefits or cost sharing requirements to beneficiarieswithin the same region. In addition to the difference in service areas, MA regional plans will differ from MA local plans in (1) benefit package, (2) access to risk-sharing arrangements and incentivepayments, and (3) potential additional payments to hospitals that join managed care networks. First, the benefitpackage for MA regional plans must include a single deductiblefor Part A and B services, and it must include a catastrophic limit on expenditures. The conference report for MMA( H.Rept. 108-391 ) indicates these requirements will makethe regional plans more closely resemble the private plans for the under-65 population. The amount of thecatastrophic limit is not specified in the law. Second, to encourageplans to participate in the regional program and serve areas they have not previously chosen to serve, Medicare willinitially share risk with MA regional plans in 2006 and 2007if a plan's costs fall outside of a specified range or "risk corridor"; plans will assume only a portion of the risk forunexpected high costs and plans will be required to return aportion of the savings to Medicare for unexpected low costs. Another incentive to participate in the regionalprogram is a stabilization fund that can be used to encourage plansto serve one or all regions, or to encourage plans to stay in regions they might otherwise leave. Initially $10 billionwill be available to the fund, but additional funds will beavailable from any savings from regional plans with bids below the regional benchmark. Third, since establishingnetworks can be difficult in less-populated areas, MMAincludes a provision whereby hospitals can receive a payment from CMS to join an MA regional plan's network ifthe hospital can prove that the costs of serving the plan'senrollees exceed the Medicare Part A payment. In such cases, the plan must also pay the hospital at least theMedicare Part A payment for services provided to enrollees. What does this mean for plans currently in Medicare? All areas of the country will be part of a region in the regional program, including areas currently served by local MAplans. It is unclear whether the incentives to participate in the regional program will be (1) enough to encourageplans to participate, or (2) so great that regional plans can offermore generous benefits than local MA plans and attract beneficiaries away from the local plans within the region. Moreover, some plans may choose to participate in theregional program in addition to, or instead of participating as local MA plans. How local MA plans react to theregional program will be based on business decisions about risk,profit and competition. The Secretary is to establish a six-year comparative cost adjustment (CCA) program beginning on January 1, 2010, and ending on December 31, 2015. The CCA program isdesigned to enhance competition between local private plans in the Medicare program and to compare the overallefficiency of these plans with respect to traditional Medicare. MA plans in CCA area can only be local plans, as regional plans can not participate in the program. An area canqualify for the program if it is a metropolitan statistical area(MSA) with at least two MA organizations and has at least 25% of Medicare beneficiaries enrolled in MA localplans. Of those MSAs that qualify, no more than 6 areas, or25% of the areas that meet the requirements will participate. There are two major differences between comparative cost adjustment areas and non-CCA areas. First, in a CCA area, payments to local MA plans will be based oncompetitive bids, similar to payments for the regional MA plans. The benchmark that is compared to each plan'sbid is not strictly an increase over the previous year'sbenchmark (as in non-CCA areas), but rather a weighted average of plan bids and the cost of traditional FFSMedicare in an area. (There is a five-year phase-in of CCAbenchmarks.) Second, in a CCA area, traditional Medicare will compete with local MA plans. While FFSbeneficiaries in non-CCA areas will continue to pay the standardMedicare Part B premium, beneficiaries in CCA areas could have their Part B premium either increased ordecreased. FFS beneficiaries in CCA areas would pay higher Part Bpremiums if the cost of providing the standard Medicare benefit package was more expensive in FFS than the costin the local MA plans. Conversely, FFS beneficiaries in aCCA area would paid lower Part B premiums if the FFS costs are less expensive the MA costs. The premium isphased-in over five years, and additionally, cannot exceed105% of what it would have been for beneficiaries in the CCA area. Proponents of the CCA program anticipate that competition in CCA areas would decrease costs to the Medicare program, perhaps through such strategies as steepernegotiations with providers or more attention to disease management. Opponents of the CCA program argue thatbeneficiaries who want to remain in traditional Medicare maybe financially penalized with increased Part B premiums. | The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (P.L.108-173) added a voluntary prescription drugbenefit to Medicare and established the Medicare Advantage program to replace the Medicare+Choice program. Theact increases payments to private plans beginning in March2004, creates a new competitive program in 2006, adds a regional program also in 2006, and creates a temporaryprogram that requires traditional Medicare to compete withprivate plans in 2010. These changes were designed to increase private plan participation and to increasecompetition in Medicare. Although plan participation is likely toincrease in the short-term, long-term participation is unknown. This paper outlines major changes to the managedcare program and indicates how these changes may affectparticipation. This report will not be updated. |
In 1976, President Gerald R. Ford signed the Toxic Substances Control Act (15 U.S.C. 2601 et seq .; TSCA). Thirty-five years of experience with TSCA implementation and enforcement have demonstrated the strengths and weaknesses of the law and led many to propose legislative changes to TSCA's core provisions in Title I. On April 15, 2010, Senator Lautenberg introduced comprehensive legislation ( S. 3209 ) to amend TSCA, and Representatives Waxman and Rush posted draft TSCA reform legislation on the home page of the House Committee on Energy and Commerce. The latter House draft was subjected to stakeholder comments and critiques in a series of meetings during the spring. The proposal was revised and introduced July 22, 2010, as H.R. 5820 . This report compares key provisions of S. 3209 , as introduced, H.R. 5820 , as introduced, and current law. The major provisions of TSCA Title I are summarized in Tables 1 through 6. The first column of each table describes the provisions of TSCA Title I. The second and third columns summarize provisions of S. 3209 and H.R. 5820 , respectively, that are related to the TSCA provisions in the first column. New provisions that would be added to the end of TSCA Title I by one or both proposals—for example, those related to reduced use of animals for toxicity testing—are summarized in Table 6 . The basic organization of TSCA would be unaffected by the proposals. For example, provisions related to testing would still be in Section 4, requirements for notifying EPA when a new chemical or new use is proposed would still be in Section 5, and regulatory authorities would remain in Section 6. Also unaffected would be recently enacted changes, such as a provision that bans exports of elemental mercury. However, most of the original Title I provisions would be amended or deleted by the proposed legislation, and both proposals would make substantial changes to current law. For example, both proposals would shift the burden of demonstrating the safety of chemicals from the U.S. Environmental Protection Agency (EPA) to manufacturers and processors, and would prohibit manufacture, processing, and distribution of any chemical substance or mixture for any use for which safety had not been demonstrated to EPA's satisfaction. Exemptions from prohibitions would be allowed for particular uses only if a use was "in the paramount interest of national security"; lack of the chemical use "would cause significant disruption in the national economy"; the use was essential or critical and there was no safer feasible alternative; or the chemical use, relative to alternatives, provided a benefit to health, the environment, or public safety. In addition, the proposals would require data development and submission to EPA for all chemicals in commerce, rather than only for chemicals that EPA has found "may present an unreasonable risk of injury to health or the environment" and for which EPA has demonstrated a data need, as required under current law. The proposed amendments to TSCA would increase public access to information about EPA's decisions as well as to some information about chemicals that currently is treated as confidential business information. Based on the data received, EPA would be directed to target chemicals with particular characteristics (for example, persistence in the environment) for early evaluation and possible risk management. Once a chemical has been evaluated and EPA has determined whether (or under what conditions) use of the chemical was safe, the proposals would require risk management action to promptly reduce use of, or exposure to, the chemicals of highest concern, and to encourage development of "safer alternatives." Action would be expedited by allowing EPA to issue administrative orders instead of rules (which must be promulgated under current law), exempting certain EPA decisions from judicial review, and removing certain TSCA requirements that are in addition to requirements specified in the Administrative Procedure Act (5 U.S.C. 553) for notice and comment rulemaking. The scope of EPA oversight also would be expanded by S. 3209 and H.R. 5820 . Both include language that would allow EPA to define various distinct forms of substances that are the same in terms of molecular identity but differ in structure and function, such as manufactured nanoscale forms of carbon and silver. Both proposals also broaden the scope of environmental risks that EPA may manage to include risks found in the indoor environment; currently, TSCA applies only to chemicals in the ambient environment. The proposed amendments also appear to more clearly authorize EPA control of risks posed by articles formed from a substance. Both proposals would authorize EPA activities not currently authorized under TSCA to allow implementation of international agreements pertaining to persistent organic pollutants and other hazardous chemicals. For example, the proposals would authorize EPA to regulate chemicals manufactured solely for export. The authority provided by S. 3209 is specific to three international agreements, while the authority provided by H.R. 5820 applies more generally to any international agreement concerning chemicals. Both proposals would prohibit production and use of some chemicals, but S. 3209 prohibits production and use when it is inconsistent with U.S. obligations under the treaties that have entered into force for the United States. H.R. 5820 directs EPA to ban activities only for specified chemicals that are intentionally produced and are not already regulated under U.S. law. The effect of TSCA on state and local chemical laws also would be modified by the proposals. Current law, TSCA Section 18, generally does not preempt state laws. However, if EPA requires testing of a chemical under section 4, no state may require testing of the same substance for similar purposes. Similarly, if EPA prescribes a rule or order under section 5 or 6, no state or political subdivision may have a requirement for the same substance to protect against the same risk unless the state or local requirement is identical to the federal requirement, is adopted under authority of another federal law, or generally prohibits the use of the substance in the state or political subdivision. TSCA authorizes states and political subdivisions to petition EPA, and authorizes EPA to grant petitions, by rule, to exempt a law in effect in a state or political subdivision under certain circumstances. A petition may be granted if compliance with the requirement would not cause activities involving the substance to be in violation of the EPA requirement, and the state or local requirement provides a significantly higher degree of protection from the risk than the EPA requirement does, but does not "unduly burden interstate commerce." The proposed amendments would simplify this section of TSCA. S. 3209 provides that TSCA would not preempt laws relating to a chemical substance, mixture, or article unless they were less stringent than federal law. H.R. 5820 provides that the act does not affect the right of a state or locality to adopt or enforce its own requirements unless compliance with both the state or local requirements and TSCA is "impossible." Several novel provisions are included in both legislative proposals. One provision, for example, would require definition and listing of localities with populations that are "disproportionately exposed" to toxic chemicals. EPA would be directed to develop an action plan to reduce exposure in such "hot spots." Another provision would direct the EPA Administrator to coordinate with the Secretary of Health and Human Services to conduct a biomonitoring study to determine whether a chemical that research has indicated may be present in human biological substances and that may have adverse effects on human development in fact is present in pregnant women and infants. If the chemical is found to be present, manufacturers and processors must disclose to EPA, commercial customers, consumers, and the general public all known uses of the chemical and all articles in which the chemical is expected to be present. Children's environmental health also is addressed by the bills. Both proposals would establish a children's environmental health research program at EPA and an advisory committee to provide independent advice relating to implementation of TSCA and protection of children's health. The proposals also would establish at least four research centers to encourage the development of safer alternatives to existing hazardous chemical substances. "Green chemistry and engineering" also would be promoted through grants. Finally, the proposed amendments would direct EPA to minimize use of animals in toxicity testing. An advisory committee would be established to publish a list of testing methods that reduce use of animals. So-called "alternative testing methods" have been under development for many years, but remain a minor component of toxicity testing programs. The proposals differ in many details (which will not be discussed here) and in several noteworthy ways that are summarized in Tables 1 through 6. One significant difference is the length of time each proposal allows before all chemicals in commerce must be tested for toxicity. For all existing chemicals that have not been placed on a priority list, data sets must be submitted within 14 years of the date of enactment of S. 3209 . H.R. 5820 allows five years for data development. Another difference that may spur debate is the definition of the safety standard that chemicals are required to meet. H.R. 5820 would require that a chemical substance or mixture "is not reasonably anticipated to present a risk of injury to health or the environment," "provides a reasonable certainty of no harm, including to vulnerable populations," taking into account aggregate and cumulative exposure to a chemical, "and protects the public welfare from adverse effects, including effects on the environment." S. 3209 would require that EPA ensure "aggregate exposure and cumulative exposure of the general population or of any vulnerable population to the chemical substance or mixture presents a negligible risk of any adverse effect." Although they propose somewhat different safety standards, both proposals propose a health-based standard, which might generally discourage consideration of other factors, such as benefits of chemical use or costs of alternative chemicals in similar applications. (However, EPA would be authorized to consider such benefits and costs under certain circumstances. See in Table 4 under the heading "Exceptions to prohibitions and other restrictions" the description of TSCA 6(e) as it would be amended.) In contrast, current law requires that a chemical not pose "an unreasonable risk of injury to health or the environment," and that regulation should control any unreasonable risk to the extent necessary using the "least burdensome" means of available control. This TSCA standard has been interpreted to require cost-benefit balancing. The proposals also treat the identification of chemicals of highest concern differently. H.R. 5820 directs EPA to expedite action for 19 specified chemicals. S. 3209 leaves identification of such chemicals to the Administrator's discretion, directing her to "act quickly to manage risks from chemical substances that clearly pose the highest risks to human health or the environment." Finally, only H.R. 5820 addresses "persistent, bioaccumulative, and toxic" chemicals (PBTs) directly. The bill directs EPA to promulgate a rule establishing criteria for identifying PBTs and requires listing of all PBTs within 18 months of enactment and every three years thereafter. EPA is required to impose conditions on the manufacture, processing, distribution, use, and disposal of PBTs to achieve the "greatest practicable reductions in exposure." EPA then is required to conduct the safety evaluation for all PBTs and to impose further risk management controls as needed. These and other similarities and differences are summarized in Tables 1 through 6. | On April 15, 2010, Senator Lautenberg introduced legislation (S. 3209) to amend the core provisions of the Toxic Substances Control Act (TSCA) Title I. Representatives Waxman and Rush introduced comprehensive legislation to amend TSCA (H.R. 5820) on July 22, 2010. This report compares key provisions of S. 3209, as introduced, H.R. 5820, as introduced, and current law (15 U.S.C. 2601 et seq.). Both bills would amend the 35-year-old law to shift the burden of demonstrating safety for chemicals in commerce from the U.S. Environmental Protection Agency (EPA) to manufacturers and processors of chemicals. Both bills also would prohibit manufacture, processing, and distribution of any chemical substance or mixture for which safety has not been demonstrated. Although they propose somewhat different safety standards for EPA to enforce, both bills suggest a health-based standard. In contrast, current law requires that a chemical not pose "an unreasonable risk of injury to health or the environment," and that any regulation should control unreasonable risk to the extent necessary using the "least burdensome" means of available control. This TSCA standard has been interpreted to require cost-benefit balancing. To facilitate safety assessment, the proposals would require data development and submission to EPA for all chemicals in commerce. TSCA amendments would direct EPA to target chemicals with particular characteristics (for example, persistence in the environment) for earlier evaluation and possible risk management. Any regulatory action would be expedited, for example, by allowing EPA to issue orders rather than rules. The bills also would add new sections to TSCA. Of particular significance is a section authorizing actions that would allow U.S. implementation of three international agreements, which the United States has signed but not yet ratified. Other new sections would provide authority for EPA to support research in so-called "green" engineering and chemistry, promote alternatives to toxicity testing on animals, encourage research on children's environmental health, and require biomonitoring of pregnant women and infants. A "hot spots" provision would require EPA to identify locations where residents are disproportionately exposed to pollution and to develop strategies for reducing their risks. The proposals differ in many details and in several noteworthy ways. For example, for all existing chemicals that have not been placed on a priority list, data sets must be submitted within 14 years of the date of enactment of S. 3209, but within five years of enactment of H.R. 5820. The proposals also treat the identification of chemicals of highest concern differently. H.R. 5820 directs EPA to expedite action for 19 specified chemicals, while S. 3209 leaves identification of such chemicals to the Administrator's discretion. These and other provisions of the two legislative proposals are compared with current law in Tables 1 through 6. |
In March 2010, after more than a year of legislative deliberation, Congress passed a pair of measures designed to reform the U.S. health care system and address the twin challenges of constraining rapid growth of health care costs and expanding access to high-quality health care. On March 21, the House passed the Patient Protection and Affordable Care Act (PPACA; H.R. 3590 ), which the Senate had approved on Christmas Eve, as well as the Health Care and Education Reconciliation Act of 2010 ( H.R. 4872 ). President Obama signed the first measure ( P.L. 111-148 ) on March 23 and the second on March 30 ( P.L. 111-152 ). Other health reform proposals were also put forth, such as the Healthy Americans Act ( S. 391 ), introduced by Senators Ron Wyden and Robert Bennett, and the Empowering Patients First Act ( H.R. 3400 ), introduced by Representative Tom Price. On November 2, 2009, the House Judiciary Committee reported out the Health Insurance Industry Antitrust Enforcement Act of 2009 ( H.R. 3596 ), which would limit antitrust exemptions provided by the McCarran-Ferguson Act (P.L. 79-15). On February 24, 2010, the House passed the Health Insurance Industry Fair Competition Act ( H.R. 4626 ) on a 406–19 vote, which would amend the McCarran-Ferguson Act to enable more robust antitrust enforcement. Health care costs in the United States, which have risen rapidly in real terms in the last few decades, have strained state and federal budgets. Future growth in health care costs is projected to threaten the fiscal position of state and federal governments unless major policy changes occur. Additionally, for many Americans, the lack of health insurance coverage complicates access to health care. According to the U.S. Census Bureau, 46.3 million or 15.4% of the people in the United States lack health insurance coverage. Furthermore, even families with health insurance may become vulnerable to the financial burdens of a serious health condition or illness either because of the narrowness of plan benefits or the unpredictability of decisions about what care is covered. Increases in health insurance premiums, according to some research, has degraded access to health care. Health insurance markets are often highly concentrated with one insurer accounting for over 50% of the market. Concerns about concentration in health insurance markets are linked to wider concerns about the cost, quality, and availability of health care. The market structure of the health insurance and hospital industries may have played a role in rising health care costs and in limiting access to affordable health insurance and health care. Some argue market concentration has led to higher health care prices. Higher prices for health care or health care insurance may then make health care less affordable and thus less accessible for some families. Consumers in the individual and small group markets typically face particularly challenging conditions. Others, however, contend that health insurers with strong bargaining leverage might help constrain health providers' ability to raise prices, and that the benefit of lower premiums resulting from that ability to bargain may be passed along to consumers. Some industry analysts have described competition among major health insurers as robust, and some pricing trends indicate that competition has strongly affected insurers' market strategies. Moreover, some contend that economies of scale along with state and federal regulation have contributed to the rising levels of concentration in health insurance markets. The Obama Administration made reform of the American health insurance and health care system a top policy priority. PPACA, according to the Administration, will broaden access to health care by increasing the number of Americans with health insurance coverage, by lowering the cost of insurance faced by individuals, by providing stronger incentives for individuals to acquire health insurance, and by restructuring parts of the health insurance market. PPACA contains some measures intended to slow the growth of health care costs, although some policy analysts are uncertain whether those initiatives are likely to accomplish that goal. Some argue that a more fundamental reform of the health care sector and the health insurance market would be needed to change the projected trajectory of health care costs. This report discusses whether or not the current health insurance market structure hinders the U.S. health system's ability to reach the policy goals of expanding health insurance coverage and containing health care costs. The report describes the forces that have shaped the health insurance industry, including its historical evolution, characteristics of health care and health insurance, determinants of supply and demand for health insurance, and the nature of competition among health insurers. Reasons for high market concentration are discussed, along with profitability measures for the industry. Finally, options for Congress regarding the health insurance industry are analyzed. The market structure of the modern U.S. health insurance industry not only reflects the complexities and uncertainties of health care, but also its origins in the 1930s and its evolution in succeeding decades. The first commercial health insurance policies were offered in 1847 in Philadelphia, although those plans soon failed. A few private insurers began to offer individual accident insurance in the 1860s. In the last quarter of the 19 th century some railroad, mining, and timber firms began to offer workplace health benefits. In the 1890s, burial and sickness policies became more popular, and the first group accident and health plans were developed. As population shifted from rural agricultural regions to industrialized urban centers, workers were exposed to risks of occupational accidents, but had less support from extended family networks that provided informal insurance benefits. Many workers obtained accident or sickness policies through fraternal organizations, labor unions, establishment plans, or private insurers. Economic historian John Murray estimated that roughly one-third of World-War-I-era male industrial workers had some form of accident, health, or burial insurance. These policies were often indemnity plans, that would pay a set cash amount in the event of a serious accident or health emergency. Social surveys at the turn of century spotlighted the link between industrial accidents and poverty, leading Progressive-era reformers and labor unions to push for compulsory social insurance, which helped lead to workers' compensation programs. Progressive movement reformers, however, were unable to convince unions, employers, and politicians to institute German- or United Kingdom-style health insurance programs. The modern health insurance industry in the United States was spurred by the onset of the Great Depression. In 1929, the Baylor University Hospital in Dallas created a pre-paid hospitalization benefit plan for school teachers after a hospital executive discovered that unpaid bills accumulated by local educators were a large burden on hospital finances as well as on the teachers themselves. Unlike earlier health insurance policies, subscribers were entitled to hospital care and services rather than a cash indemnity. While the plan did not cover physician bills, it did improve enrollees' ability to pay those charges. The Baylor Plan was soon extended to other groups. Other hospitals in Dallas quickly followed suit with their own group hospitalization plans as a means of ensuring a steady revenue source in difficult economic times. For individuals, these plans offered a way to obtain hospital care at a reasonable and predictable cost. In 1932, local hospitals in Sacramento, CA, created a joint plan for group hospitalization benefits, and in 1933, hospitals in Essex County, New Jersey, offered a similar plan. Community-based plans in St. Paul, MN, Washington, DC, and Cleveland were created soon afterwards. The Blue Cross emblem, first used by the St. Paul plan, was widely adopted by other prepaid hospital benefit plans adhering to American Hospital Association (AHA) guidelines. The AHA's 1933 guidelines required prepaid group hospitalization plans using the Blue Cross symbol to stress the public welfare, limit benefits to hospital charges, organize as a non-profit, and run on a sound economic basis. While many of the early group hospitalization plans were organized by community leaders, voluntary hospitals controlled Blue Cross because they provided the key resources in most cases and because they were responsible for underwriting the policies. Through the 1930s, the number of Blue Cross plans grew and enrollments expanded. By 1937, 1 million subscribers were covered, and by 1939, 25 states had passed legislation to enable hospitalization plans. Many state laws deemed Blue Cross plans charitable community organizations that were exempted from certain insurance regulations and taxes. The health insurance market in the United States, according to many historians, was originally structured to avoid competition among providers. The earliest plans tied benefits to a single sponsoring hospital; each hospital plan competed with others. Groups or individuals with the option to negotiate with specific hospitals might have been able to exert bargaining power. Hospital and professional groups, however, soon pushed for joint plans that required "free choice of physicians and hospital," rather than plans offered by individual hospitals. Joint plans dampened incentives for local hospitals to compete on the basis of price or generosity of plan benefits. The American Hospital Association strongly favored joint plans that allowed a subscriber to obtain care from any licensed local hospital and viewed single-hospital plans as a threat to the economic stability of community hospitals. Furthermore, in 1937, the AHA required Blue Cross plans to have exclusive territories so that they would not compete against each other. Hospital and physician groups' opposition to competition in health care and health insurance dovetailed with more general criticism of "destructive competition" that was widespread in the early 1930s. Some business leaders and New Deal policymakers viewed heightened competition as the cause of sharp cuts in wages, which in their view reduced consumer buying power and drove price deflation and market instability during the early years of the Great Depression. Most economists believe measures to reduce market competition imposed during the Great Depression actually retarded economic recovery. Competition in health insurance markets, however, raises issues that do not apply in most markets. If health insurers adopt different underwriting standards, competition can make pooling risks more difficult, an issue discussed in more detail below. Insurance coverage of physician services lagged behind the growth of Blue Cross hospital plans due to opposition from the American Medical Association (AMA) and restrictive state laws. In several states, however, medical societies set up prepaid service plans to preempt proposed state or federal plans, which evolved into Blue Shield plans. In most states, Blue Shield was absorbed into Blue Cross plans, although some retained separate governing boards. Blue Cross plans accelerated their growth during World War II and extended to almost all states by 1946. Wartime wage and price controls authorized in October 1942 excluded "reasonable" insurance and pension benefits. As industries struggled to expand war production, many employers used health insurance and other fringe benefits to attract new workers. In the late 1940s, the National Labor Relations Board (NLRB) successfully sued employers that refused to bargain collectively over fringe benefits, opening the way for unions to negotiate with employers over health insurance, which further helped boost enrollments in health insurance plans. Prior to 1954, no explicit statutory provision excluded health insurance benefits from federal income taxation. The IRS, however, had indicated in 1943 that group health insurance premiums paid by a firm for its employees would be considered an "ordinary and necessary" business expense rather than as taxable income received by the employee. A major overhaul of the Internal Revenue Code of 1954 included Section 106, which explicitly excluded employer contributions for health insurance from employees' taxable income. The tax exclusion for employer-provided health care made health insurance cheaper than non-tax-advantaged forms of consumption for individuals. One study found that health insurance coverage following the 1954 tax changes expanded more rapidly among employees with higher incomes, who generally had marginal tax rates, which could indicate that the tax exclusion led workers to demand more extensive or generous plans. Other factors, such as rising income levels, competition for workers, and rising medical costs, also spurred growth in employer-provided health benefits. Before World War II, many commercial insurers doubted that hospital or medical costs were an insurable risk. Insurers traditionally considered a risk insurable only if the potential losses were definite, measurable and not subject to control by the insured. The financial risks linked to illness or injury, however, could vary depending on the judgment of medical personnel, and behavior of the insured could affect the probability of ill health in many ways. After the rapid spread of Blue Cross plans in the mid-1930s, however, several commercial insurers began to offer similar health coverage. By the 1950s, commercial health insurers had become potent competitors and began to cut into Blue Cross's market share in many parts of the country. The large-scale entry of commercial insurers into the health insurance market changed the competitive environment in two ways. First, Blue Cross organizations, which had been sheltered from competition by exclusive territory and free-choice-of-hospital rules, were now engaged in head-to-head competition with commercial rivals. Second, the commercial health insurers were not bound to set premiums using the Blue Cross community rating principle, which linked premiums to average claims costs across a geographic area rather than to the claims experience of particular groups or individuals. Therefore, commercial insurers using an "experience rating" approach were able to underbid Blue Cross for firms that employed healthier-than-average individuals, which on average were cheaper to insure. The loss of healthier groups then raised average costs among remaining groups, which hampered Blue Cross organizations' ability to compete with commercial insurers on price. Competition from commercial insurers compelled Blue Cross to adopt experience rating in the 1950s, although most Blue Cross plans continued to support efforts to broaden risk pools. The shift toward experience rating changed the nature of competition in the health insurance market. Insurers could cut costs by shifting risks to others, by recruiting firms whose employees and their families were healthier than average, rather than finding more efficient ways of managing risks for a given pool of subscribers. By the late 1950s, health insurance benefits had become a standard part of compensation packages among most major employers. In 1959, Congress created the Federal Employees' Health Benefit Plan (FEHBP), which provided Blue Cross and Blue Shield benefits to federal workers across the country. During the late 1950s, hospital costs rose sharply in many parts of the United States due to new hospital construction, the increasing capital intensity of inpatient care, the replacement of flat-rate per diem reimbursement for hospitals with retrospective full-cost payment, and the spread of health insurance benefits that increased patients' ability to pay. Those cost increases led many Blue Cross affiliates to request large premium increases, which raised public concern and resistance from many state insurance regulators. These pressures, according to some historians, led Blue Cross affiliates and voluntary hospitals to push states to enact certificate of need (CON) regulations in the mid-1960s to deflect more stringent cost control measures while raising barriers to entry to newer and proprietary hospitals. While Blue Cross/Blue Shield and commercial insurance plans covered a large portion of employees and their dependents at the end of the 1950s, many low-income and elderly people had trouble obtaining affordable health insurance or paying for health care. Congress in the 1950s began to provide federal aid to states that chose to cover health care costs of these groups. Social Security was extended to pay providers to cover certain medical costs incurred by aged, blind, and disabled beneficiaries starting in 1950. The Kerr-Mills Act of 1960 (P.L. 86-778), a forerunner of Medicaid, supported state programs that paid providers for health care of the "aged, blind, or permanently and totally disabled," as well as low-income elderly individuals. State governments, subject to certain federal requirements, retained substantial discretion over benefit levels and income limits, which were typically linked to welfare assistance programs. By 1965, 40 states had implemented Kerr-Mills programs, and three more had authorized plans. Less than 2% of the elderly, however, were covered by Kerr-Mills programs in 1965. In 1965, the Johnson Administration worked with Ways and Means Committee Chairman Wilbur Mills to create the Medicare program, which provided health insurance for nearly all Americans over age 65. Medicare combined a compulsory hospital insurance program (Part A) with a voluntary physician services plan (Part B). While some had worried that Medicare would displace private insurers, Blue Cross organizations became fiscal intermediaries for Medicare, responsible for issuing payments to providers and other back office operations. Medicaid, created in the same 1965 act, is a means-tested program financed by federal and state funds. Each state designs and administers its own program under federal rules. Over time, Medicaid eligibility standards and federal requirements have become more complex. Private health insurance companies play an important role in several federal health programs. Many insurers run Medicare Advantage (Part C) and prescription drug benefit plans (Part D), and some help provide CHIP (Childrens' Health Insurance Program, previously known as SCHIP) benefits. In some parts of the country, plans combining insurance with the direct provision of health care evolved into important players in local markets despite the strong opposition of the AHA and AMA. A health plan designed for southern California construction workers in the mid-1930s eventually became the Kaiser Health Plan. Some physicians set up group practices and clinics in the 1920s and 1930s. Many health care cooperatives were formed by employers, employee groups, and the federal governments during the 1930s and 1940s. While some of these plans prospered locally or regionally, they did not achieve national reach until the 1970s. In 1971, President Nixon announced a program to encourage prepaid group plans that joined insurance and care functions as a way to constrain the growth of medical care costs, which had risen sharply in the years following the startup of the Medicare and Medicaid programs, and to enhance competition in the health insurance market. Advocates claimed that health maintenance organizations (HMOs), which integrate health care and health insurance functions, would have a financial motive to promote wellness and would lack incentives to overprovide care. The Health Maintenance Organization Act of 1973 ( P.L. 93-222 ) provided new grants, loans and loan guarantees to expand the number of HMOs, which then only numbered about 30, so that 90% of the country would have access to HMOs in 10 years. While this ambitious goal was not reached in the 1970s, by the late 1980s policymakers and businesses began to view greater use of managed care organizations such as HMOs and similar organizations as a key strategy for controlling health care costs. In the mid-1990s, the broader use of more restrictive forms of managed care (such as stringent gatekeeper, second medical opinion, and pre-approval requirements) sparked strong consumer resistance, which forced an industry retreat from some of those strategies. Networks of providers, known as preferred provider organizations (PPOs), grew rapidly in the late 1980s and early 1990s. PPOs, often owned by hospital systems and other providers, typically contract with insurers or self-insured firms and offer discounted fee-for-service (FFS) rates. PPO enrollees who receive care outside of the network typically must obtain plan approval or pay more. Thus, a PPO plans provided patients with more flexibility than staff-model HMOs, which generally did not cover care provided outside of the HMO. As various types of managed care plans such as HMOs and PPOs became widespread, more employers offered choices among competing health plans to let workers willing to pay higher premiums avoid restrictive plans. By the 1980s, health researchers and policymakers had begun to view the differences between Blue Cross/Blue Shield insurers, which were organized as non-profit organizations, and for-profit commercial health insurers as having narrowed. The Internal Revenue Service regulations had regarded Blue Cross organizations as tax exempt community service organizations since their inception in the 1930s. The Tax Reform Act of 1986 ( P.L. 99-514 ) removed Blue Cross/Blue Shield plans' tax exemption because Congress believed that "exempt charitable and social welfare organizations that engage in insurance activities are engaged in an activity whose nature and scope is inherently commercial rather than charitable," and that "the tax-exempt status of organizations engaged in insurance activities provided an unfair competitive advantage." The 1986 act retained some limited tax advantages to reflect Blue Cross/Blue Shield plans' provision of community-rated health insurance, especially in the individual and small-group markets. In the 1990s, many health insurers struggled with rising health care costs and sharper criticism of industry practices. Blue Cross/Blue Shield of West Virginia went bankrupt and several other Blue Cross/Blue Shield affiliates faced serious financial difficulties. In 1994, Blue Cross/Blue Shield guidelines were amended to let affiliates reorganize as for-profit insurers, leading the way for more than a dozen Blue Cross/Blue Shield affiliates to convert to for-profit status. Other Blue Cross/Blue Shield insurers bought other insurers, merged, or restructured in other ways. At the same time, private insurers acquired HMOs and other managed care organizations. Consolidations reduced both the number of commercial and Blue Cross/Blue Shield organizations, leading to the emergence of a small number of very large insurers with strong market positions across the country. For example, the commercial insurer Anthem acquired Blue Cross/Blue Shield affiliates located in Colorado, Connecticut, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, Ohio, Virginia, and Wisconsin. In 2004, Anthem bought WellPoint Inc., which had acquired Blue Cross/Blue Shield plans in California, Georgia, and New York, and now operates under the WellPoint name. Table 1 lists the top 30 health insurers ranked by total medical enrollment at the end of 2008. Commercial health plan enrollments for fully insured health plans in 2007 totaled 168.2 million enrollees. In the 1990s, proponents of "consumer-directed" health care proposed measures intended to make consumers more sensitive to medical care costs. In 1996, Congress enacted legislation to create Archer Medical Savings Accounts (MSAs), which were superseded in 2003 when Congress passed legislation to allow consumers with high-deductible health insurance plans to set up Health Savings Accounts (HSAs) that allow people to pay for out-of-pocket expenses through a tax-advantaged medical savings account. By early 2009, HSA-qualified high-deductible plans covered an estimated 8 million consumers. Individuals and families typically buy insurance to avoid risks by paying a known premium in order to receive benefits if an adverse event were to occur during the insurance policy's term. Most individuals are willing to pay an insurer to assume the bulk of financial risks associated with unpredictable health outcomes of uncertain severity. Health insurance is a method of pooling risks so that the financial burden of medical care is distributed among many people. Some insured people will become sick or injured and incur significant medical expenses. Most people, however, will remain relatively healthy, thus incurring little or no medical expenses. While it is difficult to predict who will incur high expenses, the average medical expense among a large group of people is more predictable. Insurance pools the medical expenses of the insured, who pay for the expenses through their premiums. In essence, money is shifted from those who remain healthy to those who become sick or injured. The health insurance market is tightly interrelated with other parts of the health care system. Consequently, many parties play a role in the health insurance market. Health insurers are intermediaries in the transaction of the provision of health care between patients and providers—health insurers are a third-party who reimburse providers on behalf of patients. Health insurers not only reimburse providers, but also typically have some control over the number and types of services covered and negotiate contracts with providers on the payments for health services—most health insurance plans are managed care plans (HMOs, PPOs) rather than indemnity or traditional health insurance plans that provide unlimited reimbursement for a fixed premium. Other parties involved in the health insurance market include employers (most private health insurance is obtained through an employer), federal, state and local governments, and health care providers. The federal government directly provides health insurance through Medicare. The Department of Veterans Affairs (VA) health system provides health care benefits, and military health systems provide both health insurance and health care benefits. States and the federal government share responsibility for Medicaid and private health insurance industry regulation. The health insurance market has many features that push it far from the economic benchmark of perfect competition. Perfectly competitive markets, according to economic theory, allocate goods and services efficiently if certain conditions are met. Markets allocate goods and services efficiently when the social cost of the resources (e.g., labor, buildings, machinery, raw materials) used to make the last unit sold equals the social benefit of consuming that unit. Conditions required to ensure the efficiency of competitive markets include the following: many buyers and sellers—each participant is small in relation to the market and cannot affect the price through its own actions; neither consumption nor production generates spillover benefits or costs; free entry and exit from the market—new firms can open up shop and existing firms can costlessly leave the market as conditions change; symmetric information—all market participants know the same things so that no one has an informational advantage over others; no transaction costs—the buyers and sellers incur no additional cost in making the transaction, and the complexity of decisions has no effect on choices; and firms maximize profits and consumers maximize well-being. Competitive markets may allocate goods inefficiently if those conditions are not met. Most of these conditions often fail to hold in the health insurance market. Departures from these conditions can hinder markets and lead to inefficient outcomes. Reforms are most likely to be effective, according to some economists, when they are tied to underlying structural causes of poor market performance. The lack of symmetric information plays a particularly important role in the health insurance market; most consumers rely heavily on the specialized knowledge and expertise of intermediaries such as insurers, employers, labor unions, physicians, and others. Quality of health care is hard to evaluate. Consequently, consumers typically set up relationships with various intermediaries in advance. This can provide benefits as well as limit consumer choice. Health insurers (public and private) make the bulk of health care payments. As Figure 1 shows, national health expenditures paid through federal, state and local, and private insurance as a proportion of gross domestic product (GDP) have increased since 1960, while the proportion paid by consumers out of pocket has slightly decreased. In other words, over the past 40 years consumer out-of-pocket spending in real (i.e., inflation-adjusted) terms has grown slightly more slowly than the U.S. economy, while health expenditures paid through other sources have grown faster than the U.S. economy. How insurers design health care networks influences how consumers use health care. Consumers typically choose a primary physician who selects tests and treatments and makes referrals to medical specialists. Employers negotiate with insurers on behalf of their workers, and labor unions negotiate with employers over health benefits on behalf of their members. Health insurers, in turn, negotiate contracts with providers and handle payments for individual services. A primary physician's admitting privileges typically determine where his patient goes for non-emergency hospital care. Patients must go through a physician to obtain most medical tests and pharmaceuticals. Health care consumers typically rely on these intermediaries instead of interacting directly with other parts of the health care system. This heavy reliance on intermediaries is a key characteristic of the current health care market. Consumers benefit from the specialized expertise of intermediaries, such as employers, insurers, and physicians, as they navigate the health care system. Consumers also may benefit from the bargaining power of their employer or health insurer, in much the same way as they may benefit from the market power of a very large retailer (such as Walmart or Costco) when they buy ordinary consumer goods. Intermediaries may also help patients navigate the fragmented and complex structure of the U.S. health care system. Patients may depend on physicians and health insurers to intermediate with a highly diverse array of health care providers, such as imaging centers, specialized surgery centers, public health clinics, hospice organizations, home health care providers, nursing homes, as well as other health care providers. Using intermediaries such as health insurers protects consumers from financial risks linked to serious medical problems, but also insulates consumers from information about costs and prices for specific health care goods and services. When a third-party, such as a private insurer or a government, pays for the bulk of health care costs, consumers may demand more care and providers may wish to supply more care. Links among intermediaries and providers can also limit consumers' choices. For example, a person's job may limit her health insurance choices, and another person's choice of physician may limit choices among hospitals. Some families and individuals lacking these intermediaries must navigate the health insurance and health care system themselves, which may be a serious challenge. People without health insurance coverage are not only vulnerable to the financial risks accompanying serious medical problems, but may also pay higher prices for care because they lack the bargaining leverage of insurers. Hospitals and physicians have charged individuals who pay their own bills far more than they charge insurance companies and public health programs. Generous tax advantages for employer-sponsored plans do not help those who buy health insurance in the individual market. Those without a regular primary care physician may struggle to find an appropriate care setting. Finally, how intermediaries interact has important consequences in the health care market. For instance, employers and health insurers, which both intermediate on behalf of individuals, interact through negotiations over insurance benefits packages. Politicians can also act as intermediaries for their constituents by helping determine reimbursement rates for public insurance programs and by changing the regulatory environment facing health insurers. The interaction of intermediaries in the health care market can improve or impede efficiency, cost control, and quality of service. Demand for health insurance, according to economic theory, depends on a person's attitudes towards risk, the variability of medical expenses, the effectiveness of health care covered by insurance, income, and the level of premiums. In a simplified case, an insurance policy is characterized by the premiums charged, medical services covered, and cost sharing (deductibles, coinsurance, and copayments). The insurance premium equals the expected benefits the insurance company will pay out, which equals the average price of medical care multiplied by the average quantity of medical care provided, plus a loading fee to cover administrative expenses and profits. The loading fee acts as a "price" of insurance: other things equal, higher loading fees reduce demand for insurance coverage. The average price of medical care may depend on the complexity of services, the relative bargaining power of providers and insurers, and the cost structure of the providers. The average quantity depends on consumers' demand for health care, providers' willingness to supply care at prevailing prices, and managed care controls of the insurer. The size of the load factor depends on the insurers' administrative costs, costs of capital, and the ability of insurers to pass along higher premiums to employers and consumers. In this simple example, providers gain when medical care prices are higher and when quantities are higher, so long as prices exceed their unit costs and so long as prices do not reduce demand too much. Consumers within a given plan benefit when quantities are higher (so long as the benefits of health care exceed out-of-pocket costs and non-monetary costs such as pain and inconvenience) and when prices are lower, so long as providers are willing to supply care. Higher cost-sharing rates and stricter managed care requirements may lead to higher out-of-pocket costs, but lower premiums. Insurers gain when the load factor and cost-sharing rates rise, so long as these do not reduce demand for health insurance too much. If competitive pressure is high, so that employers and consumers can resist higher premiums, insurers will face pressure to lower load factor, cost-sharing rates, prices, and quantities. Factors affecting competition in the health care market are discussed below. Employer-sponsored health insurance covers the majority of the nonelderly U.S. population (see Table 2 ). Individuals, in general, pay only a fraction of the total premiums of employer-sponsored plans, while employers pay the balance. Research has found, however, that employers generally pass their share of the financial burden onto the employees through reduced compensation. When market participants do not share the same information, so that some have information advantages over others, markets may fail to generate efficient outcomes. Insurance analysts have long focused on two basic concepts of information asymmetry: adverse selection , which occurs when some have risk characteristics hidden from others, and moral hazard , which occurs when insurance status alters behavior. Information asymmetries between a consumer and an intermediary (principal-agent problems) can also create inefficiencies. These concepts are discussed below. Other, more complex information problems affect insurance markets as well. Differences in what buyers of insurance and insurers know is a central problem in the health insurance market. Buyers of insurance may know more about individual health risk factors than the insurance company. Therefore, an insurer may be unable to distinguish a less healthy applicant, who derives a greater benefit from more generous insurance plans, from healthier applicants. Consequently, the insurance company could offer an insurance plan that would break even if it covered a representative sample of buyers in the market, but would bankrupt the insurer if it attracted a subset of the population with very high health care needs. This is known as adverse selection, a problem that could be especially severe in the individually purchased health insurance market. Adverse selection can force insurers to charge very high premiums, which then can drive healthier buyers out of the voluntary insurance market. Three decades of research suggest that adverse selection is quantitatively large. Firms typically pay a large portion of the costs of employer-sponsored health insurance plans, which economic research suggests is passed along to employees via lower wages and salaries. Substantial tax advantages and employer cost-sharing of premiums supports high health plan participation, which allows the insurer to attract a group of individuals who are healthy enough to work and who participate in the plan for reasons other than buying health insurance. This reduces the extent of adverse selection, although it also makes employees less sensitive to health insurance costs. Firms' ability to self-insure, however, may raise other adverse selection issues. Group plans typically charge the same premiums to individuals with differing characteristics (e.g., sex, age, and other health risk factors). This contrasts with risk-rated premiums where younger, healthier individuals are charged lower rates due to their lower expected claims. When premiums are not adjusted for individual characteristics and when consumers can opt in or out of insurance plans, risk pools can splinter, leading to an "adverse selection death spiral." If the proportion of older, sicker individuals increases in the insurance pool, the rates charged will increase in response to the higher costs (claims). Some of the younger, healthier individuals will respond by dropping coverage (either dropping health coverage altogether or moving to a less expensive plan). This could cause costs to rise further, leading to higher rates and, consequently, more younger, healthier individuals dropping their coverage in the plan. In the extreme, only older, sicker individuals will be left in the plan. Studies have documented that an adverse selection death spiral can occur when an employer offers a choice of health insurance plans. Other researchers find that a common premium need not result in a death spiral. The splintering of health insurance pools into narrower risk categories in the small group and individual insurance markets has raised congressional concern about the availability and affordability of coverage for individuals who lack employer-sponsored health insurance coverage and who are ineligible for public insurance programs. Individual mandates that would require more people to obtain health insurance coverage, according to proponents, could mitigate some adverse selection risks. The insurance benefit of a policy is reduced if the insurance carrier can cancel it when adverse events occur or are anticipated. Similarly, if insurers can change conditions and premiums for a policy renewal once an adverse event occurs, which would make renewal unaffordable or unattractive for the enrollee, then insurance plans become a less effective means of spreading risks. Conversely, insurers suffer losses due to adverse selection if uninsured individuals can enroll once they anticipate an adverse event. For this reason, some group health insurance plans have limited open enrollment seasons for large group insurance and impose preexisting conditions limits on individual or small-group insurance. In the individual health insurance market, the lack of guaranteed renewal at average-risk rates can limit effective risk pooling. When individuals can switch insurers, insurers may lack sufficient incentives to make long-term investments in an individuals' health. For example, an insurer may hesitate to cover wellness benefits that lower health costs in future years if enrollees can switch plans in coming months. Moral hazard, which occurs when insurance status changes behavior, is another problem in the health insurance market. Moral hazard occurs if an insured individual consumes more medical services than she would have had she been uninsured. For example, having health insurance could induce someone to seek medical care for minor conditions (e.g., a sore throat), choose a high-amenity health care setting (e.g., a more hotel-like hospital), or neglect his health (e.g., by eating fatty foods). Consequently, moral hazard leads the insurer to pay providers more for an insured person's medical services than that person would have paid out of his own pocket had he not been insured. Of course, non-monetary costs, such as the pain and inconvenience of obtaining unnecessary medical care, may help limit moral hazard among patients. Insurers typically react to moral hazard by raising premiums to cover the costs of additional services and by limiting care, either directly (e.g., through prior approval requirements) or through cost-sharing measures such as copayments and deductibles. Research has shown that the extent of cost-sharing does have a significant impact on health care spending. The lack of transparency in the pricing of medical services contributes to this problem—most people do not know the cost of medical services (both what the provider normally charges and what the insurance company reimburses the provider). A patient (here, a principal ), as noted above, typically relies on a physician (an agent ) for care and advice. The physician, or other intermediary, might face incentives to act to further their own interests, rather than those of the patient, by providing a higher quantity or lower quality of care than would be appropriate for a patient. When someone uses an intermediary (agent) with special knowledge or expertise, the principal often has trouble evaluating or monitoring the quality or appropriateness of the agent's work. When the aims of the principal and agent do not fully coincide, payment and incentive systems may mitigate conflicts of interests. Professional standards and professional organizations may also help mitigate those conflicts. Fixed fees and a system of professional standards and licensing may be seen as one response to the principal-agent problem between patients and physicians. While that arrangement may avoid some problems, it may not solve others. In fee-for-service (FFS) arrangements, physicians and other providers may face financial incentives to provide more care than would best suit the patient's interests. When insurance pays most of the costs associated with health care, providers have little financial incentive to control costs and may overprovide health care services. One study randomly selected doctors into a salary group and a fee-for-service group during a nine-month study. The results show that doctors in the fee-for-service group scheduled more office visits than salaried doctors and almost all of the difference was due to the fee-for-service doctors seeing well patients rather than sick patients. Defensive medicine, in which physicians or other providers order tests that may reduce the probability of medical malpractice litigation but which provide limited therapeutic benefits to the patient, presents a similar problem. Responses to adverse selection, moral hazard, and principal-agent problems affect the structure of the health financing system. Health insurers, as noted above, use coinsurance and pre-approval requirements to limit potential moral hazard among patients. Health insurers concerned about moral hazard and principal-agent problems among providers design incentive systems to limit overprovision of care. For example, the rapid transition to managed care in the 1990s might be seen as an attempt to control costs due to moral hazard. In addition, research and development (R&D) decisions made by medical technology and pharmaceutical firms may be indirectly guided by how health insurance coverage affects choices of providers and patients. Reforms that change the health financing system without taking into account potential moral hazards that previous structures and practices were designed to mitigate could encounter unanticipated problems. How price affects the demand for health insurance is an important piece of information given the extent of current tax subsidies for health insurance, proposals to change this tax treatment, and proposals to further subsidize the purchase of health insurance. Consumers' price sensitivity is usually measured in terms of price elasticity. A price elasticity is the percentage change in market demand for a good resulting from a 1% increase in its price. Many older studies (published before 1995) estimated price elasticities for health insurance that are quite large, ranging from -1.0 to -2.0; that is, a 1% increase in price would lead to a 1% to 2% reduction in the number of people buying health insurance. This suggests that a small price reduction could lead to moderately large increases in health insurance coverage. With improved data and empirical methods, more recent studies find elasticities in the range of 0.0 to -0.1. This research, however, applies to workers who are offered group health insurance; workers who are not offered employer-sponsored insurance (about three-quarters of the uninsured) might react differently to price changes. One study examining the group of uninsured not offered employer-sponsored insurance estimates an elasticity in the range of -0.3 to -0.4. Lastly, a recent study using time-series data estimates a price elasticity in the range of -0.2 to -0.3. Overall, the recent studies estimate that a 1% increase in price would lead to a 0% to 0.4% reduction in participation in health insurance. These recent results suggest that subsidies, by themselves, would have to be quite large to increase health insurance coverage. Moreover, cost-effective targeting health insurance subsidies to this group (employees not offered health insurance) is difficult, which could increase the public costs of such subsidy programs. Health insurance is subsidized through the tax system in several ways. First, workers pay no income or payroll tax on the portion of the health insurance premium paid by the employer on behalf of covered workers. The Joint Committee on Taxation (JCT) estimates the federal government forgoes about $230 billion annually in tax revenue because of this exclusion. Second, the self-employed may deduct the full amount paid for health insurance and long-term care insurance, which JCT estimated led to a revenue loss of $4.4 billion in 2008. Third, some taxpayers may deduct their own contributions to health savings accounts, which leads to an estimated revenue loss of $500 million in 2008. The basic tasks of insurers are to bear risks, which are pooled to reduce overall risks, and to administer plans, by paying claims, providing customer support, and negotiating with providers. While the medical expenses of an insured group may be somewhat predictable, a group's expenses could be extraordinarily high or low. This variability, however, declines as the number of people in the insured pool increases. Insurance risk is inversely related to group size. In other words, according to the law of large numbers, average expenses for larger and larger groups will become less and less variable―and thus less risky. Some experts believe that a financially sound health insurer would need a minimum insurance pool size of about 25,000 policies, which would cover about 50,000 individuals, along with appropriate surplus or stabilization funds. Even very large employer pools, such as the Federal Employee Health Benefit (FEHP) program, can experience year-to-year random fluctuations in expenses. Many individual and small-group insurance pools, by contrast, are much smaller. Higher expense variability and adverse selection risks may explain, in part, why premiums in the individual and small-group market are high relative to large-group premiums. The administrative tasks of insurance companies include underwriting, processing claims, making payments to providers, and negotiating agreements with providers. The main components of this production process are people, computers, and buildings. These costs are covered by the loading fees, which are included in premiums charged by the insurance company. Insurance companies also earn a return on investments. Premiums are usually collected at the beginning of the policy period, but claims are paid throughout the policy period or afterwards. Because of this timing difference, the insurance companies hold and invest premiums until needed to pay claims. The lag between premium collection and claims payments, however, may be shorter than for some other types of insurance. The predominant type of health insurance plan has changed dramatically over the past 25 years. Over 90% of the privately insured were covered by an indemnity or traditional "unmanaged" health insurance plan in 1980; now the share is less than 10%. Today, most people covered by private insurance are covered by some kind of managed care plan ranging from a managed indemnity plan (e.g., PPOs, where the insurers negotiate fees with providers) to a staff HMO (the insurer and the provider are the same, and patients see physicians who are on salary). With managed care, the health insurers and the providers are vertically integrated to some extent. Most major health insurers offer administrative service only (ASO) support to self-insured plans, which in some ways resembles a specialized type of outsourcing. The characteristics of the ASO market differ in some important ways from more traditional health plans that combine risk-bearing and administration, which is discussed in more detail below. Health insurers are a diverse group of organizations. Health insurers may be commercial insurance firms, for-profit or non-for-profit Blue Cross/Blue Shield plans, or HMO-type organizations such as Kaiser Permanente. Established health insurance companies can be either non-profit organizations or for-profit companies. These non-profit organizations have limited tax advantages and often face less state regulation (depending on the state) than their for-profit rivals. The "Blues" (Blue Cross/Blue Shield) have been the most prominent example of non-profit health insurers, although Blue Cross/Blue Shield organizations have been allowed to convert to for-profit status since 1994. These organizations were originally organized on a state or substate level, which may have prevented them from taking advantage of possible economies of scale that larger multi-state insurers can capture. Many Blue Cross/Blue Shield plans are now part of large national insurers, such as WellPoint. Employers that self-insure take on some or all of the functions of an insurance company, such as bearing risk and paying the claims of its employees. Self-insuring employers mostly contract with an established insurance company for administrative services. The Employee Retirement and Income Security Act of 1974 (ERISA, P.L. 93-406 ) provides some advantages to large multi-state firms that self-insure by preempting state regulation and establishing federal standards, which ensures that the firm's employee benefits are subject to the same benefit law across all states. ERISA, which exempts firms from certain benefit mandates and premium taxes, also benefits firms that operate in a single state. For-profit insurers play an increasingly prominent role in the health insurance market. Many offer a wide variety of plans tailored for different firms or market segments. These insurers have an obligation to their shareholders to maximize profits. Many operate in several states or nationwide and often offer other lines of insurance, such as life or disability coverage. Most private health insurance is offered through employers. With employer-sponsored plans, employers may simply offer health benefit plans through an insurance company for a negotiated price and bear no insurance risk. At the other extreme, the employer may self-insure and handle the plan itself, thus bearing all of the insurance risk and the administrative burden of the plan. Often the extent of employer involvement depends on the number of employees. Research has found that 80% of large employers (500 or more employees) choose to self-insure rather than purchase coverage from a health insurer. Table 3 presents data on characteristics of establishments offering health insurance that have chosen to self-insure at least one health plan. Additionally, choice of insurance options also differs by firm size. Among small firms (fewer than 200 employees) offering health benefits, 86% offer only one plan to their employees. Among very large firms (5,000 or more employees), 72% offer two or more plan choices to their employees. Research evidence suggests that plan choice is associated with higher levels of employer-sponsored health coverage and health care satisfaction. Health insurance premiums have increased dramatically over the past nine years. Between 1999 and 2008, the average worker contribution for employer-sponsored health insurance increased by 80% in real (inflation-adjusted) terms while the employer's contribution increased by 83%. Nonetheless, evidence suggests that employer's health insurance decisions are fairly unresponsive to price with estimated elasticities in the range of -0.1 to -0.25. As noted above, employer cost sharing, which covers about 75% of premiums on average, along with the large tax exemption for employer-provided health insurance, helps insulate employees from the price of health insurance. Health insurance is primarily regulated at the state level, although some federal standards apply. Regulation seeks to promote a variety of social goals including assuring the financial solvency of insurance companies, protecting consumers from insurance fraud, and ensuring promised benefits are paid. While all states require insurers to be solvent and pay claims, state regulations pertaining to health insurance access, minimum acceptable ratings, and covered benefits vary. Large employers that self-insure are exempt from many state regulations under ERISA. State laws still apply to these firms for issues involving the "business of insurance." Longstanding debates and litigation continue, however, over the scope of the ERISA preemption. Federal standards were generally set in two pieces of legislation. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA, P.L. 99-272 ) gives workers who lost their jobs a right to pay for continued job-based coverage of their dependents and themselves under certain circumstances. The Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191 ) improved access to health insurance by restricting exclusions for pre-existing conditions and prohibiting discrimination against certain people with medical needs and limited the use of preexisting condition restrictions. HIPAA, however, does not guarantee that consumers can renew their policies at rates that reflect pool characteristics, which some contend limits the act's effectiveness. Moreover, while HIPAA can help ensure continuity and portability of insurance coverage when a person changes from employer-provided group insurance to individual coverage, HIPAA does not cover certain other transitions. The health insurance market, according to many researchers, is highly concentrated in much of the United States. If large health insurers in highly concentrated markets exercised market power when selling insurance, prices would be distorted and an inefficiently low level of health insurance coverage would be provided. In simple economic models, firms with market power in product markets raise prices above and reduce output below competitive levels. Firms that exercise market power when buying from suppliers (i.e., hiring labor and buying inputs) can lower payments and reduce output below competitive levels. Firms' profitability depends on market interactions with both consumers and suppliers. For instance, a firm with a market position relative to its suppliers may be forced to pass along savings by strong competitive forces in the consumer market. A buyer that exercises market power to lower supplier prices below competitive levels, however, reduces economic efficiency, whether or not gains are retained by the firm or passed onto consumers. Measures of market concentration are intended to reflect the potential for firms within a specific market to exercise market power by raising prices. Market concentration is typically measured by analyzing market shares of firms that supply a specific good or service within a particular geographic area. Factors other than market share may also affect a firm's ability to exercise market power. A firm with a strong brand, obtained through successful advertising and marketing or through a reputation for higher quality and reliability, may possess more market power than indicated by concentration measures based on market share data. Potential entry by new firms, or by firms in related markets, may constrain firms from exerting market power. Two common measures are N-firm concentration ratios and the Hirschman-Herfindahl index (HHI), which are based on market shares of firms that sell products competing within a geographic area. An N-firm concentration ratio (CR) is the simple sum of the market shares of the top N firms. For example, a CR-3 is just the total market share of the top three firms in a market. The Hirschman-Herfindahl index is calculated by summing the squares of the percentage market share of all firms in the market. For instance, the HHI for an market with two firms with equal market shares would be 50 2 +50 2 = 5000. A market with 100 firms with equal market shares would have a HHI of 100∙1 2 = 100. Thus, a higher HHI indicates a greater degree of market concentration. The HHI measure has the advantage of reflecting the market shares of all firms in the market and is commonly used in antitrust and merger analysis. The U.S. Department of Justice (DOJ) first incorporated the HHI into its horizontal merger guidelines in 1982. The guidelines included detailed requirements for defining product markets and geographic market areas. The merger guidelines have been revised several times by the Department of Justice and Federal Trade Commission since 1982, most recently in 1997. The merger guidelines were intended to provide a clearer indication of which corporate mergers or acquisitions the U.S. Department of Justice or Federal Trade Commission would be likely to oppose by specifying HHI thresholds. Markets with an HHI below 1,000 were deemed "unconcentrated," those with an HHI between 1,000 and 1,800 were deemed "moderately concentrated," and those with an HHI above 1,800 were deemed "highly concentrated." The guidelines stated that mergers in unconcentrated or moderately concentrated markets were unlikely to face federal opposition unless the merger significantly raised the HHI. The 1982 merger guidelines reflected new research that suggested that economies of scale and economies of scope (that is, efficiencies made possible by combining related lines of business within one firm) could play important roles in shaping market structure and in serving consumers. Moreover, some industrial organization researchers argued that the success of leading firms, who might possess superior management or better technologies, could lead to high levels of market concentration, but still benefit consumers. For these reasons, industrial organization economists note that an industry concentrated due to forces that promoted economic efficiency (e.g., a firm with a superior technology) could easily resemble an industry that was concentrated because of anticompetitive consolidation strategies. The 1982 merger guidelines and subsequent updates reflected those views and allowed a wider role for "efficiency defenses" in antitrust policy. Concentration measures are sensitive to how a market is defined in terms of product lines and geographic area. If a market is defined to include a broader variety of products, more firms will be counted as competing in the market, which tends to lower measured market concentration. Similarly, if the geographic area of a market is large, more firms will be included, which will tend to produce lower measures of market concentration. For example, Coca Cola, responding to a Federal Trade Commission (FTC) antitrust challenge to carbonated soft drink producers, argued that the relevant market should include all beverages, including coffee, tea, and milk, and the geographic scope of the market extended throughout the United States. Market concentration computed using that market definition was sharply lower compared with measures that defined the relevant market as carbonated soft drinks within local metropolitan areas. Thus, defining markets by product category and by geographic area so that they reflect a reasonable set of alternatives available to consumers is crucial to obtaining a valid measure of market concentration. Health insurance markets in most parts of the country, according to data published by the American Medical Association (AMA) and others, are highly concentrated. In 2007, according to the AMA, 295 out of 314 metropolitan statistical areas (MSAs) had HHIs over 1800 for the combined HMO and PPO market, a range that the DOJ/FTC merger guidelines deem "highly concentrated" (that is, if the AMA market and product definitions are accepted). The percentages for the HMO and PPO markets considered separately were higher. The Government Accountability Office (GAO) found that in 2004, markets for private small group health insurance coverage were highly concentrated in most states. The AMA market share statistics underlying the concentration measures are based on commercial health insurance data on enrollments in managed care organizations. Those enrolled in public insurance plans such as Medicare and the State Children's Health Insurance Plan are excluded. In addition, some enrolled in self-insured employer plans are also excluded. Because some might consider that HMO plans and PPO type plans belong to distinct market segments, the AMA report calculates concentration statistics for the HMO market, the PPO market, and the combined HMO and PPO market. If most consumers view HMO and PPO plans as substitutes competing in the same market segment, then the market will be more competitive than if the market for each type of plan were considered separately. Differences between HMO and PPO plans have blurred over the last two decades to the point that a significant minority of consumers do not know which type of plan they have. This suggests that HMO and PPO plans no longer occupy distinct market segments. Counting employees in fully or partially self-insured employer plans as enrollees of health insurers who administer such plans, however, could arguably overstate the effective market shares of those insurers if the market for administrative services to self-insured firms was more competitive than the standard commercial insurance market. Industry analysts note that many large employers have responded to rising premiums by shifting to self-insured plans. The bulk of administrative service only (ASO) contracts with self-insured firms are held by large health insurers. Some evidence, discussed below, suggests that profit margins on ASO contracts are lower than on standard commercial health plans. Of course, firms with ASO contracts bear risks and some administrative costs that would be borne by insurance companies in a standard plan. Market share data collected on the consumer side of the health insurance market might not reflect important factors that affect the potential for health insurers to exert market power on the supply side of the market. Many health care providers and health insurers are deeply involved in public health insurance programs such as Medicare Advantage (MA), Medicare drug benefit plans, the State Childrens' Health Insurance Program (CHIP; formerly known as SCHIP), and Medicaid. Most hospitals derive a large share of their revenues from Medicare Part A. A few health care providers derive significant shares of their revenue from self-paying individuals. To the extent that providers and insurers can enter or leave specific market segments, concentration measures based on consumer shares in the private health insurance market may underestimate the competitiveness of the supply side. Market concentration, as noted above, might not translate into the ability to use market power to raise prices or lower output or quality for several reasons. First, concentration measures may be computed in ways that overlook the range of alternatives available to consumers and employers. Second, potential entrants may curb incumbent firms' ability to raise prices. For instance, other types of insurers with extensive contacts with firms could potentially enter the health insurance business, and some firms may choose to offer health insurance benefits through self-insured plans. Market concentration could be overestimated in areas where employer self-insured plans not included in AMA data have significant enrollments. Third, firms in concentrated industries might choose not to exercise what market power they may possess, perhaps because their governance and organizational structure is designed to pursue other goals. For instance, some contend that non-profit health insurers act differently than for-profit insurers and may choose not to exercise their market power. On the other hand, others have expressed skepticism that non-profit and for-profit health care providers and insurers act in substantially different ways. Whether market concentration allows firms to enhance profitability by exercising market power has fueled controversy among economists and industry analysts. Many economists have pointed to strong correlations between market concentration levels and elevated profit levels across industries. Those correlations led some economists to argue that market concentration enables firms to exercise market power through enhanced pricing power. While prices elevated above competitive levels increase firms' profitability, they reduce economic efficiency by reducing output levels below optimal levels. Others point out that other factors, such as successful innovation, could both promote economic efficiency and market concentration. Several recent studies have examined the effects of market concentration in the health insurance market. One study found evidence that private health insurers charge higher premiums to more profitable firms, indicating that health insurers have exercised market power. Furthermore, this effect was estimated to be stronger where health insurance markets were more concentrated. A related study estimated that the increase in health insurance market concentration between 1998 and 2006 led to a 2% average increase in inflation-adjusted premiums over that period, after controlling for many employee and employer characteristics. Moreover, the study found that increased market concentration was linked to lower job and earnings growth for physicians, but higher job and earnings growth for nurses. That finding supports claims of some provider groups that assert many health insurers exert their market power to lower prices paid to providers below efficient levels. The exertion of insurer market power, however, could affect various provider types in different ways. Another recent study found that hospitals in areas where health insurance markets were more concentrated provided more inpatient days of service, which the authors contend shows that concentration among health insurers enhances provider efficiency. One health economist has contended that some health insurers with a dominant market position use high physician reimbursement rates to deter entry by potential rivals. In October 2010, the U.S. Department of Justice and the State of Michigan accused Blue Cross/Blue Shield of Michigan of using "most-favored-nation" (MFN) or most-favored pricing clauses to prevent hospitals and other providers from offering competitive prices to other insurers. Internal emails, according to some, suggest that Blue Cross/Blue Shield of Michigan and some providers coordinated ways to exclude insurgent providers that offered lower cost services. Blue Cross/Blue Shield of Michigan, moving to dismiss charges, asserts that MFN clauses do not violate antitrust laws. Many economists who studied the effects of industrial structure in the 1960s and 1970s viewed market structure as a primary determinant of firm behavior, including pricing and output policies. Firms' choices, in this view, in turn determined the performance of the industry as a whole, as reflected in market prices and aggregate output, the rate of technical progress, and the success in meeting consumer needs while minimizing production costs. In this view, market concentration led to higher output prices and profits, as well as lower output levels and product quality. More recently, economists who study the structure of industries and markets emphasize deeper causes of market concentration, while allowing a role for historical factors in some types of industries. More modern theories of market competition have focused on cost structures such as economies of scale and the intensity of competition as influencing market structures. For example, industries with strong economies of scale, such as those that manage networks, will tend to be highly concentrated because larger firms can reduce costs more than smaller firms. In other industries in which branding strategies can be effective, market structure may reflect leading firms' past strategic choices. Other economists note that regulation and legislative barriers to entry, which might also reflect policy responses structural factors such as economies of scale, can also promote highly concentrated market structures. Factors that may affect market concentration are discussed in more detail in the following section. The causes of market concentration in the health insurance market are complex, and reflect historical elements as well as forces related to the special characteristics of health insurance and health care. Historically, the original structure of Blue Cross plans was designed to avoid competition by requiring exclusive territories and barring plans linked to specific hospitals. Those requirements may have been aimed at supporting community rating policies and broadly based risk pools, which may have benefited many consumers. Regulators and policymakers at times have also made decisions that were intended to avoid splintering of risk pools, which may have tended to encourage higher levels of market concentration. As commercial insurers and managed care strategies became more prominent, market forces along with merger and acquisition strategies have helped reshape the health insurance market. Some insurers may have engineered mergers and acquisitions to enhance their market power; the success of that strategy depends on underlying factors that determine the structure of the market. The nature of employment-based health benefits and the market structure of health care providers may strongly affect the structure of the health insurance market. In addition, state and federal regulations and tax policy have helped shape the health insurance market. Moreover, the federal government's involvement in health markets through Medicare, Medicaid, and other programs has profoundly affected U.S. health care markets, and may have important indirect effects on the private health insurance market. Federal antitrust policy has affected the market structure of many industries, but at times federal enforcement agencies have had trouble persuading courts to apply antitrust remedies to health care and health insurance markets. The following sections discuss possible causes of market concentration. Determining which factors have been most important in promoting market concentration among health insurance markets may be difficult, but such analysis is critical to the assessment of the likely consequences of proposed reforms of the health insurance industry. During the 1980s and 1990s, as noted above, the spread of managed care transformed the American health care system. Rising health care costs put pressure on insurers to find ways to control the growth of premiums by limiting utilization or by holding down medical costs. Many traditional insurers, according to some analysts, had difficulty implementing managed care techniques successfully. Not all insurers were able to balance the demands of managing care, maintaining consumer satisfaction, and responding to changing market conditions. This led some insurers to acquire or merge with existing health maintenance organizations or similar types of organizations as a way to gain the management capability to run managed care health plans. While the spread of managed care might help explain increases in market concentration in the 1990s, it is less clear that it can explain changes in market structure once managed care strategies become more widespread and standardized. High levels of market concentration among health insurers may be a response to the market power of hospitals and other health care providers. Both hospitals and insurers may want to acquire "countervailing power" to enhance their bargaining strength. In many geographic areas, market concentration among hospitals has steadily increased over the past few decades. Many hospitals banded together to create exclusive networks of providers, in part to increase in part bargaining power in negotiations with insurers. Some hospitals viewed the hospital chain Columbia/HCA, which had expanded its networks rapidly in the early 1990s and had used aggressive business practices, both as a model and a potential competitive threat to independent hospitals. Moreover, the introduction of Medicare's inpatient prospective payment system (IPPS) and the adoption of similar systems by private insurers in the early 1990s reduced average hospital lengths of stays and occupancy rates. Some hospitals viewed mergers as an easier way to eliminate excess capacity compared with other strategies. Some physicians also formed groups, which may have been, in part, motivated by the desire to enhance bargaining power in negotiations with payors. Increasing market concentration or strategic coordination among providers and insurers may create distortions that can lead to the misallocation of resources and suboptimal health access or availability. While both insurers or providers may employ market strategies to build up countervailing power in response to increasing concentration on the opposite side of the market, many economists believe those measures weaken market competition and are likely to reduce consumer well-being and possibly reduce the availability of certain services. Economies of scale play an important role in many industries. If larger firms can produce more cheaply than smaller rivals, then markets will be composed of a smaller number of large firms. In health insurance, economies of scale could be captured in claims processing, building compliance regimes, designing software systems, or negotiating provider networks. While larger employer groups are cheaper to administer than smaller ones, there is little relation between the size of major insurers and administrative costs, according to some industry analysts. This suggests that the largest health insurers do not enjoy substantial scale economies unavailable to their smaller rivals and that economies of scale in administrative functions plays little role in explaining market concentration among health insurers. As noted above, some experts believe that a financially sound insurer would need a risk pool with about 25,000 policies covering about 50,000 people. Actuarial gains due to risk sharing across wider coverage pools may taper off above that point. If indeed the health insurance industry lacks of economies of scale above a certain minimum point, then a public option might not achieve administrative cost efficiencies by simply being larger. It also suggests that efficiency losses would be small if incumbent firms were forced to contract the scale of their operations. Some economists and financial analysts believe that in some industries that lack scale economies (above some minimal level), firms may seek to grow, not because they can become more efficient or more profitable, but because senior managers may obtain more benefits by leading a larger firm. According to this view, weak corporate governance, that prevents shareholders from focusing management attention on profits rather than perquisites, may motivate corporate growth. The ability of firms to use marketing strategies to heighten customer loyalty can affect market structure and market concentration if the creation of strong brand identities hinders entry of potential rivals or changes the nature of competition with existing rivals. For instance, the Blue Cross emblem has proved a potent marketing tool in the health insurance market. Marketing plays a larger role in the health insurance market and may complicate or retard the entry of new firms. Advertising and other marketing strategies can also provide potential consumers with information to help them choose among insurers. Where employees have had expanded choices among health plans, insurers have stepped up marketing efforts. Health insurers spend considerable sums on marketing. According to one estimate, commercial health plans spent 4.6% of total premium revenues on marketing in 2007. By contrast, marketing expenses for employers' self-insured plans administered by commercial insurers (administration services only [ASO] plans) were only 1.0% of total premium income in 2007. Marketing directed towards employers' human resources departments, who help select plans or design self-insured plans, may be more focused and therefore cheaper than marketing aimed at individuals. The nature of competition in the health insurance market may also affect market structure. Because most nonelderly Americans obtain health insurance coverage through their employers, insurers must compete for the business of both employers and employees. Some aspects of health insurance promote competition. Many, but not all, employers allow workers to choose among different insurers. Those buying coverage on the individual market can use websites such as eHealthInsurance.com to compare plans. Consumers generally must decide which insurer to choose well in advance of the need to use health care. Many insurers provide detailed information about policies and procedures. On the other hand, even detailed plan brochures may omit important details, and comparing competing plans can be difficult even for sophisticated health care consumers. Other aspects of health insurance can reduce the sharpness of competition. Employers are typically reluctant to switch insurers, which could require a major overhaul of human resources department procedures and a reorientation of employees. Health insurance policies are often difficult to compare, and information on some important aspects of policies, such as promptness and fairness of claim handling, prompt and convenient access to plan representatives, and willingness to approve certain medical or surgical procedures, are often unavailable. Some researchers have found underwriting cycles in some health insurance markets, suggesting that at times health insurers have engaged in aggressive price competition. Underwriting cycles are said to occur when insurers compete to gain market share by offering attractive premiums and then when investment or premium income threatens to fall short of claim costs, raise premiums. Some health insurance executives in 2004 said that better cost monitoring techniques and market consolidation would let health insurers link medical cost increases and premium growth more closely, making sharp price competition and large swings in premiums less likely in the future. Many have expressed concern about the rapid growth of health insurance premiums during the past half century. Rising premiums are linked to the growth of medical and other health care costs, which now make up about four-fifths of health insurance premium income. Many economists believe the extent of health insurance coverage has encouraged providers to increase the quantity of health care services, and over the longer term has led to higher prices for health care. The portion of premiums not paid out as claims, often called the loading costs, includes administrative costs, taxes, and profits. Administrative costs include employee salaries, business overhead, marketing expenses, and other expenditures necessary to running an insurance firm. The rest of this section discusses trends in health insurance companies' profitability. Evaluating the profitability of health insurers is complicated because insurers earn part of their profits from the difference between total premiums and total claims paid, and another part of their profits from the "float," that is, the lag between the payment of premiums and the payment of claims. Because claims lag premium payments, insurance companies can invest funds gathered from premiums until the claims are paid, thus allowing the insurer to collect investment income. This lag is generally shorter for health insurers than for many other lines of insurance. Some insurers suffered sharp declines in investment income in 2007 and 2008 due to lower interest rates on bonds and other fixed income securities as well as to steep declines in asset values in the wake of the economic recession. Profitability data for those years may therefore be atypical. Insurers typically participate in multiple segments of the health insurance market (large group, small group, individual, public insurance programs), but each segment differs in important ways. While most policies are issued through employer-provided plans, some insurers obtain a significant portion of their earnings from public programs such as Medicare Advantage, the Medicare Part D prescription drug program, and the State Children's Health Insurance Program (CHIP). Medicare Advantage (MA) may play a particularly important role in insurers' profitability. The Medicare Payment Advisory Commission (MedPAC) has calculated that MA plan costs are 18% higher than traditional fee-for-service (FFS) Medicare plan costs, in part because MA enrollees tend to be healthier than FFS enrollees. Generous reimbursement policies, in turn, have helped encourage insurers to grow MA enrollments. Some research has found that high market concentration in health insurance markets tends to accelerate increases in premiums on the consumer side, although one study found that HMO merger did not tend to higher premium growth rates. Another study failed to find evidence that higher HMO market concentration reduced physician reimbursement rates, although a different study found an association between HMO concentration rates and lower hospital reimbursement rates. Some economists believe that more empirical research is needed to explore links between health insurance market concentration and economic outcomes. Insurance companies typically report financial data that include widely used measures of profitability such as net income, the medical loss ratio, return on revenues, and return on equity. Typically, analysts rely on several sources of financial data and various financial ratios to assess the profitability of a firm or industry. Financial data for the health insurance industry can be sensitive to firms' accounting and financial reporting―accounting in the insurance industry can be complex because of the nature of the business. Insurance companies take in premiums from customers when a policy is issued and at some later time may pay claims on that policy. Insurers will make a profit if total premiums and investment income exceed total claims and operating expenses. In addition, because of the lag between the collection of a premium and the payment of a claim, insurers can invest funds in stocks, bonds, or direct investments that yield earnings. Insurers typically keep three sets of books, so financial data reported for one purpose may differ from data reported for a different purpose. First, insurers use statutory accounting practices to compile reports to state regulators who monitor solvency of insurance companies or subsidiaries that write policies. Statutory accounting standards are issued by the National Association of Insurance Commissioners (NAIC). Second, insurers use generally accepted accounting principles (GAAP) to present financial data for investors in documents such as 10-Ks filed with the Securities and Exchange Commission (SEC). Third, insurers also keep a separate book for tax accounting, which is governed by state and federal tax rules. What insurers report as net income, a common measure of profitability, can depend on which accounting standards are used as well as accounting and actuarial judgments regarding investment cash flows and insurance reserves, although these are generally subject to state insurance regulation. In particular, the link between data in state insurance filings for separate legal entities and financial results reported on a consolidated group basis by major insurers consisting of many subsidiaries is often unclear. Financial indicators from three sources (Fortune magazine, the A.M. Best Company and the Sherlock Company) are discussed below. Because financial data presented below derive from different sources and may be calculated using different procedures, results may vary. Table 4 presents two indicators of profitability by major industrial sector. A third indicator, profits as a percentage of shareholder equity, is presented in Table A-3 . For each industry, simple averages (means), weighted averages, and medians are presented. Profits as a percentage of revenues is widely used to compare performance of retail-oriented industries. This measure is sensitive to what funds pass through a firm as revenues. For example, for traditional commercial coverage, the insurer collects premiums (which are booked as revenues) and pays claims. When self-insured employers outsource health plan administration and claims processing to an insurer via an ASO plan, the insurer does not book premiums paid by workers as revenue, but instead collects administrative service fees. While the insurer may offer substantially the same services (apart from differences in risk-bearing) for both types of plans, profits as a percentage of revenues will generally be much lower for traditional commercial risk coverage than for ASO plans because those revenues include full premiums, not just administrative fees. For example, Figure 2 shows how net margins for major health insurance companies vary depending on ASO plan enrollments as a share of total enrollments. In general, insurers with higher shares of ASO enrollments earn higher net margins. Profits as a percentage of assets reflects an industry's profitability with its capital intensity. Profits as a percentage of equity indicates returns to stock investors. Return-on-equity ratios, unlike return-on-revenue, depend on how a firm raises its capital, and may change abruptly due to changes in corporate structures such as mergers and acquisitions. A firm that relies more on equity, rather than debt, may be less vulnerable to bankruptcy. Comparisons of profitability ratios across industries requires some caution, as each industry has a different cost structure and each faces a particular set of risks and opportunities. Industry profitability is also affected by temporary economic shocks and broader social trends. Individual firms, of course, vary from the industry averages, with some performing better on profit measures, and with others performing less well. Neither of the two health insurance sectors (Health Care: Insurance & Managed Care; and Insurance: Life, Health [stock]) are in the top 20 industries on either of the two profitability measures for 2009 presented in Table 4 , nor among the top 20 industries in terms of profits as percentage of shareholder value (see Table A-3 ). The A.M. Best Company provides ratings and analysis for the insurance industry, including GAAP financial indicators for major health insurers. Which companies A.M. Best lists varies over time due to mergers, acquisitions, and the growth of smaller firms. Table 5 presents medical loss ratios for major health insurers over the period 2000-2008. Two other measures of profitability the health insurance industry, return on equity and return on revenues, are presented in Table A-1 and Table A-2 . The medical loss ratio, defined as total health benefits paid divided by premium income, is a commonly used, albeit rough, indicator of profitability and administrative efficiency. The proportion of premium revenues not paid through benefits is used to cover administrative costs, taxes, interest payments, and profits. Investment income, which can be much more volatile than premium income due to occasional rapid price changes in asset markets, is excluded. To industry analysts, the medical loss ratio reflects how well premiums are keeping up with increases in medical costs. To consumers, the medical loss ratio shows what proportion of premiums, on average, are returned through benefits. State insurance regulators typically monitor health insurers' medical loss ratios to ensure adequate benefits are paid out and that premiums do not rise much more quickly than claims expenses. Some financial analysts perceive that lower medical loss ratios signal profit potential. Some have proposed stricter federal requirements on medical loss ratios (see below). Medical loss ratios typically do not include data from ASO plans used by self-insured plans, which make up the bulk of enrollments for larger firms (see Table 3 ). Some contend that the medical loss ratio is a seriously flawed measure of administrative costs, profitability, and plan efficiency, and argue that customer satisfaction and cost-per-covered-person-per-month data on specific health insurance market segments would be more informative. Medical loss ratios can differ by market segment. For instance, administrative costs are typically higher, and medical loss ratios are therefore generally lower, for individual plans than for large group plans. Medical loss ratios are typically higher when health insurers shift insurance risks to consumers through cost-sharing or to providers through capitation arrangements. The allocation of overhead costs, which is inherently arbitrary to some degree, will typically depend on accounting judgments, which may vary from insurer to insurer, although computation of medical loss ratios is generally constrained by some state regulators and by generally accepted accounting principles. While many insurance companies and some large employers use those data to track health plan performance, those data are typically considered proprietary. A more stringent limit on medical loss ratios might require careful attention to how those ratios are defined. In 2008, medical loss ratios among major insurers range from a low of 70.7% to almost 89%. Some major commercial insurers have had significant decreases in medical expense ratios in the past decade. For example, CIGNA HealthCare's medical loss ratio, 86.3% in 2001, fell to 70.7% in 2008, according to A.M. Best reports. In general, medical loss ratios are somewhat volatile and can change dramatically from one year to the next. Such swings may be explained by aggressive pricing intended to increase market share or by unexpectedly high medical costs. Trends in medical loss ratios may also reflect changes in insurers' administrative costs. A major component of insurers' administrative costs is linked to processing of claims and running call centers, which are both closely linked to information technology. While many other businesses saw rapid productivity advances in the 1990s due to better and cheaper information technology, some evidence suggests that productivity in the insurance industry grew less rapidly. While productivity in the finance industry (in value added terms) grew by 1.3% per year in the first half of the 1990s and by 4.9% in the second half, according to one estimate, productivity in the insurance industry fell by 1.5% in the first half of the 1990s and fell by 0.06% in the second half of that decade. In recent years, some insurers have claimed that better information technology management has helped constrain administrative costs. Finally, as noted above, health insurers in some market segments have significant marketing expenses. Trends in marketing costs may therefore affect medical loss ratios. The Sherlock Company tracks administrative expenses for health insurance companies by collecting financial and operating data from a large number of health insurance firms. These data are checked and compiled in a consistent manner. Sherlock Company estimates are widely used in the industry. The Sherlock data are not drawn by random sample; therefore, if firms not cooperating with the Sherlock Company's data collection were more profitable than average, the profitability measures would be skewed downwards. The tables below present Sherlock Company data for 2007 and 2008. Profit margins for 2007 and 2008 in the health insurance industry may reflect substantial job losses, which reduce the number of employees covered by employer plans. Losses due to asset price declines following the turmoil in financial markets in late 2007 and 2008 have also adversely affected some insurers' profits. Thus, profitability measures for 2007 and 2008 might be atypical for the insurance industry. Profit margins in the health insurance industry for 2007 appear to be lower than profit margins reported for other parts of the health sector, such as the pharmaceutical industry, reflecting different investment, risk, and opportunities in each industry. Table 6 presents data for 2007 on profit margins for standard commercial plans and administrative service only (ASO) plans used by firms that self insure. Within each category, unweighted averages (means), medians, and weighted averages are presented. These profit margin estimates exclude investment income as well as interest expenses and many taxes. Results for 2007 presented in Table 6 suggest that standard commercial plans were more profitable than ASO plans. When the weighted average margins are higher than the unweighted mean, it suggests that larger firms in 2007 tended to be more profitable than smaller firms. Table 6 includes an adjustment that helps make profit margins on standard and ASO plans more comparable. Insurers that run ASO plans charge firms fees, but the firms pay claims themselves (aside from any reinsurance provisions) out of funds collected from employees. For example, out of every $100 of employee health insurance funds, a hypothetical firm might pay $90 in benefits and pay an insurance firm $10 to administer the program. In standard plans, firms pass on premiums from employees to insurers, who then pay claims. Thus, for an ASO plan the insurance firm would receive $10, but would get $100 in premium income in a standard plan. Therefore, calculating ASO profit margins by using premium equivalents in the denominator puts profit margins on ASO and standard plans on a more comparable basis. Table 7 presents profit data for all Blue Cross/Blue Shield plans in 2008 taken from publicly reported data, such as filings with the Securities and Exchange Commission (SEC). Unlike the profit data in Table 6 these data include investment income and may include income from other lines of insurance. The adjustment for ASO plans used for profit margins presented in Table 6 is not included in margins reported in Table 7 . Table 8 shows profit margins for the six largest national commercial insurers in 2008 (Aetna, CIGNA, Coventry, Health Net, Humana and UnitedHealth), whose plans covered 73 million members. Profit margins in Table 8 were computed in the same way as in Table 7 . These data suggest that large commercial insurers enjoyed higher profit margins in 2008 than Blue Cross/Blue Shield plans. To the extent that the 2007 data reported in Table 6 is similar to 2008 profit data, the profit margins reported in Table 7 and Table 8 suggest that investment income is a significant source of insurer's profits. Many insurers are active in many different segments of the health insurance market. Table 9 shows profit margins for the individual market, the small group insurance market, and the ASO market. These markets, according to these data, were less profitable in 2008 than standard commercial plans. Health insurers on average had negative profit margins in the small group and commercial ASO markets, but had positive margins in the individual market. That the weighted mean margin for the individual market is less than the unweighted mean suggests that smaller insurers in 2007 tended to have higher profit margins in that market segment. In the wake of health care reform measures enacted in March 2010, congressional concern over health insurance policy is likely to persist, even if health reform takes a less central role in legislative deliberations. Congress could take several further actions to affect the behavior and structure of health insurance markets. Important policy details remain to be resolved through federal rule-making, agency actions, and possibly through further legislation. The remainder of this section discusses some possible policy responses to perceived problems in the health insurance market. More aggressive antitrust enforcement is one potential response to perceived problems resulting from high levels of market concentration among health insurers. Federal agencies with antitrust enforcement responsibilities have been active in health care markets, opposing many hospital mergers and putting restrictions on some health insurance mergers. The U.S. Department of Justice and the Federal Trade Commission issued a major report on competition, antitrust policy, and the health care sector in 2004, which urged policies to enhance competition in the health care and health insurance markets. State governments, which generally have primary responsibility for insurance regulation, also have antitrust enforcement capabilities. Some have argued that the McCarran-Ferguson Act, which delineates federal and state responsibilities for insurance regulation, has hindered effective antitrust enforcement. One former FTC official contends that modifying the McCarran-Fergusson Act (P.L. 79-15) and removing other impediments could strengthen federal antitrust policy in the health care market. Congress could amend antitrust laws to facilitate stronger pro-competition policies among health insurers. On November 2, 2009, the House Judiciary Committee reported out the Health Insurance Industry Antitrust Enforcement Act ( H.R. 3596 ), which would limit antitrust exemptions provided by the McCarran-Ferguson Act (P.L. 79-15). On February 24, 2010, the House passed the Health Insurance Industry Fair Competition Act ( H.R. 4626 ) on a 406–19 vote, which would amend the McCarran-Ferguson Act to enable more robust antitrust enforcement. The Obama Administration supports passage of H.R. 4626 , and has promised stronger antitrust action in healthcare markets. Strong antitrust action is preferable to allowing both health insurers and providers to build up countervailing power, according to some economists who argue that a more fully competitive market would better protect consumers. Such antitrust remedies may be most effective in promoting economic efficiency if applied to both the health insurance market and key health care provider markets. On the other hand, the federal government in the past has had trouble using antitrust remedies to increase the competitiveness in the health sector. The federal government lost many antitrust cases intended to promote competition among hospitals. While federal antitrust authorities have forced alterations of some health insurance mergers, federal antitrust policies do not appear to have had a determining influence on the structure of health insurance markets. Other measures could also inject greater competition into health insurance markets. Some analysts contend that simplifying regulatory policies encourages new entrants. Standardization of claims processes and payment mechanisms could also lower barriers to entry. Other policies might allow insurers in related lines of business, such as life and disability insurance, to provide more competition in ASO markets for firms that self-insure. Congress could adopt more stringent regulatory measures designed to improve performance in private health insurance markets. This may require a realignment of regulatory responsibilities with state governments, which now play the leading role in insurance regulation. Congress has taken some steps in the past to regulate health insurance. For example, the Health Insurance Portability and Accountability Act of 1996 (HIPAA; P.L. 104-191 ) imposed several federal requirements on health insurance plans. Although HIPAA provided uniform federal standards on certain aspects of insurance plans, some contend that HIPAA had only limited effects on health insurance markets. Legislative changes to the Employee Retirement Income Security Act (ERISA), which provides a federal exemption to many state health insurance requirements, could also have important consequences in the health insurance market. Many large corporations, which typically operate in many states, oppose changes in ERISA. The Protection and Affordable Care Act ( H.R. 3590 ; P.L. 111-148 ) bars some medical underwriting practices, which may change how health insurance companies compete. The practice of medical underwriting, which consists of offering better prices and conditions to the healthy, rearranges the cost burden of health care but has little or no effect on overall costs. Although an individual insurer earns higher profits by attracting a healthier risk pool via medical underwriting, total costs to society are not reduced. Because underwriting consumes real resources, a system with extensive medical underwriting may have higher administrative costs, which provide little social benefit. Individual firms, however, could face major financial risks by unilaterally dropping medical underwriting practices. The health insurers' trade association, America's Health Insurance Plans (AHIP), had said it would accept limitations of pre-existing condition exclusions, but only if individuals are required to purchase coverage, so that not just the sick enroll. Regulations barring medical underwriting practices, such as limiting coverage of those with preexisting conditions, could change the nature of competition in health insurance markets. If those regulations motivated health insurers to compete on the basis of how well they served consumers rather than on the ability to shift risks to others, economic efficiency could be enhanced. Even with limits on medical underwriting, however, health insurers may affect the composition of their risk pools through marketing, customer service practices, and by other means. The implementation of individual mandate provisions that encourage purchase of health insurance may have important interactions with management and marketing decisions of health insurers. Some critics of the health insurance industry contend that medical loss ratios (defined as total claims divided by premium income) are too low, which in their view has helped push health insurance premiums up. Health insurance industry analysts argue that high medical loss ratios could undermine insurers' ability to raise capital and could lead to cuts in cost of care coordination activities, chronic disease management activities and quality assurance programs. A few states have minimum medical loss ratio requirements for some segments of the health insurance market. The Protection and Affordable Care Act ( H.R. 3590 ; P.L. 111-148 , Sec. 1331(b)(3)) requires that plans offered through state health insurance exchanges (which are to be operational at the beginning of 2014) have a medical loss ratio of at least 85%. The act also will require large group health insurance plans to have a medical loss ratio of at least 85%. Small-group and individual plans will have to satisfy an 80% threshold, although the Secretary of the Department of Health and Human Services can waive that requirement if it would destabilize an insurance market. The State of Maine has requested a waiver of the 80% threshold for individual insurance policies until 2014. That requirement may require the Secretary of the Department of Health and Human Services to specify how medical loss ratio will be calculated, and how that requirement will interact with state-level insurance regulation. A 30-day request for comments on defining medical loss ratios was issued in April 2010. AHIP and NAIC, along with many other trade groups and interested parties, submitted detailed responses. Individual or employer mandates could affect the health insurance market in important ways. An individual mandate would require individuals to offer proof of health insurance either to avoid financial penalties or to qualify for certain tax benefits. An individual health insurance mandate in some ways would resemble the individual mandate most states impose on automobile drivers that require either minimum insurance coverage levels or proof of financial responsibility. The aim of these mandates is to widen the insurance risk pool as broadly as possible and to discourage individuals from forgoing insurance and then transferring the costs of an accident or illness onto others. Of course, enforcing a health insurance mandate would likely require different administrative mechanisms than an automobile insurance mandate. Critics note that an individual mandate could compel purchase of an insurance policy that in the individual's view would cost more than its expected benefits. In particular, if premiums were not adjusted for age and other relevant risk factors, an individual mandate could be seen as helping transfer economic resources from younger and healthier people to older and sicker people. In Massachusetts, the individual health insurance mandate was tied to the availability of "affordable" policies, which required a state panel to judge what "affordable" meant. An employer mandate would require certain firms to offer qualifying health insurance to their employees or pay some amount into a government health fund or alternatively, face the loss of some tax benefits. Some argue that health costs of uncovered employees are to some degree borne by those with private insurance coverage because providers shift some costs of uncompensated care onto others. Some argue that imposing a employer mandate would level the playing field among larger firms, who are more likely to offer health insurance benefits, and smaller firms, which are most likely not to offer those benefits. On the other hand, an employer mandate could force some firms to lower wages and other benefits. Some employees may value those forgone wages and benefits more than new health benefits. Employer mandates would affect the health insurance market more broadly as well. The number and proportion of American workers receiving employer-provided health insurance has been declining over time. Imposing an employer mandate would probably slow or even reverse that trend. Employer-provided health care has important advantages and disadvantages. As noted above, employer-provided health insurance coverage can be administratively efficient and helps mitigate adverse selection problems that could lead to splintering of risk pools. On the other hand, tying health benefits to employment can reduce job mobility and hinder efficient matching of workers to positions that make the best use of their skills. Making the individual health insurance market more attractive (see discussion of Wyden-Bennett plan below) or providing health coverage on the basis of citizenship, as do many other advanced industrial countries, could enhance job mobility. Some proposals that Congress considered contained measures partially intended to heighten competition in the market for health care. For example, H.R. 3200 proposed creation of a "Health Insurance Exchange" that would provide an alternative to employer-based health coverage for groups that have had difficulty obtaining affordable health insurance. The Health Insurance Exchange proposed in H.R. 3200 includes a "public option" insurance plan intended to spur greater competition among health insurers. Critics of H.R. 3200 expressed concern that a federally financed public option would enjoy special advantages unavailable to private health insurers and that creation of a public option might be a first step towards a much broader federal role in health care finance. The Affordable Health Choices Act ( S. 1679 ), approved by the Senate Health, Education, Labor, and Pensions (HELP) Committee on July 15, 2009, proposes new federal private health insurance standards and the creation of an "Affordable Health Benefit Gateway" in each state, along with a public option plan called the "Community Health Insurance Plan." On September 16, 2009, the Chairman of the Senate Finance Committee, Senator Baucus, released a chairman's mark of the America's Healthy Futures Act of 2009, which also included new federal health insurance standards and health insurance exchanges, but does not include a public option plan. On November 19, Senator Reid proposed a measure that melded provisions of the HELP and Finance Committee bills, which allowed states to include a public option in health insurance exchanges. The version of H.R. 3590 that passed the Senate on December 24, 2009, however, omitted the public option. The proposed Health Insurance Exchange in some ways resembles the Massachusetts Connector created in 2006 and implemented at the end of 2007. Both the proposed federal Health Insurance Exchange and the Massachusetts Connector act as an intermediary between insurance companies and eligible enrollees, playing a similar role to employers who act as health insurance intermediaries for most Americans. Massachusetts mandates that individuals have health insurance (as long as "affordable" insurance options are available) or face financial penalties. All but the smallest firms (fewer than 10 employees) that offer no (qualifying) health insurance benefits must pay an annual penalty of $295 per full-time employee. The program has roughly halved the number of uninsured people in the state. The role played by a Health Insurance Exchange could have important effects. The exchange could act as a "traffic cop" that imposed minimal requirements on plans, in order to allow a large number of insurers to offer coverage to eligible individuals. Alternatively, the exchange could act as a "gatekeeper," as most large employers do, and preselect a limited number of alternatives. In Medicare Part D, which offers prescription drug coverage, the Center for Medicare and Medicaid Services (CMS) acts more like a traffic cop, allowing a wide range of insurers to enter that market. This policy allows Medicare beneficiaries to choose among a wide array of plans. Prices for actuarially equivalent plans, however, are widely dispersed, which suggests that market competition has been ineffective in weeding out plans that offer less value for the money. Alternatively, an exchange could also play a more active "gatekeeper" role. Many employers have played a very active role in designing health insurance offerings. The exchange could either select a limited number of plans judged to be more attractive or impose stricter requirements on plans. Some economists have found that consumers have difficulty choosing among plans when alternatives are numerous and when differences among plans are difficult to compare. Congress arguably acted as a gatekeeper by requiring standardization of Medigap policies in order to encourage more effective competition among insurers. Creation of a public option within the proposed Health Insurance Exchanges would have arguably been one way to expand health insurance coverage and control the growth of health insurance costs. The public option proposals responded to concerns about high levels of market concentration and the exercise of market power in health care markets, as well as to concerns about some industry practices in the individual and small-group market segments. Proponents of the public option argued that it would help limit costs in two ways. First, a public option plan could institute administrative efficiencies. Second, some argued that a public plan could negotiate better discounts with providers. Government intervention in the market motivated by concerns about market concentration and the exercise of market power could have unintended consequences if the determinants of market structure are not well understood. The bargaining power of a public option could enhance economic efficiency by counteracting monopoly power exerted by providers, thus lowering prices and increasing output. But if providers are operating efficiently, then increased bargaining power by insurers could lead to economic inefficiency in the health care market. Evidence suggests, however, that many providers are not operating efficiently. Without further regulation, however, a public plan would have likely attracted high-cost individuals—those who, because of health or age, can only buy insurance for very high premiums, or who are medically uninsurable because of pre-existing conditions. This adverse selection would have threatened the viability and stability of a public option. As an example, many states have high-risk health insurance pools (HRPs) to cover these high-cost individuals. But state HRPs typically charge premiums higher than premiums charged by private plans offered to healthier individuals and all operate at a loss. To avoid or mitigate adverse selection problems, most public option proposals mandated health insurance coverage by all, require community rating, and prohibit denial of insurance based on health or pre-existing conditions by private insurance plans. Some proposed creation of health insurance cooperatives as an alternative to a public plan. Cooperative health insurance policies would be available to eligible individuals through health insurance exchanges created by health insurance reform legislation. Proponents argued that cooperative-run plans would increase competition in the health insurance market without requiring more direct federal involvement. Others contended that cooperatives would be unable to improve performance of the health insurance industry. Some medical cooperatives were created in the 1930s, such as the Group Health Association in Washington, DC, and the Group Health Cooperative of Puget Sound. The AMA and local medical societies, however, vigorously opposed medical cooperatives and succeeded in driving many of them out of business. The Farm Security Administration (FSA) created several programs to provide medical care to low-income rural households, which included cooperatives that at their peak reached 600,000 people. Some historians argue the success of these cooperatives was limited by the lack of clear direction from FSA administrators and opposition from traditional farm groups. These programs were discontinued starting in 1946. The United Mine Workers' Welfare and Retirement Fund, created in the 1940s, might provide another model of a health cooperative. The early history of Blue Cross may be instructive. The Blue Cross idea, incorporated through a stream of new organizations, spread rapidly across the country during the 1930s and 1940s, demonstrating that a suitable design with support from existing organizations could transform the American health finance system. Blue Cross was able to piggyback on local hospitals and the AHA, and Blue Shield initially piggybacked on local medical societies. Links between hospitals and Blue Cross had profound effects on the governance and structure of Blue Cross. Though the modern health care sector is very different than when Blue Cross began, the strategy of linking new structures, such as cooperatives, to existing organizations could accelerate implementation. Those organizations would likely have a strong imprint on how proposed health insurance cooperatives were run. Blue Cross, in its earliest days, was originally strongly community oriented. This, in part, reflected the ideals of the "voluntary hospital" movement. Yet while charity and altruism have played important roles in the hospital industry, business-like behavior has also been prominent. By 1986, Congress concluded that Blue Cross organizations did not act much differently than commercial insurers. Competitive pressures on cooperatives may also be strong enough to motivate them to act much like other insurers. Some have proposed more fundamental reforms of the health care sector. Senators Wyden and Bennett have introduced a medical voucher proposal, the Healthy Americans Act, which was introduced in the 110 th Congress as S. 334 and in the 111 th Congress as S. 391 . The Wyden-Bennett plan would mandate that individuals carry private health insurance and would create state-run pools to restructure the individual health insurance market. The federal government would support the plan by providing subsidies to certain individuals. The Empowering Patients First Act ( H.R. 3400 ), introduced by Representative Tom Price on July 30, 2009, would provide additional tax incentives to individuals and employers to maintain or expand health insurance coverage; modify federal regulations governing insurance pools for individual purchasers; would take steps to ease purchase of individual insurance policies across state lines; would modify remedies for alleged medical malpractice; and would ban certain applications of comparative effectiveness research data in health care. Others have proposed more limited reforms that would reintroduce cash indemnity payments under certain circumstances. For example, one proposal would allow patients in end-of-life care to choose between standard care or a package of palliative care and a cash payment that could be used for other purposes. The option of indemnity benefits could make providers more conscious of the costs and benefits of the care they deliver. Evidence suggests that health insurance markets in many local areas are highly concentrated. Many large firms have reacted to market conditions by self-insuring, which may provide some competitive pressure on insurers, although this is unlikely to improve market conditions for other consumers. The exercise of market power by firms in concentrated markets generally leads to higher prices and reduced output—high premiums and limited access to health insurance—combined with high profits. Many other characteristics of the health insurance markets, however, also contribute to rising costs and limited access to affordable health insurance. Some evidence suggests that insurance companies' profits are not large, especially during the current economic recession; although some of those estimates exclude investment income. Even if health insurers were highly profitable, it is unclear how much reducing insurance industry profits would do to reduce total health care costs or even reduce administrative costs. Nor is it clear that more vigorous enforcement of antitrust laws and regulations would succeed in courts or would significantly reduce health insurance premiums or expanded health insurance coverage. Health insurance is intertwined with the whole health care system. Health costs appear to have increased over time in large part because of complex interactions among health insurance, health care providers, employers, pharmaceutical manufacturers, tax policy, and the medical technology industry. Reducing the growth trajectory of health care costs may require policies that affect these interactions. Policies focused on health insurance sector reform may yield some results, but are unlikely to solve larger cost growth and problems of limited access to health care if other parts of the health are left unchanged. This appendix presents two indicators of health insurer profitability for the period 2000-2008, and profits as a percentage of shareholder equity for Fortune 1000 firms by industry in 2008. Table A-1 presents return-on-equity figures for major publicly traded health insurers over the period 2000-2008. Return on equity measures a company's overall after-tax profitability from underwriting and investment activity, and is defined as the sum of after-tax net income and unrealized capital gains divided by equity. Return on equity provides a useful comparison to profits in other lines of business, but can be volatile, especially when accounting changes require adjustments of equity levels. Firms obtain capital through equity (typically through the sale of shares that entitle shareholders to dividend payments and certain voting rights) and debt (typically through loans or bonds that require fixed or specified interest payments). Firms can increase return on equity by increasing their debt-to-capital ratio, but at an increased risk of bankruptcy in the event of adverse business conditions that make interest payments to debt holders hard to sustain. Table A-2 presents return-on-revenue figures for major publicly traded health insurers over the period 2000-2008. Return-on-revenue ratios are roughly analogous to return-on-sales figures in other industries. Return-on-revenue figures, unlike return-on-equity, measures profitability independently of how a firm raises its capital. Table A-3 presents profits as a percentage of shareholder equity for Fortune 1000 firms by industry in 2008, which complements other profitability measures presented in Table 4 . Shareholder equity can change dramatically when a firm's capital structure changes, and can be affected by the timing of major writedowns on a firm's financial statements. As in Table 4 , which presented profits as a percentage of revenues and as a percentage of assets, neither of the two health insurance sectors listed (Health Care: Insurance & Managed Care; and Insurance: Life, Health [stock]) are in the top 20 industries in terms of profits as a percentage of shareholder value for 2008. | In March 2010, Congress passed a pair of measures designed to reform the U.S. health care system and address the twin challenges of constraining rapid growth of health care costs and expanding access to high-quality health care. On March 21, the House passed the Patient Protection and Affordable Care Act (H.R. 3590), which the Senate had approved on Christmas Eve, as well as the Health Care and Education Reconciliation Act of 2010 (H.R. 4872). President Obama signed the first measure (P.L. 111-148) on March 23 and the second on March 30 (P.L. 111-152). On November 2, 2009, the House Judiciary Committee reported out the Health Insurance Industry Antitrust Enforcement Act (H.R. 3596), which would limit antitrust exemptions provided by the McCarran-Ferguson Act (P.L. 79-15). The House passed the Health Insurance Industry Fair Competition Act (H.R. 4626) on February 24, 2010. This report discusses how the current health insurance market structure affects the two policy goals of expanding health insurance coverage and containing health care costs. Concerns about concentration in health insurance markets are linked to wider concerns about the cost, quality, and availability of health care. The market structure of the health insurance and hospital industries may have contributed to rising health care costs and deteriorating access to affordable health insurance and health care. Many features of the health insurance market and the ways it links to other parts of the health care system can hinder competition, lead to concentrated markets, and produce inefficient outcomes. Health insurers are intermediaries in the transaction of the provision of health care between patients and providers: reimbursing providers on behalf of patients, exercising some control over the number and types of services covered, and negotiating contracts with providers on the payments for health services. Consequently, policies affecting health insurers will likely affect the other parts of the health care sector. The market structure of the U.S. health insurance industry not only reflects the nature of health care, but also its origins in the 1930s and its evolution in succeeding decades. Before World War II, many commercial insurers doubted that hospital or medical costs were an insurable risk. But after the rapid spread of Blue Cross plans in the mid-1930s, several commercial insurers began to offer health coverage. By the 1950s, commercial health insurers had become potent competitors and began to cut into Blue Cross's market share in many regions, changing the competitive environment of the health insurance market. Evidence suggests that health insurance markets are highly concentrated in many local areas. Many large firms that offer health insurance benefits to their employees have self-insured, which may put some competitive pressure on insurers, although this is unlikely to improve market conditions for other consumers. The exercise of market power by firms in concentrated markets generally leads to higher prices and reduced output—high premiums and limited access to health insurance—combined with high profits. Many other characteristics of the health insurance markets, however, also contribute to rising costs and limited access to affordable health insurance. Rising health care costs, in particular, play a key role in rising health insurance costs. Complex interactions among health insurance, health care providers, employers, pharmaceutical manufacturers, tax policy, and the medical technology industry have helped increase health costs over time. Reducing the growth trajectory of health care costs may require policies that affect these interactions. Policies focused only on health insurance sector reform may yield some results, but are unlikely to solve larger cost growth and limited access problems. This report will be updated as events warrant. |
The economies of the world appear to be heading into a simultaneous slowdown and possibleglobal recession that could bear significant consequences for U.S. and world employment,government finances, stock markets, international trade, and capital flows. The poor economicoutlook has been clouded even further following the terrorist attacks on September 11, 2001 in theUnited States, even though industrialized nations around the world have taken action to easemonetary policies in an attempt to forestall further declines in economic growth rates. There hasbeen a sharp curtailment of activity in industries such as travel and tourism, a drop and slow recoveryin stock markets, and sagging consumer confidence not only in the United States but in numerousother countries. Unlike the Asian financial crisis of 1997-99 when economic strength in the United States and Europe offset weakness in Asia, Russia, and Brazil, this time all major economies seem to beslowing at the same time. The U.S. response to this global downturn has entailed and may requireadditional action by the U.S. Federal Reserve, the Bush Administration, and the Congress in concertwith the International Monetary Fund (IMF) and other multinational organizations. Congressional interest in this issue is related to: (1) the effects of global economic turmoil on the U.S. economy, (2) operations of the International Monetary Fund, (3) U.S. responses toglobalization, and (4) U.S. policies to stimulate the economy. Among these policy issues, this reportwill focus on the spread and effects of the economic turmoil with a focus on Asia. For informationon globalization, see CRS Report RL30955(pdf) , The Issue of Globalization - an Overview , by Gary J.Wells and CRS Report RL30891 , Global Markets: Evaluating Some Risks the U.S. May Face , by[author name scrubbed]. For information on the IMF, see CRS Report RL30635 , IMF Reform and theInternational Financial Institutions Advisory Commission , by J.F. Hornbeck; CRS Report 98-987(pdf) , Brazil's Economic Reform and the Global Financial Crisis , by J.F. Hornbeck, and CRS Report RL30467(pdf) , IMF and World Bank Activities in Russia and Asia: Some Conflicting Perspectives . Following the 1997-99 Asian financial crisis, most countries seemed to be on the path towardrecovery and sustained growth. The dip in economic growth rates was short-lived, and except forIndonesia, countries in Asia which had been the hardest hit by the crisis began recovering relativelyquickly. In 2000, world economies grew by an average of 4.0% with strong growth in grossdomestic product (GDP) in the Former Soviet Union (7.8%), North America (4.1% in the U.S., 4.6%in Canada), Asia/Oceania (4.0%), South America (3.3%), and Western Europe (3.5%). For 2001,world growth is slowing. The growth rate in global GDP is expected to drop by more than half. TheEconomist Intelligence Unit forecasts 1.7% for the year, while DRI-WEFA projects 1.4% (both areeconometric forecasting firms). Anything below 2% is considered to be recessionary for the world. This would be the most rapid deceleration in world economic growth since the 1974 oil price shockand includes truly recessionary economic conditions for many countries. As shown in Figure 1 , according to DRI-WEFA, world economic growth is forecast to dropfrom 4.0% in 2000 to 1.4% in 2001 and then to recover somewhat to 2.0% in 2002. The drop ingrowth in 2001 is expected to be slightly greater in the United States (1.0% growth in GDP in 2001),Canada (1.3%), and in Japan where growth is expected to drop into negative territory (-1.2%). InWestern Europe, the average growth rate for the Big Four - France, Germany, Italy, and the UnitedKingdom - combined is expected to drop to a sluggish 1.8%. For Latin America, Mexico's growthrate likewise is dropping from 6.9% in 2000 to an expected 0.1% in 2001, while the average forseven South American countries (Argentina, Brazil, Chile, Columbia, Ecuador, Peru, and Venezuela)also drops from 3.3% in 2000 to 1.0% in 2001. The middle-income countries of Asia are dominatedby India and China. Beijing and foreign investors are pumping enough money into the economy tokeep China at 7.2% growth in 2001, while India's growth is holding at about 5.0%. Among otherAsian countries, growth in Hong Kong is expected to plummet from a phenomenal 10.5% in 2000to -0.3% in 2001. Taiwan is in similar straits as growth is dropping from 6% in 2000 to arecessionary -2.1% in 2001. The economic growth rate in South Korea also is plunging from 8.8%in 2000 to 2.0% in 2001. During the 1997-99 Asian financial crisis, the United States served as an export market of last resort. In 1998, countries in Asia were able to begin recovery largely by exporting to the boomingU.S. market. This time, however, the slowdown in the United States is being spread to many of thecountries in Asia that depend on exports to the U.S. market. Particularly in information technology,as the bust in U.S. information technology markets has proceeded, some of the first suppliers to becut off have been those overseas. Taiwan, in particular, is dropping into recession partly becauseits exports to the United States of electrical machinery (including integrated circuits) and computersare down. As other countries have slowed, moreover, their demand for imports from the UnitedStates also has turned sluggish. Even though overall U.S. exports are declining only slightly, overthe first eight months of 2001 U.S. exports to Taiwan dropped 23% and to South Korea fell by 19%. Some of this is attributable to the strong U.S. dollar, but deteriorating growth abroad is a majorcause. This is combined with declining consumer confidence and problems still unresolved fromthe previous financial crisis. Still, the drop in U.S. imports because of the weak U.S. economy ismore than offsetting the decline in U.S. exports to cause the overall U.S. balance of trade to improvesomewhat. How does a financial crisis in one country, such as Thailand in 1997, set off global responses,destroy billions of dollars in wealth, throw millions of people into poverty, and even set off eventsleading to changes of governments? In the current economic scene, how does economic weaknessin one country get transmitted across borders to bring down economic activity in another? What arethe roads of contagion for economic conditions? Economies always have interacted with each other, but globalization has added a new dimension to the international pathways among them. Financial markets today are international inscope and are more linked, volatile, leveraged, and of greater size than at any time in history. Theeconomies of the world have become more interconnected not only through trade in goods andservices but through flows of investment capital, speculative financial activities, and bank loans. These extensive linkages have combined with rapid communications to make currency and stockmarkets more volatile and easily influenced by events and economic conditions in other countries. Financial investments also have become more leveraged with borrowed funds. When marketssuddenly turn, these highly leveraged positions can generate enormous losses (or gains). The magnitude of the flows of capital among countries also has become huge and unprecedented. A study by the Bank for International Settlements indicates that the volume offoreign exchange transactions in 43 markets has exploded to an estimated $1.5 trillion per day (aftermaking corrections for double counting) -- or about 60 times as great as world trade in goods andservices. (2) Private capital flows have grown to theextent that many countries no longer can maintainadequate foreign exchange reserves to handle sudden outflows or to keep such outflows frompushing down exchange rates. Between 1990 and 1998, the assets of mature market institutionalinvestors more than doubled to reach $30 trillion - about equal to world gross domestic product. In 2000, net inflows into the United States, the world's largest recipient of capital flows, exceeded$400 billion. This included a record level of foreign portfolio investment in U.S. equities andcorporate bonds. These increased levels of trade and investment provide the pathways by which business cycles are transmitted from one economy to another. The extent to which foreign economic conditions canaffect a particular economy, however, depends on how large the economy is, how large the foreignsector is relative to the rest of the economy, and whether domestic monetary and fiscal policies aswell as economic activity go counter to or complement that which is happening in other economiesof the world. Each country will experience economic shocks that can be purely domestic, such asthe crash of the information technology market in the United States. Other economic shocks can beglobal, such as a spike in oil prices or a simultaneous downturn in Europe and Asia. The larger an economy, the less it is likely to be affected by international economic fluctuations. In a world economy of $31 trillion, the economies of the United States ($9.8 trillion GDP), theEuropean Union ($7.8 trillion), and Japan ($3.4 trillion) are large enough that their domesticeconomic conditions tend to affect other economies more than they are affected by them. Still, theyare not immune to international economic conditions, and international commodity prices, such asthat for petroleum, are transmitted to them directly. For particular countries, the larger its international trade flows relative to the size of its economy, the greater the role trade is likely to have in transmitting effects of foreign business cycles. In the United States and Japan total trade (imports and exports of goods and services) accounts forabout 20% of GDP. In major European countries, total trade accounts for more of GDP (about 50%),but much of this is trade within the European Community. Canada's trade dependence at about 70%of GDP is quite dependent on trade - particularly with the United States, while smaller,export-oriented countries, such as Singapore, in which trade may account for more than 100% ofGDP, are heavily dependent on trade and quite susceptible to fluctuations in external economicconditions. Over the past three currency crises -- the European crisis in 1992, the Mexican Peso crisis in 1994, and Asia financial crisis in 1997 -- the best predictor of the path of contagion has been alongtrade lines. Currency crises have tended to be regional -- among those countries that trade the mostwith each other or trade with similar markets. (3) Themajor reason that currency crises spread alongtrade lines is that once a country devalues its currency, its neighbors suffer a competitivedisadvantage in export markets and in selling to that country. How do financial crises begin? In the case of the 1997-99 Asian case, the global economicturmoil can be traced to many factors - most of them problems with either the financial system oractivities by actors in the system. First, there were foreign exchange rates in Asia tied to theappreciating U.S. dollar and too inflexible to adjust to changing trade and capital flows. Secondwere bankers and corporations who borrowed short-term on international markets to financelong-term investments - some of dubious value - in booming local economies. Third were emergingmarkets without developed financial infrastructure and with insufficient regulation and marketdiscipline in which the allocation of capital and resources was influenced excessively by personalconnections and politics (cronyism). Fourth were highly confident businesses that overbuiltmanufacturing capacity and office buildings in Asia and began to default on bank loans. Fifth werereal estate and stock market bubbles by which excess liquidity was poured into land and corporateequities creating a euphoria as prices rose but also generating huge losses as prices fell. Some of the above problems have been corrected as part of the reforms following the Asian financial crisis, but some are so deep-rooted in economies that they remain today. The most progresshas been made with exchange rate regimes. Countries now rely on a variety of exchange rateregimes that allow for more flexibility. Some countries, such as China/Hong Kong, Argentina,Estonia, and a number of smaller nations still peg their exchange rate against a single or compositeof currencies. Most large economies allow their currencies to fluctuate either freely or withinspecific crawling bands. Figure 2 shows the value of the Thai baht, Indonesian rupiah, South Korean won, Japaneseyen,Brazilian real, and Russian ruble relative to the U.S. dollar. The currency depreciation that beganin Thailand in July 1997 rapidly spread across southeast Asia and affected other currencies as well. The dramatic fall in the value of the ruble did not occur until August 1998. By March 2000, theSouth Korean won and Thai baht had recovered to about 80% and the Brazilian real to about 60%of their pre-crisis values. The Indonesian rupiah was at about 32% and the Russian ruble at about20% of their 1997 values, while in 1999-2000 the Japanese yen had appreciated to a level higher thanits pre-crisis level. Following the September 11, 2001 terrorist attacks, most of these currencies dipped momentarily before recovering. Despite the direct attack on the United States, the lowering of U.S.interest rates, and the prospect that the Federal Government could return to deficit spending, thevalue of the dollar has been rising. The Japanese yen, in particular, has declined in value. Still, therehave been no precipitous drops in exchange values, except that of Brazil, whose rate declined andthen recovered. The most precarious situation in late 2001 was in Argentina. It must chose betweendevaluing its currency, fully dollarizing its economy (adopting the dollar as its domestic currency),or taking similar drastic action. What is the mechanism by which weakness in one currency drives down the values of other currencies? In order to understand the process, one must recognize that trade flows no longerdominate foreign exchange markets. In times past, foreign exchange was bought primarily for usein foreign trade transactions -- for the international buying and selling of goods and services. Nownon-trade transactions dominate foreign exchange markets. Capital flows completely overshadowtrade flows in value and effect on exchange rates. Foreign currencies are bought by investors seekinghigher rates of return, by wealth-holders seeking safety from political or economic instability, bymultinational corporations building manufacturing or distribution facilities abroad, by speculatorsbetting on movements in exchange rates, and by others for a variety of reasons. Trade flows remainimportant, but they are only one factor in determining foreign exchange values. Because currencies play such a variety of roles in the world financial system, their value fluctuates as underlying financial conditions, macroeconomic variables, investor expectations, andactions of central monetary authorities change. Like stock markets, there is no sure method ofpredicting short-term movements in exchange rates. Many economists have concluded that, whileunderlying financial and macroeconomic conditions -- such as interest rates, trade deficits, andeconomic growth rates -- influence exchange rates over the long run, in the short run, fluctuationsare more random and unpredictable in nature. (4) For example, in 1997, once Thailand allowed the value of its currency to fall, Malaysia, the Philippines, and Indonesia -- neighboring countries that compete in similar export markets --suddenly found their exports significantly more expensive than those of Thailand. Not did this affecttheir balance of trade, but speculators and other buyers of foreign exchange placed financial bets thatthose other countries would have to allow their currencies to depreciate also. This unleashedtremendous downward pressures on exchange rates in these countries. In the Asian financial crisis,the lines of transmission led from Thailand to Malaysia, the Philippines, and Indonesia, then laterto Hong Kong and South Korea. After that, the problem became more global as it spread to EasternEurope, Russia and Brazil. Since underlying macroeconomic conditions affect the long-run exchange rate of a country, speculators and investors may target certain currencies for devaluation if their countries exhibitmacroeconomic and financial features similar to the country that has devalued its currency. Forexample, since Thailand's main problems in 1997 were its weak banks, a rising current accountdeficit, and an accumulation of short-term foreign currency loans, countries with similarmacroeconomic and financial conditions were targeted by speculators. This is one of the reasons thatcountries with scanty trade ties with a country in crisis also can find themselves subject to currencyspeculation or capital flight by their own citizens seeking a safe haven to store their wealth. In 1997,for example, as Hong Kong's currency came under attack, speculators also descended upon Estonia'scurrency. Like Hong Kong, Estonia also has a currency board. In South Korea's case, its currencycame under attack because it too had a weak banking system, an accumulation of short-terminternational loans, and other economic conditions that resembled those of the countries of SoutheastAsia. Fluctuations in currency markets also affect stock and securities markets. The process istwo-fold. First, when a currency depreciates it also reduces the value of any asset denominated inthat currency such as stocks and bonds. If investors (both foreign and domestic) in national equitymarkets anticipate a currency depreciation, they may sell their stocks and convert the proceeds intoa foreign currency before the depreciation or before the currency depreciates further. Second, whena country is facing a rapidly declining currency, the country's monetary authorities may raise interestrates (to stem capital flight) and adopt restrictive fiscal policies (to raise savings and reassureinvestors) which may slow economic growth, reduce corporate profits, and raise the return on bondsor money market accounts relative to stocks. Both higher interest rates and lower profits tend toreduce equity values. As funds are moved from a troubled economy to a safer haven (such as theUnited States or Europe), equity values or bond prices may well be bid up in those safe-havencountries. During the Asian financial crisis, values on equity markets fluctuated almost as much ascurrency values. Figure 3 , shows indices of stock market values on exchanges in the UnitedStates,Japan, South Korea, Hong Kong, and Russia over the period of the worst of the Asian financial crisis- from its onset in July 1997 to June 1999. The similar behavior of the Asian markets as well asboth the positive and negative effects on the U.S. stock market as measured by the Dow-Jones indexis apparent. The market that has recovered the least is the Russian. As shown in Figure 4 , the September 11 terrorist attacks on the World Trade Center and Pentagon caused U.S. equity values to drop, despite the additional liquidity provided by the FederalReserve and reduction in short-term interest rates. By mid-October, however, major stock marketshad pretty well recovered to their pre-attack levels. Figure 4 also shows that since July 1997, theDow Industrial average has risen about 25%. Japan's Nikkei and South Korea's composite averages,however, still are at 75% to 80% of their July 1997 levels, while those on markets in Russia,Indonesia, and Hong Kong remain at about 50% of their 1997 amounts. Stock markets can serve as an early barometer and a reflection of the state of economies. For an individual company, if the outlook for its profits diminish, the price of its stock relative toexpected earnings will rise, making its stock price expensive relative to other investments such asmore secure government securities. This is reflected in the price-earnings ratio (PER or P/E) forstocks. A PER of 20 is roughly equivalent to an investment that pays a return of 5%, since a $20investment at 5% would generate a $1 return each year. In the case of Japan's stock market bubblein the 1980s, PERs reached twice or three times normal levels. For the NASDAQ until its crash in2000-01, some PERs were as high as 100 or meaningless because firms were not generating anyprofits at all. Their high stock values were being justified on the basis of future profit potential,much of which never appeared. In assigning blame for the Asian currency crisis, some pointed the finger at speculators -- even though speculators certainly were not to blame for the underlying economic conditions thatcontributed to the perceived overvaluation of the currencies in the first place. Speculators, oftenmanagers of large international investment funds, generate gains by taking advantage of perceivedweaknesses in exchange rates. They place financial bets on depreciation (or appreciation) based ontheir perceptions of underlying forces of demand and supply. They also combine currencyspeculation with financial maneuvering in derivatives, stocks, securities, and money markets. Forsmaller emerging markets, these financial actions may trigger currency crises and may be paralleledby similar maneuvering by other investors and businesses engaged in currency transactions. The mechanics of currency speculation are complicated. Essentially the process involves currency buyers and sellers generating profits from fluctuations in exchange rates by using spotmarkets (markets for current delivery of foreign exchange), forward or futures markets (markets forfuture delivery), currency swaps, loans, and other financial maneuvers. The key to this process isthat when speculators expect a depreciation in a local currency, they begin short sales (without thecurrency in hand) of forward or future contracts to deliver that currency at a future date in the hopethat they will be able to buy the currency at a lower price before they have to deliver it. They alsocan speculate in stock market futures by amassing holdings of a currency to dump on the market inorder to elicit a response from monetary authorities who often will raise interest rates in order tomaintain the exchange rate. The higher interest rates, in turn, cause equity values to fall. Once a currency begins to show signs of weakening, astute investors and speculators who profit from volatility in exchange markets take actions to minimize losses and maximize gains. Theensuing flight from investments in and holdings of the local currency pushes its value down evenfurther until it often overshoots what would be considered an equilibrium rate. Recovery may beslow. The International Monetary Fund began operations in 1947 and now has 183 countries who aremembers. Its quotas (financial base) are the equivalent of $272 billion, following a 45% quotaincrease in 1999. The IMF plays a key role during international financial crises in coordinatingsupport packages for its member countries experiencing balance of payments difficulties. Thesepackages include loans and secondary lines of credit. The IMF was created to promote internationalmonetary cooperation; to facilitate the expansion and balanced growth of international trade; topromote exchange stability; to assist in the establishment of a multilateral system of payments; tomake its general resources temporarily available to its members experiencing balance of paymentsdifficulties under adequate safeguards; and to shorten the duration and lessen the degree ofdisequilibrium in the international balances of payments of members. As of June 30, 2001, the IMFhad credit and loans outstanding to 90 countries worth about $65 billion. The financial assistance provided by the IMF enables countries to rebuild their international reserves, stabilize their currencies, and continue paying for imports without having to impose traderestrictions or capital controls. Unlike development banks, the IMF does not lend for specificprojects. IMF loans are usually provided under an "arrangement," which stipulates the conditionsthe country must meet in order to gain access to the loan. All arrangements must be approved by theExecutive Board, whose 24 directors represent the IMF's 183 member countries. Arrangements arebased on economic programs formulated by countries in consultation with the IMF and are presentedto the IMF Executive Board in a letter of intent (with permission of the borrowing country, lettersof intent are posted on the IMF's Internet site). (5) Loans are then released in phased installments asthe program is carried out. (6) Financial support packages are initiated by a request to the IMF from the country experiencing financial difficulty. This request then requires an assessment by IMF officials of the conditions inthe requesting nation. If a support package is approved, the IMF usually begins with an initial loanof hard currency to the borrowing nation. Subsequent amounts are made available (usually quarterly)only if certain performance targets are met and program reviews are completed. During the Asianfinancial crisis, the support packages were designed to restore investor confidence -- bothinternational and domestic -- in the economies of the recipient nations. The packages constituteda three-pronged approach to the problems: (1) immediate efforts to restore liquidity in currencymarkets, (2) structural reforms aimed at strengthening financial sectors, and (3) governance issuesunderlying the crisis which included improving the efficiency of markets, breaking the "cronycapitalism" links between business and government in several of the distressed countries, liberalizingcapital markets, and providing for more transparency (in disclosing data on external reserves andliabilities). The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending.In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging marketeconomies led to another surge in the demand for IMF resources. Over the years, the IMF hasdeveloped a number of loan instruments, or "facilities," that are tailored to address the specificcircumstances of its diverse membership. Non-concessional loans are provided through five mainfacilities: Stand-By Arrangements (SBA), the Extended Fund Facility (EFF), the SupplementalReserve Facility (SRF), the Contingent Credit Lines (CCL), and the Compensatory FinancingFacility (CFF). Low-income countries may borrow at a concessional interest rate through thePoverty Reduction and Growth Facility (PRGF). Except for the PRGF, all facilities are subject to the IMF's market-related interest rate (currently about 4%) which is based on short-term interest rates in the major international markets. The IMFdiscourages excessive use of its resources by imposing a surcharge on large loans. Countries areexpected to repay loans early if their external position allows them to do so. The major facilities used for stabilizing currencies and preventing financial crises are the Stand-By Arrangements and Extended Fund Facility. The SBA is designed to address short-termbalance-of-payments problems and is the most widely used facility of the IMF. The length of a SBAis typically 12-18 months. Repayment must take place within a maximum of 5 years, but countriesare expected to repay within 2-4 years. The EFF was established in 1974 to help countries addressmore protracted balance-of-payments problems with roots in the structure of the economy. Arrangements under the EFF are longer (3 years) and the repayment period can extend to 10 years,although repayment is expected within 4� -7 years. Table 1 summarizes the IMF's Stand-By andExtended Fund Facility loans. As shown in Table 1 , the largest current borrowers are Argentina, Brazil, Turkey, Indonesia, and the Ukraine. Total Stand-By Arrangements totaled the equivalent of $37.0 billion, whileExtended Arrangements summed to $12.5 billion. As a result of the Asian financial crisis, the IMF introduced two new facilities to cope with needs for huge amounts of funds for relatively short terms. Introduced in 1997, the SupplementalReserve Facility is designed to meet needs for very short-term financing on a large scale. Countriesmust repay the loan after a maximum of 2.5 years, but are expected to repay one year earlier. AllSRF loans carry a surcharge of 3-5 percentage points. Also established in 1997, Contingent Credit Lines differ from other IMF facilities in that they aim to help members prevent crises. They are designed for countries implementing sound economicpolicies, which may find themselves threatened by a crisis elsewhere in the world economy becauseof "financial contagion." The CCL is subject to the same repayment conditions as the SRF, butcarries a smaller surcharge. Table 1. IMF Lending from Its General Resources AccountUnder Stand-by Arrangements and Extended Fund Facilities As of August 31,2001 (In U.S. Dollars) Note: IMF SDRs (Special Drawing Rights) converted to dollars at 1.28 dollars per SDR. Source: International Monetary Fund During the 1997-99 Asian financial crisis, the IMF arranged support packages initially for Thailand, Indonesia, and South Korea and augmented a credit to the Philippines to support its exchange rateand other economic policies. Later, the IMF extended support to Brazil and Russia. The fivesupport packages are summarized in Table 2 . The total amounts of the packages are approximatebecause the IMF lends funds denominated in special drawing rights (SDRs), and because pledgedamounts often change as circumstances change. The initial support package for Thailand was $17.2billion, for Indonesia about $43 billion, and for South Korea $57 billion. The United States pledged$3 billion for Indonesia and $5 billion for South Korea from its Exchange Stabilization Fund (ESF)as a standby credit that may be tapped in an emergency. The U.S. Treasury lends money from theESF at appropriate interest rates and with what it considers to be proper safeguards to limit the riskto American taxpayers. In addition to IMF support, recipient countries during the Asian financial crisis tapped funds pledged by the World Bank, the Asian Development Bank or, in the case of Brazil, theInter-American Development Bank, and by certain industrialized nations. The World Bank, inparticular, played a key role in attenuating the negative effects of the financial crises on poorerpeople who are less able to shield themselves from recessions. In 1998, the World Bank created aSpecial Financial Operations Unit (SFO) to help respond to financial sector crises. Working closelywith the country departments, the SFO's mandate is to provide immediate support to governmentsto help them stabilize their financial systems, followed by support for structural reforms andresolution of non-viable financial institutions. (7) Table 2. IMF Support Packages During the Asian Financial Crisis (Amounts in U.S.$Billion) Note: ADB = Asian Development Bank. IDB = Inter-American Development Bank. Actual amounts disbursed by the IMF's are in SDR's. Development bank figures are for structuraladjustment and exclude funds for customary projects. *The IMF cancelled the 1998 program after disbursing $4.8 billion. In July 1999, it announced anew program worth $4.5 billion to be paid in tranches of about $640 million each. The first wasdistributed immediately, but the others have been delayed. Source: IMF, World Bank, ADB, IDB. In Asia, the Association of Southeast Asian Nations plus Japan, South Korea, and China (ASEAN + 3) have established what is called the Chiang Mai Initiative. This is a regional financingarrangement to supplement existing international facilities. The Initiative involves an expandedASEAN Swap Arrangement for currencies that would include ASEAN countries and a network ofbilateral swap and repurchase agreement facilities among the participating countries. Japan has a special interest in the Asian financial crisis since it occurred within its region and not only affected its close trading partners and competitors but also threatened bank loans andinvestments by Japanese companies in the area. Japan has been providing financial assistance underwhat it terms the Miyazawa Initiative (named after their Finance Minister). It includes $30 billionin loans to Thailand, Malaysia, the Philippines, Indonesia, and South Korea. This was augmentedin 1999 with a commitment by Japan to assist Asian nations to mobilize another 2 trillion yen (about$17 billion) in domestic and foreign private-sector funds for Asia. (8) Following the Asian financial crisis, the IMF came under increased scrutiny and criticism. Various groups and commissions have recommended changes to the methods and scope of itsoperations. For Congress, on March 8, 2000, the congressionally mandated International FinancialInstitution Advisory Commission submitted its report. (9) The Commission considered the future rolesof seven international financial institutions: the International Monetary Fund, the World Bank, threeregional development banks, the World Trade Organization, and the Bank for InternationalSettlements. With respect to the IMF, the Commission made the following recommendations: The IMF should be restructured as a smaller institution with three major purposes: (1) to serve as a quasi lender of last resort (standby lender to prevent panics) to emergingeconomies, but its lending operations should be limited to the provision of liquidity (short-termfunds) at penalty interest rates (above the borrower's recent market rates) to solvent membergovernments when financial markets close; (2) to collect and publish financial and economic datafrom member countries and disseminate those data in a timely and uniform manner; and (3) toprovide advice (but not impose conditions) relating to economic policy as part of regularconsultations with member countries. The IMF should be precluded from making other than short-term loans to member countries, particularly long-term loans in exchange for compliance with conditions set bythe IMF. The IMF's Poverty and Growth facility should be closed and its long-term assistance to foster development and encourage sound economic policies be the responsibility of areconstructed World Bank and regional development banks. The Commission listed four "pre-conditions" for a country to quality for IMF assistance: (1) a competitive banking system that allows a greater presence for foreign financial institutions; (2) theregular publication of information regarding that nation's outstanding debts and liabilities; (3)commercial banks that are adequately capitalized, and (4) proper fiscal policy. The Commissionsuggested that these rules be phased in over a five-year period and that they be suspended ifnecessary for global stability in the event of a major crisis. Several members of the Commission dissented from the recommendations of the report. The dissent with respect to the IMF centered on the constraints placed on the IMF in combating financialturmoil and on who would qualify for assistance. The four dissenters, for example, argued that thesuggested pre-conditions for crisis loans would ignore the macroeconomic policy stance of thecountry in turmoil, because the IMF would not be authorized to negotiate policy reform. In short,the IMF might end up supporting countries with runaway budget deficits and profligate monetarypolicies. The pre-qualifying conditions also might preclude support for countries that are critical forglobal financial stability. (10) Other objections bycommission members were that it did not addressworker rights or sustainable development issues and that it might undercut the fight against globalpoverty. Other studies in the aftermath of the global financial crisis have made recommendations similar to those of the Advisory Commission. In June 1999, the finance ministers of the G7 (Group ofSeven Industrial Nations) recommended reforms in six priority areas: strengthening and reforming the international financial institutions and arrangements; enhancing transparency and best practices; strengthening financial regulation in industrializedcountries; strengthening macroeconomic policies and financial systems in emergingmarkets; improving crisis prevention and management, and involving the private sector,and promoting social policies to protect the poor and mostvulnerable. (11) In February 1999, the G7 established the Financial Stability Forum which has endorsed a broad range of concrete policy actions to address concerns related to highly leveraged institutions, volatilecapital flows, and offshore financial centers. The Forum aims to promote international financialstability through enhanced information exchange and co-operation in financial supervision andsurveillance. It comprises national authorities responsible for financial stability in significantinternational financial centers, international financial institutions, international supervisory andregulatory bodies, and central bank expert groupings. (12) A separate study by the Council on Foreign Relations chaired by Carla Hills and Peter Peterson makes recommendations aimed at altering the behavior of emerging-market borrowers and theirprivate creditors in ways that would reduce vulnerabilities in the exchange rate systems of emergingeconomies; inducing private creditors to accept their fair share of the costs of crisis resolution;reforming the IMF's lending policies; and refocusing the mandates of the IMF and the World Bankon leaner agendas. (13) Treasury Secretary Paul O'Neill, in a statement before Congress, put forth the following as policy considerations for the IMF: The IMF should focus more on its core objectives which are to: (1) promote sound monetary, fiscal, exchange rate and financial sector policies, (2) carefully monitor economicconditions, and (3) deal with critical problems in the international financial system as soon as theyare detected in order to provide greater financial stability and facilitate trade. The IMF should put more effort into crisis prevention, including the pursuit of sound policies by countries, the development of robust financial sectors, and the adoption ofinternationally accepted standards and codes. The IMF needs more transparency, particularly in releasing information and assessments to the private sector in order to enable markets to make informed judgements and togive countries strong incentives to pursue sound policies. The IMF should increase its accountability to IMF shareholders and taxpayers. The IMF should not create expectations that reduce the incentives for countries and for individuals to take policy actions essential to prevent crises. Expectations of continued oradditional financial support in the case of poor policy decisions in a country reduce the incentivesto make good economic decisions. Moreover, expectations that countries can and will use IMFfinancial support to meet payments on debt instruments held by the private sector reduce duediligence required to make sound financial decisions. The IMF should focus its work on areas in which it has expertise and responsibility rather than to use conditions on its loans to go beyond relevant macroeconomicreforms within its expertise. (14) The IMF, along with the World Bank and member governments, have been addressing the above criticisms and problems in the international financial architecture. This architecture is theinstitutions, markets, and practices that governments, businesses, and individuals use when theycarry out economic and financial activities. The underlying goal is to build a stronger, more stableinternational financial system that will make the world less vulnerable to financial crises, whileallowing all countries to benefit from the process of globalization. To date, the most progress by the IMF has been in: the increase in the quality and candor of economic information that governments and other institutions are making available to the public; the growing implementation of codes of good practices that are essential to a well-functioning economy; and the creation of Contingent Credit Lines (CCL), an IMF facility that enables the Fund to lend preemptively to help prevent a crisis. (15) A fundamental criticism of IMF and governments during the Asian financial crisis was that insufficient information was available to the public to protect their investments and to determinewhat actions the IMF and government were taking. Some also asserted that the IMF keptinformation confidential that might have warned investors of potential problems, although releaseof such information, itself, might trigger precisely the financial crisis the country and the IMF wouldbe attempting to avoid. Governments also were not gathering sufficient data on financialtransactions to assess their exposure to a tightening of credit or financial panic. The IMF nowreleases (with member government permission) Public Information Notices and staff reportsfollowing consultations (under article IV) with member countries, Letters of Intent, and otherdocuments. The Letters of Intent, in particular, provide detail on the actions being required as acondition of loans. The IMF also is releasing statements of the Chairman of its Executive Boardsummarizing the board's views following discussions of a member's use of Fund resources. Mostof these documents are available on the IMF Internet site. The IMF also claims that substantial progress has been made in developing and assessing internationally accepted financial standards. Standards and codes of good practices help ensure thateconomies function properly at the national level, which is a key prerequisite for a well-functioninginternational system. In consultation with others, the IMF has developed Special Data DisseminationStandard; the Code of Good Practices on Fiscal Transparency; the Code of Good Practices onTransparency in Monetary and Financial Policies; and guidelines concerning financial sectorsoundness. Currently, 47 countries subscribe to the IMF's Special Data Dissemination Standard,which encourages member countries to provide detailed and reliable national economic and financialdata. A third area of focus for the IMF is in financial sector strengthening, particularly the ability of banks and other financial institutions to improve internal practices, including risk assessment andmanagement; and upgrading supervision and regulation of the financial sector to keep pace with themodern global economy. The IMF and the World Bank have intensified and enhanced theirassessment of countries' financial systems through joint Financial Sector Assessment Programswhich serve to identify potential vulnerabilities in countries' financial systems. The BasleCommittee on Banking Supervision also is addressing gaps in regulatory standards. A strong criticism of the financial support programs coordinated by the IMF during the Asian financial crisis is that those programs may have created a moral hazard (causing more risky behaviorby reducing the adverse consequence of it). If lenders know the IMF will "bail out" countries unableto repay international debts, for example, lenders may extend loans with risks higher than thosereflected in the interest rate and other terms of the loans. The IMF claims, however, that it worksunder the basic operating principle that its financing should not relieve debtors or creditors of theirresponsibility for the risks they take. Holders of equity incur financial losses immediately as valueson stock markets decline. Holders of loans, however, may not see immediate losses because IMFloans may provide the foreign exchange for countries to service foreign loans. In the resolution offinancial crises, therefore, the IMF is to involve the private sector more in the resolution of crises,particularly lenders and holders of bonds. This may require actions such as debt restructuring bycreditors. During the Asian financial crisis, the IMF was criticized severely for imposing conditions on its loans that were viewed as too severe for the countries in turmoil. Many blamed IMF conditionsthat resulted in fiscal stringency and high interest rates for causing economies to turn downwardmore than was necessary and throwing millions of people into poverty. A particular complaint wasthat the IMF tended to require that central government budgets be balanced or in surplus despite theneed for fiscal stimulus to combat recessions and to provide a social safety net for the growingnumbers of unemployed workers. The IMF still views conditionality as indispensable for safeguarding the Fund's resources. It requires certain actions by member governments to ensure that its loans are used appropriately topromote adjustments considered to be necessary to prevent future crises. The IMF, however, alsoclaims that it recognizes that countries cannot carry out major structural changes overnight. TheFund, therefore, asserts that, henceforth, it intends to focus conditionality on those measures that arecritical to the macroeconomic objectives of country programs. The IMF states that will not weakenconditionality but make it more efficient, effective, and focused. There also is broad agreementwithin the IMF that the Fund must promote good governance in borrowing countries, both throughinitiatives - such as the work on standards and codes - and through specific measures to improvethe decision making and administrative processes in government and the private sector. In 2001, as world economies have been slipping into recession, the IMF is taking measures to keep the world economy on track. (16) It particularlyis working closely with countries such asArgentina to ensure that slowing world economic activity does not trigger another internationalfinancial crisis. This is a test to see if the new international financial architecture is able to preventanother global financial crisis. (17) Since the United States is the largest economy in the world, global economic conditions dependgreatly on the state of the U.S. economy. As the developing recession in the United States has pulleddown other economies, a strong recovery could do much to lift the economies in the rest of theworld. This can be pursued primarily through monetary and fiscal policies - both domestic andcoordinated with those of other nations - and international trade policy being pursued to increaseglobal market efficiency and to ameliorate the adverse effects of foreign unfair trade practices. Withrespect to monetary policy, while Congress plays an important oversight role, actual policy isdetermined by the U.S. Federal Reserve in accord with its own assessments. From mid-1999 thoughmost of 2000, inflation remained a threat, and labor markets were tight. The Fed raised interest ratesseveral times to ease labor and price pressures and to provide alternative investments to thehigh-rising U.S. stock market. As the U.S. economy has slowed, the Federal Reserve has droppedinterest rates aggressively. It lowered, for example, its discount rate (the interest rate it chargesbanks) from 6.0% in 2000 to 5.75% in January 2001 and executed ten more rate cuts until the ratereached 1.5% in November 2001. With respect to fiscal policy, the 107th Congress has been considering various stimulus packages. In September 2001, Congress passed a $40 billion emergency supplemental appropriation( P.L. 107-38 ) and the $15 billion Air Transportation Safety and System Stabilization Act ( P.L.107-42 ). Various tax cuts provided for by the Tax Relief Reconciliation Act ( P.L. 107-16 ) also areslated to be automatically phased in on January 1, 2001. On October 24, 2001, the House passed theEconomic Security and Recovery Act ( H.R. 3090 ) which seeks to stimulate theeconomy through several tax reductions including changes in capital depreciation deductions, repealof the corporate alternative minimum tax, acceleration of the phase-in of the 25% marginal incometax bracket adopted in P.L. 107-16 , and a supplemental income tax rebate for those who did notreceive a full rebate under that law. As for international trade policy, pressures are building in two areas. The first is in the size of the U.S. trade deficit. The merchandise trade deficit reached a high of $328.8 billion in 1999 andincreased further to a record $436.1 billion in 2000. The U.S. current account deficit likewisereached $324.4 billion in 1999 and a record $444.7 billion in 2000. While these deficits currentlyare being matched by inflows of capital into the relatively safe U.S. market, the trade imbalancereflects growing pressures on U.S. industries that export to the troubled economies or compete withimports. While reducing the trade deficit, itself, is not necessarily an objective of U.S. trade policy,increasing U.S. exports, enhancing market efficiency through reducing import barriers abroad, andensuring that imports into the American market are traded fairly are U.S. policy goals. The UnitedStates can open markets abroad through trade negotiations, coordinate monetary and fiscal policiesto encourage other nations to stimulate their economies more, and impose import barriers to protectU.S. industries from unfair foreign trade practices - particularly dumping. MEXICO Mexico's real investment was down 2.9% year over year (y/y) inthe first seven months of the year. On a monthly basis, real investment contracted 4.8% y/y in July,which is an improvement from June's 8.5% drop. July's relative improvement was due to a smallercontraction of construction investment (-2.7%). This sector was hit hard in the first half of the yearbut currently seems to be benefitting from lower interest rates and higher public spending. Meanwhile, investment in equipment and machinery contracted 6.6% y/y in July. (Oct. 9,2001) TERRORIST ATTACKS on the World Trade Center and Pentagon caused sharp declines in stock values and are expected to cause consumer confidence to decline andeconomic activity to slow. (Sept. 20, 2001) TREASURY SECRETARY O'NEIL at the APEC Finance Ministers meeting stated that the United States could not shoulder the burden of reversing the global slowdown on itsown, and that other nations must do their share - particularly Japan, which needed "decisive action"to cure the decade-long economic malaise that has sapped the economic health of the entire region. (Sept. 7, 2001) IMF AND WORLD BANK ANNUAL MEETINGS scheduled to be held in Washington, D.C. on September 29-30, 2001, were cancelled following the September 11 terroristattacks. (Sept. 17, 2001) BRAZIL The IMF approved a 15-month US$15.58 Billion Stand-By Credit for Brazil in support of the government's economic and financial program through December 2002. (Sept. 14, 2001) ARGENTINA IMF Managing Director Horst Köhler recommended that Argentina's Stand-by Credit be augmented by $8 billion to a total of about $22 billion. (Aug. 21,2001) | The economies of the world appear to be heading into a simultaneous slowdown and possible global recession that could bear significant consequences for U.S. and world employment,government finances, stock markets, international trade, and capital flows. The poor economicoutlook has been clouded even further following the terrorist attacks on September 11, 2001. Therehas been a sharp curtailment of activity in industries such as travel and tourism, a drop and slowrecovery in stock markets, and sagging consumer confidence not only in the United States but innumerous other countries. Unlike the Asian financial crisis of 1997-99 when economic strength in the United States and Europe offset weakness in Asia, Russia, and Brazil, this time all major economies seem to beslowing at the same time. The U.S. response to this global downturn has entailed and may requireadditional action by the U.S. Federal Reserve, the Bush Administration, and the Congress in concertwith the International Monetary Fund (IMF) and other multinational organizations. Congressional interest in this issue is related to: (1) the effects of global economic turmoil on the U.S. economy, (2) operations of the International Monetary Fund, (3) U.S. responses toglobalization, and (4) U.S. policies to stimulate the economy. Among these policy issues, this reportwill focus on the spread and effects of the economic turmoil with a focus on Asia. In seeking a new world financial architecture, policymakers are trying to improve the international monetary and financial system, to reduce the risk that systemic crisis will recur, and toensure that, when isolated country crises do happen, there are early warnings, effective policy tools,adequate resources, and broad support to help nations withstand difficult external conditions. Several studies have examined the role of the International Monetary Fund in financial crises. The IMF, itself, also has been reviewing its policies and operations in light of severe criticism fromvarious quarters. It has begun to take more preventative measures, has increased transparency, andis working with nations to improve their standards, economic policies, and measures to preventfinancial crises from occurring. Since the United States is the largest economy in the world, global economic conditions depend greatly on the state of the U.S. economy. As the nascent recession in the United States has pulleddown other economies, a strong recovery could do much to lift the economies in the rest of theworld. This can be pursued primarily through monetary and fiscal policies - both domestic andcoordinated with those of other nations - and international trade policy being pursued to increaseglobal market efficiency and to ameliorate the adverse effects of foreign unfair trade practices. |
The annual agriculture appropriations law includes all of the U.S. Department of Agriculture (except the Forest Service), plus the Food and Drug Administration and the Commodity Futures Trading Commission. A continuing resolution ( P.L. 109-383 ) is providing temporary funding for FY2007 through February 15, 2007, at the lower of either the FY2006 level or the House-passed level in H.R. 5384 . The full House passed the FY2007 agriculture appropriations bill on May 23, 2006 ( H.R. 5384 , H.Rept. 109-463 ). The Senate Appropriations Committee reported its version on June 22, 2006 ( H.R. 5384 , S.Rept. 109-266 ). The full Senate took up the agriculture appropriations bill on December 5, 2006, to consider a crop disaster amendment; the amendment was defeated by a procedural vote of 56-38. The House-passed bill provides a total of $93.9 billion, $691 million (-0.7%) less than the $94.6 billion Senate-reported bill. In addition, the Senate-reported bill includes $4 billion of emergency agricultural disaster assistance, which does not count against budgetary caps. The House bill has no disaster provisions. The House bill provides $17.8 billion in "net" discretionary appropriations, about $1 billion above FY2006. Because the bills limit certain mandatory programs, the "gross" discretionary amounts are higher. The House's $18.4 billion "gross" discretionary subtotal is 1.5% less than the Senate's, and 0.7% less than in FY2006. For mandatory programs, the House bill includes $76.1 billion, $300 million less than the Senate bill. This would be down nearly $7 billion from FY2006, mostly due to changing economic conditions. The U.S. Department of Agriculture (USDA) carries out widely varied responsibilities through about 30 separate internal agencies and offices staffed by some 100,000 employees. USDA is responsible for many activities outside of the agriculture budget function. Hence, spending by USDA is not synonymous with farm program spending. Similarly, agriculture appropriations bills are not limited to USDA and include related programs such as the Food and Drug Administration and the Commodity Futures Trading Commission, but exclude the USDA Forest Service. USDA reports a total appropriation (budget authority) of $98.4 billion for FY2006. Food and nutrition programs comprise the largest mission area with $58.9 billion, or 60% of the total, to support the food stamp program, the nutrition program for Women, Infants, and Children (WIC), and child nutrition programs ( Figure 1 ). The second-largest mission area in terms of appropriations is farm and foreign agricultural services, which totaled $24.4 billion (25%) of USDA's FY2006 appropriation. This mission area includes the farm commodity price and income support programs of the Commodity Credit Corporation, certain mandatory conservation and trade programs, crop insurance, farm loans, and foreign food aid programs. Other USDA activities include natural resource and environmental programs (8% of the total), research and education programs (3%), marketing and regulatory programs (3%), and food safety and rural development. Nearly two-thirds of the appropriation for the natural resources mission area goes to the Forest Service (about $5 billion), which is funded through the Interior appropriations bill. The Forest Service, included with natural resources in Figure 1 , is the only USDA agency not funded through the agriculture appropriations bill. USDA defines its programs using "mission areas" which do not always correspond to categories in the agriculture appropriations bill. For example, foreign agricultural assistance programs are a separate title (Title V) in the appropriations bill, but are joined with domestic farm support in USDA's "farm and foreign agriculture" mission area (compare Figure 1 with Figure 2 ). Conversely, USDA has separate mission areas for marketing and regulatory programs, and agricultural research, but both are joined with other domestic farm support programs in Title I (agricultural programs) of the appropriations bill. In addition to the USDA agencies mentioned above, the agriculture appropriations subcommittees have jurisdiction over appropriations for the Food and Drug Administration (FDA) of the Department of Health and Human Service (HHS) and the Commodity Future Trading Commission (CFTC, an independent regulatory agency). These agencies are included in the agriculture appropriations bill because of their historical connection to food and agricultural markets. However, food and agricultural issues have become less dominant in these agencies as medical and drug issues have grown in FDA and non-agricultural futures have grown in CFTC. Their combined share of the overall agriculture and related agencies appropriations bill is usually less than 2% (see Title VI in Figure 2 ). Mandatory and discretionary spending are treated differently in the budget process. Congress generally controls spending on mandatory programs by setting rules for eligibility, benefit formulas, and other parameters rather than approving specific dollar amounts for these programs each year. Eligibility for mandatory programs is usually written into authorizing law, and any individual or entity that meets the eligibility requirements is entitled to the benefits authorized by the law. Spending for discretionary programs is controlled by annual appropriations acts. The subcommittees of the House and Senate Appropriations Committees originate bills each year that provide funding to continue current activities as well as any new discretionary programs. Approximately 80% of the total agriculture and related agencies appropriation is classified as mandatory, which by definition occurs outside of annual appropriations ( Table 1 ). The vast majority of USDA's mandatory spending is for the following programs: the food stamp program, most child nutrition programs, the farm commodity price and income support programs (authorized by the 2002 farm bill and various disaster/emergency appropriations), the federal crop insurance program, and various agricultural conservation and trade programs. Mandatory spending is highly variable and driven by program participation rates, economic conditions, and weather patterns ( Figure 3 ). Although these programs have mandatory status, many of these accounts ultimately receive funds in the annual agriculture appropriations act. For example, the food stamp and child nutrition programs are funded by an annual appropriation based on projected spending needs. Supplemental appropriations generally are made if these estimates fall short of required spending. An annual appropriation also is made to reimburse the Commodity Credit Corporation for losses in financing the commodity support programs and the various other programs it finances. The other 20% of the agriculture and related agencies appropriations bill is for discretionary programs. Major discretionary programs include certain conservation programs, most rural development programs, research and education programs, agricultural credit programs, the supplemental nutrition program for women, infants, and children (WIC), the Public Law (P.L.) 480 international food aid program, meat and poultry inspection, and food marketing and regulatory programs. The agriculture appropriations bill includes all of USDA (except the Forest Service), plus the Food and Drug Administration and the Commodity Futures Trading Commission. Because the FY2007 fiscal year began before most of the appropriations bills were enacted, including the agriculture appropriations bill, Congress has passed three continuing resolutions to continue funding the government. The first provided temporary funding through November 17, 2006 (Division B of P.L. 109-289 ); the second through December 8, 2006 ( P.L. 109-369 ); and the third through February 15, 2007 ( P.L. 109-383 ). The continuing resolutions are funding federal agencies at the lower of the House-passed, Senate-passed, or FY2006 levels. Since the Senate did not pass the agriculture appropriations bill, agriculture-related agencies are being funded at the lower of either the House-passed or FY2006 levels (see Table 12 at the end of this report). Press statements by Senator Byrd and Representative Obey, Chairmen of the Senate and House Appropriations Committees, indicate that the 110 th Congress is expected to consider a joint resolution to fund government agencies for the remainder of FY2007 at FY2006 levels, with some adjustments for certain agencies. The approach is expected to be more streamlined than a regular omnibus appropriations bill, reducing or eliminating earmark language and specific agency instructions, but allowing limited funding adjustments for certain agencies. The Senate Appropriations Committee reported the FY2007 agriculture appropriations bill on June 22, 2006, by a vote of 28-0 ( H.R. 5384 , S.Rept. 109-266 ). Subcommittee markup occurred on June 20, 2006 ( Table 2 ). Given the possibility that the agriculture appropriations bill would come to the Senate floor in November 2006, thirty amendments were submitted for debate, including 14 by Senator Coburn to strike or otherwise affect earmarks. Floor action had been promised in return for Senator Conrad withdrawing a crop disaster amendment from the military construction appropriations bill on November 14. However, other Senators later blocked floor action on the agriculture bill due to fiscal concerns over the disaster amendment. Floor debate on Senator Conrad's disaster amendment occurred on December 5. An attempt to consider the amendment under emergency spending rules was defeated 56-38, and the amendment was ruled out of order. No further consideration of the agriculture appropriations bill occurred. The full House passed its version on May 23, 2006, by a vote of 378-46 ( H.R. 5384 , H.Rept. 109-463 ). On the floor, the House added 17 amendments and stripped three provisions from the bill on points of order. Another 13 amendments were rejected (8 targeting earmarks), and 10 other amendments were withdrawn. The full Committee on Appropriations reported the bill on May 9, 2006, by voice vote, after subcommittee markup on May 3, 2006. The House-passed bill provides a total of $93.9 billion, $691 million (-0.7%) less than the Senate-reported bill. The House bill provides $17.8 billion in "net" discretionary appropriations, $391 million (-2.2%) less than the $18.2 billion in the Senate bill, and $1 billion above FY2006 ( Table 3 ). The "net" discretionary figure is the amount used for scorekeeping purposes. For mandatory programs, the House bill includes $76.1 billion, $300 million less than the Senate bill. Appropriations for mandatory programs would be down nearly $7 billion from FY2006, mostly due to how crop subsidies are financed and changing economic conditions for food stamps. Because of accounting practices, the discretionary amounts that the bills actually would provide are higher. The House-passed bill actually would provide $18.4 billion in "gross" discretionary appropriations, and the Senate bill $18.7 billion. These higher amounts result from adding money above the official discretionary caps, which is offset by reducing certain mandatory programs, as discussed in the next section. The $18.4 billion "gross" discretionary subtotal in the House bill is $130 million (-0.7%) below FY2006. In addition, the Senate-reported bill includes $4 billion of emergency agricultural disaster assistance, which does not count against budgetary caps. These disaster provisions were part of a recent Senate-passed bill ( H.R. 4939 ) but were removed during conference over P.L. 109-234 . (Another emergency provision in the Senate-reported bill would provide $160 million to the Veteran's Administration as a result of a technology security breach, but subsequent developments likely eliminate the need for this provision.) The House-passed version of the agriculture appropriations bill does not include any emergency or disaster provisions. Regarding overall funding guidelines, the House and Senate each passed an FY2007 budget resolution ( H.Con.Res. 376 , and S.Con.Res. 83 ), but the two chambers did not agree on a joint version. To guide subcommittee spending, the House appropriations committee approved 302(b) allocations on May 9, 2006, providing $17.812 billion for the agriculture bill. The Senate adopted 302(b) allocations on June 22, 2006, providing $18.2 billion for agriculture bill. For more information about the budget resolutions, see CRS Report RL33282, The Budget for Fiscal Year 2007 . The Administration released its FY2007 budget request on February 6, 2006, seeking $93.7 billion for agencies funded through the agriculture appropriations bill. Both the House and Senate agriculture appropriations subcommittees held hearings on the request. See Table 12 Error! Reference source not found. at the end of this report for a tabular summary of each agency at various stages during the appropriations process. In recent years, appropriators have placed limitations on mandatory spending authorized in the 2002 farm bill ( P.L. 107-171 ) for various mandatory conservation, rural development, and research programs. The savings achieved by limiting mandatory programs in this way are counted as "scorekeeping adjustments," and can be used to fund discretionary programs at a higher level than allowed by the discretionary spending cap (the 302(b) allocation). For FY2007, the House-passed bill contains $505 million in reductions to mandatory programs ($483 million in conservation and $22 million in rural development), while the Senate-reported bill contains $396 million in reductions ($371 million in conservation and $25 million in rural development). The Administration proposed $490 million in such reductions. The proposed reductions for FY2007 would be much smaller reductions than the actual reductions in previous years (e.g., $1.5 billion in FY2006 and $1.2 billion in FY2005), mostly because of savings already scored by the agriculture authorizing committees under budget reconciliation last year. The Deficit Reduction Act of 2005 ( P.L. 109-171 ) reduced the authorized level of several mandatory programs which appropriators have limited in recent years, and those savings were scored for budget reconciliation and are no longer available to appropriators. With less room for scorekeeping adjustments, a higher "net" discretionary budget allocation (302(b)) will be necessary to achieve the same level of "gross" discretionary program activity. The 302(b) discretionary allocation in the House is $17.812 billion, up about $1 billion from FY2006. In the Senate, the 302(b) allocation is $18.2 billion, up about $850 million from FY2006. These accounting distinctions help explain why "gross" discretionary programs recommended by the bill are within 1% of FY2006 levels (declining about $130 million from FY2006 in the House bill, and increasing $140 million in the Senate bill), even though the "net" discretionary amount—which tracks the official 302(b) allocation—is increasing by about $1 billion (+6.1%) in the House bill and $1.4 billion (+8.5%) in the Senate bill ( Table 3 and Table 12 ). For more details on the limits placed on mandatory programs, see Table 8 in the conservation section and Table 9 in the " Rural Development " section of this report. For more on the reductions in authorized levels made by the Deficit Reduction Act of 2005, see CRS Report RS22086, Agriculture and FY2006 Budget Reconciliation , by [author name scrubbed]. In recent years, the agriculture appropriations bill has contained 600-700 earmarks totaling about $500 million, or 3% of the discretionary total ( Table 4 ). For these figures, an earmark is defined as any designation in the appropriations act or accompanying reports (conference, House, or Senate) which allocates a portion of the appropriation for a specific project, location or institution. Most of these earmarks originated in Congress. Although some may have been requested by the Administration, most of the Administration's requests are not so specific (e.g., institution or location) as to be counted as earmarks for these purposes. For FY2006, about half of the total number of earmarks and 40% of the dollar value are for agricultural research at USDA or in universities. Another third of the earmarks and about 40% of the value are for conservation projects. The rest are for rural development, and animal and plant health programs. The number and dollar amount of earmarks in FY2006 are relatively close to the levels in FY2005 and FY2004. However, compared to FY2000, the FY2006 earmarks are 86% higher in value and 92% greater in number. For the FY2007 bill, the earmark issue was raised on the House floor when Representative Flake offered eight amendments to restrict funding for specific earmarked projects. All of these amendments were defeated, including three by recorded votes (92-325, 90-328, and 87-328). Earmark sponsors spoke on the floor to explain and justify the projects. They said that cancelling earmarks would not necessarily reduce overall spending, but would lessen Congress's role in directing spending and leave more to the discretion of the executive branch. Opponents of the earmarks said that without such amendments, earmarks are not debated, nor are the sponsors known. On November 15, Senator Coburn submitted 14 amendments for floor consideration, 11 of which would strike earmarks for agricultural research, animal control, or rural development. Three affect earmarks generally, including one that would define an earmark and require USDA to create an Internet database identifying earmarks, showing their cost, and "grading" the earmarks according to their utility in meeting the department's primary goals ( S.Amdt. 5163 ). Another ( S.Amdt. 5164 ) would require earmarks to be listed in the conference report in order to be considered approved by both the House and Senate, as opposed to past years when language was included in the conference report allowing earmarks in House or Senate reports to be enacted without being restated. Under the continuing resolution, the department or agency may use its discretion to continue to allocate funds for programs earmarked in the FY2006 appropriation. The Senate-reported bill includes an amendment by Senator Dorgan to facilitate travel related to licensed sales of agricultural and medical goods to Cuba (Sec. 755). There is no similar provision in the House-passed bill. Senator Martinez submitted an amendment ( S.Amdt. 5191 ) on November 16, 2006, to strike Section 755, and it could be debated if the agriculture bill is brought to the floor. Similar provisions facilitating travel to Cuba were included in the Senate versions of the FY2004 and FY2005 agriculture appropriations bills, but were removed in conference committee. At those times, the White House stated that the bill could be vetoed if such a provision was included. For more background on restrictions on travel to Cuba, see the section "Legislative Developments: Provisions in Appropriations Bills" in CRS Report RL33499, Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation , by [author name scrubbed]. For many years, administrations from both parties have proposed new user fees for various agency accounts. Administration officials assert that the new fees are needed to achieve budgetary savings or that the regulatory or inspection activities should be paid for by users of those services and not all taxpayers. Neither the FY2007 House-passed bill nor the Senate-reported bill endorse these proposals. Both bills either explicitly reject the proposals in report language, or ignore them. This is consistent with previous years when administrations have proposed fees and Congress has rejected them. If the Administration builds these proposed fees into its overall budget and Congress does not enact the fees, appropriators must reduce some agency's activity or appropriate more than requested. For FY2007, the Administration requested $335 million in new user fees. Separate legislation, usually involving the authorizing committee, would be required to enact such fees. The proposals amount to $182 million for USDA, $127 million for CFTC, and $26 million for FDA ( Table 5 ). The remaining sections of this report compare the Administration's budget request with FY2006 appropriated levels for various sections of the appropriations bill. For a tabular summary, see Table 12 at the end of this report. The appropriations bill for agriculture and related agencies covers all of USDA except for the Forest Service, which is funded through the Interior appropriations bill. This amounts to about 95% of USDA's total appropriation. Most spending for USDA's mandatory agriculture and conservation programs was authorized by the 2002 farm bill ( P.L. 107-171 ), and is funded through USDA's Commodity Credit Corporation (CCC). The CCC is a wholly owned government corporation. It has the legal authority to borrow up to $30 billion at any one time from the U.S. Treasury. These borrowed funds are used to finance spending for ongoing programs such as farm commodity price and income support activities and various conservation, trade, and rural development programs. Emergency supplemental spending also has been paid from the CCC over the years, particularly for ad hoc farm disaster payments, and direct market loss payments to growers of various commodities in response to low farm commodity prices. The CCC eventually must repay the funds it borrows from the Treasury. Because the CCC never earns more than it spends, its losses must be replenished periodically through a congressional appropriation so that its $30 billion borrowing authority (debt limit) is not depleted. Congress generally provides this infusion through the annual USDA appropriation law. Because most of this spending rises or falls automatically on economic or weather conditions, funding needs are sometimes difficult to estimate. In recent years, the CCC has received a "current indefinite appropriation," which provides "such sums as are necessary" during the fiscal year. The estimated CCC appropriation is not a reflection of expected outlays. Outlays (net expenditures) in FY2007 will be funded initially through the borrowing authority of the CCC, and reimbursed through a separate (possibly future) appropriation. For FY2007, USDA projects that CCC net expenditures will be $19.4 billion, compared with an estimated $20.2 billion in FY2006 ( Table 6 ). For FY2007, both the Senate-reported bill and the House-passed bill concur with the Administration request for an indefinite appropriation ("such sums as necessary") for CCC, which is estimated to be $19.74 billion. This is $5.95 billion below the estimate that accompanied the FY2006 appropriation (-23%). The estimates do not reflect any changes in programs enacted in the appropriations acts. Instead, they generally track changes in the CCC's net realized losses (spending) incurred in the same or preceding fiscal years under the mandatory provisions authorized in the 2002 farm bill. The amount actually transferred ("such sums and necessary") may differ from the initial estimate without penalty ( Figure 4 ). For example, in FY2004, the amount actually transferred to CCC was larger than the initial estimate; in FY2005, the amount transferred was smaller than the initial estimate ( Table 6 ). The House Appropriations committee adopted two amendments that would have revised certain terms of the farm commodity programs in the 2002 farm bill. However, both amendments were stripped from the House bill on the floor by points of order for legislating in an appropriations bill. The Senate-reported bill includes one of these provisions. The House Appropriations Committee adopted an Obey amendment to H.R. 5384 that effectively would have extended the legislative authority for the Milk Income Loss Contract (MILC) program by one month until September 30, 2007, and preserved baseline spending for the program for future years. However, the provision was deleted from the bill on the House floor on a point of order that it constituted legislating in an appropriations bill. Some Members also were concerned that the provision had budget implications beyond the one-year life of the appropriations bill. The Senate-reported version of H.R. 5384 is silent on this issue. The MILC program pays participating farmers when farm milk prices fall below a target price. The program was originally authorized by the 2002 farm bill and had expired on September 30, 2005. The Deficit Reduction Act of 2006 ( P.L. 109-171 ) retroactively extended the program until September 30, 2007. However, it reduced the payment rate to 0% for September 2007. This means that under current law, when the next farm bill is debated, the MILC program will have no funding in the baseline budget since the 0% payment rate would be assumed for future years. If the Obey amendment were adopted into law, the current 34% payment rate would be assumed for future years' spending, which CBO estimated would add $1.8 billion to the baseline budget over the next five years (FY2007-2011). For more information on the MILC program, see CRS Report RL34036, Dairy Policy and the 2008 Farm Bill . In the House, the appropriations committee adopted a Kingston amendment that would have extended a peanut storage subsidy. However, the provision was deleted from the bill on the House floor on a point of order that it constituted legislating in an appropriations bill. The Senate-reported bill includes an similar provision (sec. 754) to extend the peanut storage subsidy. The storage payments initially were authorized by the 2002 farm bill, but are set to expire this year. Extending the subsidy would provide one more year's worth of such storage payments, which are unique to peanuts. The Administration's FY2007 budget request contains legislative proposals to reduce farm commodity program spending by $1.1 billion in FY2007 (a 6.2% cut) and $7.7 billion over ten years. The Administration proposes tightening payment limits, making a 5% across-the-board cut to direct payments, charging an assessment on dairy and sugar marketings, and allowing USDA to adjust purchase prices of surplus dairy products to reduce outlays. The House-passed FY2007 agriculture appropriations bill does not address this proposal. Separate legislation would be required to enact any of these proposed changes. The House-passed version of the budget resolution ( H.Con.Res. 376 ) calls for the Agriculture Committee to report only a small reconciliation package totaling $55 million over FY2007-FY2011, while the Senate version ( S.Con.Res. 83 ) does not include any reconciliation instructions for agriculture. The Administration proposed similar commodity program cuts in February 2005, but Congress rejected those proposals during final consideration of the Deficit Reduction Act of 2005 ( P.L. 109-171 ). Title VIII of the Senate-reported version of the FY2007 agriculture appropriations bill ( H.R. 5384 ) contains an estimated $4 billion in emergency FY2007 funding for crop and livestock farmers nationwide in response to natural disasters and to supplement farmer income. No emergency assistance is contained in the House-passed version of H.R. 5384 . The Senate bill includes an estimated $1 billion in crop disaster assistance, $1 billion in livestock disaster assistance, and direct economic assistance of $1.6 billion for traditional growers of grains, cotton, peanuts and oilseeds, $147 million for dairy farmers and $100 million for specialty crop (fruits, nuts and vegetables) and livestock growers. Provisions similar to Title VIII were contained in the Senate-passed version of an FY2006 Iraq-Katrina supplemental bill ( H.R. 4939 ) earlier this year. However, supplemental agricultural assistance was reduced to $500 million in the enacted version of the bill ( P.L. 109-234 ), and was provided exclusively to Gulf state producers affected by the 2005 hurricanes. Many farm state Senators support the Title VIII assistance stating that regions other than the Gulf states were affected by natural disasters in 2005 and need supplemental assistance. The Administration threatened to veto H.R. 4939 if it contained any agricultural assistance beyond that provided for the hurricane states, stating that crop insurance and other ongoing USDA support programs adequately assist farmers affected by natural disasters and market conditions. Table 7 summarizes the emergency provisions in the Senate-reported version of the FY2007 agriculture appropriations bill. For more information, see CRS Report RS21212, Agricultural Disaster Assistance . While the Commodity Credit Corporation serves as the funding mechanism for the farm income support and disaster assistance programs, the administration of these and other farmer programs is charged to USDA's Farm Service Agency (FSA). In addition to the commodity support programs and most of the emergency assistance provided in recent supplemental spending bills, FSA also administers USDA's direct and guaranteed farm loan programs, certain conservation programs and domestic and international food assistance and international export credit programs. This account funds the expenses for program administration and other functions assigned to the FSA. These funds include transfers from CCC export credit guarantees, from P.L. 480 loans, and from the various direct and guaranteed farm loan programs. All administrative funds used by FSA are consolidated into one account. For FY2007, the Senate-reported bill would provide $1.471 billion for all FSA salaries and expenses, which is $107 million (+7.8%) more than the House-passed bill, $60 million (+4.3%) more than the Administration's request, and $144 million (+11%) more than FY2006 ( Figure 4 ). The House-passed bill continues statutory language inserted in the FY2006 appropriations law that restricts the ability of USDA to close any county office without public hearings and notification to Congress. An adopted House floor amendment would advance the deadline for USDA to hold public meetings in affected counties. The Senate-reported bill does not address county office closure. Through FSA farm loan programs, USDA serves as a lender of last resort for family farmers unable to obtain credit from a commercial lender. USDA provides direct farm loans and also guarantees the timely repayment of principal and interest on qualified loans to farmers from commercial lenders. FSA loans are used to finance farm real estate, operating expenses, and recovery from natural disasters. Some loans are made at a subsidized interest rate. An appropriation is made to FSA each year to cover the federal cost of making direct and guaranteed loans, referred to as a loan subsidy. Loan subsidy is directly related to any interest rate subsidy provided by the government, as well as a projection of anticipated loan losses from farmer non-repayment of the loans. The amount of loans that can be made, the loan authority, is several times larger than the subsidy level. For FY2007, the Senate-reported bill would provide $146.2 million to subsidize the cost of making an estimated $3.427 billion in direct and guaranteed FSA loans. This represents an 8.5% decrease in loan authority from FY2006, but is equal to the Administration's request and is 3.5% less than the House bill. Direct loan authority would fall by 2.2% and guaranteed loan authority would fall by about 11% ( Figure 5 ). Over the past decade, Congress and the Administration generally have devoted more resources towards the guaranteed loan program. In terms of loan subsidy, the Senate bill is $3.1 million less than the House bill (-2%), but is $32 million more than the Administration's request due to views on user fees. In terms of loan authority, the Senate-reported bill is exactly the same as the Administration's request, and differs from the House bill only by reducing unsubsidized guaranteed operating loans by $124 million (-11%) below the House. The House bill would increase unsubsidized guaranteed operating loans by 1%. Compared with FY2006, both the Senate and House bills would provide higher loan authority for direct farm ownership loans (+$17 million, or +8%), and the comparatively small Indian tribe land acquisition loan program (+$2 million, or +96%). A small increase (+$364,000, or +0.1%) is recommended for subsidized guaranteed operating loan authority. For boll weevil eradication loans, another direct loan program, the Senate and House bills concur with the Administration request for a 40% reduction in loan authority to reflect projected demand. In recent years, Congress maintained the boll weevil loan program at $100 million despite Administration requests to reduce the program. Most of the nearly $200 million decline in overall loan authority from FY2006 in the House bill, and over half of the $320 million decline in the Senate bill, is for guaranteed farm ownership loans, down $186 million (-13%). USDA asserts that the reduction "is indicative of demand, which has recently shown a pattern of decline primarily attributable to changes in interest rates." Neither the Senate bill, nor the House bill, nor the Administration request provide any new funds or authority for emergency loans. In recent years, Congress has not appropriated any money for emergency loans, citing sufficient carryover of funds made available in previous supplementals. The Senate bill includes language (sec. 753) to expand eligibility for farm loans to "commercial fisherman" by modifying the Consolidated Farm and Rural Development Ac t (CONACT). Both the Senate and House bills reject the Administration's proposal to increase fees on guaranteed loans. The fees are paid by commercial lenders to receive the federal guarantee. The level of the fee is not stated in statute, but is set through regulations. Currently, the fee is 1% of the guaranteed portion of the loan. The Administration proposed increasing the fee to 1.5%, and calculated that the increase would offset $30 million in appropriations. Both the Senate and House bills reject the fee increase with identical bill language. Thus, both bills provide more in loan subsidy for guaranteed loans than the Administration requested. This issue was discussed at a Senate Agriculture Committee hearing. For more information about agricultural credit in general, see CRS Report RS21977, Agricultural Credit: Institutions and Issues , by [author name scrubbed]. The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance to producers who grow an insurable crop. Producers who opt for this coverage have the opportunity to purchase additional insurance coverage at a subsidized rate. Policies are sold and completely serviced through approved private insurance companies that have their program losses reinsured by USDA. The annual agriculture appropriations bill traditionally makes two separate appropriations for the federal crop insurance program. It provides discretionary funding for the salaries and expenses of the RMA. It also provides "such sums as are necessary" for the Federal Crop Insurance Fund, which pays all other expenses of the program, including premium subsidies, indemnity payments, and reimbursements to the private insurance companies. For RMA salaries and expenses, the Senate-reported bill provides $78.5 million, which is $1.28 million above the House-passed level of $77.2 million. Both bills are above the FY2006 enacted level of $76.3, but are below the Administration's FY2007 request for$80.8 million ( Figure 6 ). Nearly one half of the Administration's requested increase would allow RMA to establish and conduct an audit of the expenses and performance of the participating private crop insurance companies and to bolster the agency's information technology capabilities. The balance of the increase would cover RMA pay increases and increase its staffing. The level in the House bill provides about 20% of the requested increase in funding, while the Senate bill provides nearly 50% of the requested increase. Both bills allow RMA to use up to $3.6 million of its appropriation for data mining activities to reduce waste, fraud, and abuse within the crop insurance program. From FY2001 through FY2005, RMA had the authority to tap mandatory funds for these activities. When the authority expired, appropriators included $3.6 million in the regular FY2006 RMA appropriations for these activities for the one year. Separately, the Administration estimates an FY2007 appropriation of $4.131 billion for the Federal Crop Insurance Fund, although the amount actually required to cover program losses and other subsidies is subject to change based on actual crop losses and farmer participation rates in the program. Both the House-passed and Senate-reported bills concur with this estimate. A policy issue being debated in the context of the FY2007 appropriations bill involves whether crop insurance companies will be allowed to offer a premium reduction plan (PRP) for the 2008 insurance year which begins July 1, 2007. The PRP allows crop insurance companies that can demonstrate cost savings in their delivery of insurance to sell policies to their customers at a discount. For example, one participating company has reduced its costs by selling its policies directly to customers online. The FY2006 agriculture appropriations act ( P.L. 109-97 ) prohibited RMA from using any of its funds to implement the PRP for the 2007 insurance year. The House-passed version of the FY2007 agriculture appropriations bill would extend this prohibition for the 2008 insurance year. The Senate-reported bill does not address this issue. Independent insurance agents, which sell crop insurance on behalf of the crop insurance companies, are concerned that the PRP reduces their total commissions and damages their profitability. Insurance companies that do not qualify for the PRP are concerned that they will not be able to compete with companies offering discounts. Some farm groups contend that the PRP encourages insurance companies to cherry-pick the best customers which they say could leave some farmers uninsured. The Administration's budget request contains legislative proposals for crop insurance that it says would save $140 million annually, beginning in FY2008. These proposals were requested last year but were not considered by Congress. They include (1) a requirement that farmers purchase crop insurance as a prerequisite for receiving farm commodity payments; (2) a reduction in the portion of the premium that is paid by the government; (3) a requirement that producers pay up to 25% of the premium for catastrophic (CAT) coverage, instead of the current $100 administrative fee and no premium; and (4) a reduction in the reimbursement rate to private crop insurance companies. USDA contends that these proposals would encourage farmers to buy higher levels of coverage, and preclude the need for disaster payments. Neither the House-passed nor Senate-reported FY2007 agriculture appropriations bill address this proposal. Separate legislation would be required to enact any of these proposed changes, which might be discussed next year in the context of the 2007 farm bill. For information on federal crop insurance and other farm disaster programs, see CRS Report RS21212, Agricultural Disaster Assistance , by [author name scrubbed]. The Senate-reported bill and the House-passed bill, H.R. 5384 , both reject many of the Administration's proposed reductions for discretionary programs in FY2007 while agreeing with some of the proposed reductions for mandatory programs. The Senate bill would reduce discretionary NRCS funding by $3.0 million (from $993.4 million in FY2006 to $990.5 million in FY2007), while the House-passed bill would reduce discretionary NRCS funding by $73.8 million (to $919.6 million); see Figure 7 . The Administration's proposal would have reduced funding $204.8 million to $788.6 million. (These figures do not include more than $900 million provided in supplemental appropriations in FY2006 for three emergency conservation programs in response to hurricanes; no additional funding was requested for these programs in the FY2007 budget request, but was provided for FY2006 in supplemental appropriations ( P.L. 109-234 ). Mandatory funding is authorized to rise $257 million to $4.09 billion in FY2007. Table 8 shows that the Senate bill would reduce this amount by $371 million by making reductions to five programs. The House and the Administration request would both make larger total reductions and cut more programs; the House would cut eight programs a total of $482.8 million, while the Administration request would cut six programs a total of $435.0 million. The FY2007 appropriations process appears to continue a trend of recent years where Administrations have proposed more substantial reductions in conservation funding then Congress has been willing to support. All the discretionary conservation programs are administered by the Natural Resources Conservation Service. For Conservation Operations, the largest of these programs, the Senate provides $835.3 million, which is more than either the amount provided by the House ($791.5 million) or requested by the Administration ($744.9 million). It is also a small increase from the amount provided in FY2006, $831.1 million ( Figure 7 and Table 12 ). Both bills identify numerous earmarks, and specify that they be funded in addition to, rather than a part of, state allocations. They both state that all earmarks from FY2006 that are not identified in the report accompanying the bill are not to be funded in FY2007. For other discretionary programs, both the Senate and House bills provide level funding for the Watersheds Surveys and Planning account, $6.0 million, rejecting the Administration's request for no funding. They also reject the Administration request for no funding for Watershed and Flood Prevention Operations; the Senate bill provides $62.1 million, while the House bill provides $40.0 million. Both amounts are a reduction from the FY2006 appropriation of $74.3 million. Both bills provide the same level of funding as FY2006 for the Watershed Rehabilitation Program, $31.2 million, and reject the Administration request to reduce funding to $15.3 million. They both also provide level funding for the Resource Conservation and Development Program, $50.8 million, rejecting the Administration request to reduce funding to $26.0 million. The Senate bill provides $5.0 million to the Healthy Forests Reserve Program while the House bill provides no funding; the Administration had requested $2.5 million. The Administration had requested many of these reductions a year earlier in its FY2006 budget, but Congress had rejected them, providing essentially level funding for most of these programs. Mandatory programs administered by the Natural Resource Conservation Service (NRCS) are authorized to increase by $149 million to $2.0 billion in FY2007. One mandatory program is administered by FSA, the Conservation Reserve Program (CRP); it is estimated to increase by $108 million to $2.09 billion (not including the new emergency forestry program that will be administered as part of the CRP), and no reductions to CRP are called for in either in the Senate or House bills, or in the Administration request. As shown in Table 8 , the Senate bills makes fewer and generally smaller reductions than the House bill, and the House bill agrees with more of the Administration's proposed reductions than the Senate bill. The largest difference is for the Wetlands Reserve Program, where the Senate bill concurs with the Administration proposal to enroll 250,000 acres, as authorized, while the House bill limits enrollment to 144,766 acres. Other large differences between the bills include the Environmental Quality Incentives Program (the House bill provides $96 million more than the Senate bill), and the Conservation Security Program (the Senate bill provides $92.8 million more than the House bill). Table 8 compares authorized levels under the 2002 farm bill (as amended by the Deficit Reduction Act of 2005) with both bills and the Administration request. Congress has enacted reductions in mandatory programs each year, although they are usually different than the Administration request. Each of the past four years, the portion of the authorized mandatory funding for conservation that Congress has allowed has declined from the preceding year. It fell to 87.2% of the total in FY2006. Different constituencies support each of the mandatory programs and decry reductions from the funding commitment that was established in the 2002 farm bill. USDA's international activities are funded by discretionary appropriations (e.g., foreign food assistance under P.L. 480) and by using the borrowing authority of the CCC (e.g., export credit guarantees, market development programs, and export subsidies). Discretionary appropriations for international activities are one-tenth of a percent apart in the Senate-reported and House-passed bills. The Senate-reported bill provides discretionary appropriations of $1.489 billion for international activities, while the House-passed bill provides discretionary appropriations of $1.488 billion. The Administration's budget indicates that an additional $3.8 billion would be allocated to CCC-funded programs. Combined, the total program value for all USDA international activities would be an estimated $5.3 billion for FY2007. Included in the Senate-reported bill is $156.2 million for the Foreign Agricultural Service (FAS) to administer USDA's international programs; the House allowance for FAS is $156.5 million ( Figure 8 ). These amounts represent an increase of about $10 million over the amount enacted in FY2006 and about $1 million less than proposed in the President's budget. For P.L. 480 foreign food assistance, the Senate-reported version of H.R. 5384 provides $1.225 billion, $87 million more than enacted in FY2006. The House-passed bill provides $1.223 billion, while the Administration had requested $1.218 billion ( Figure 8 ). All of the P.L. 480 appropriations would go for Title II commodity donations. Unlike the other international activities funded by agricultural appropriations, Title II is administered by the U.S. Agency for International Development (USAID), not USDA. Both the Senate-reported and the House-passed bill concur with the President's requests for no funds for P.L. 480 Title I loans, nor any for the Bill Emerson Humanitarian Trust, a reserve of commodities and cash held by the CCC, which currently holds 900,000 metric tons of wheat and $107 million. The budget assumes $161 million of CCC funds for the Food for Progress (FFP) program which provides food aid to emerging democracies. In the absence of an appropriation for P.L. 480 Title I, no funds will be available to FFP from that source during FY2007. Similarly, USDA anticipates that no CCC commodity inventories would be available for distribution as food aid under Section 416(b). For the McGovern-Dole International Food for Education and Child Nutrition Program, both the Senate-reported and the House-passed bill provide $100 million, an increase of $1 million from both the FY2006 enacted amount and the budget request ( Figure 8 ). The President's budget request contained proposed appropriations language to allow the Administrator of USAID to use up to 25% of P.L. 480 Title II funds for local or regional purchases of commodities in food crises. The Senate report ( S.Rept. 109-266 ) explicitly rejects this proposal, stating that "The Committee does not agree with the Administration's proposal to shift up to 25% of the Public Law 480 Title II program level to USAID to be used for direct cash purchases of commodities and other purposes..." In addition, the Senate report rejects an administration proposal to lift the requirement that 75% of P.L. 480 Title II commodities be devoted to nonemergency or development activities. Neither the House-passed bill nor the accompanying report ( H.Rept. 109-463 ) make mention of these administration proposals. Congress rejected similar requests made in the FY2006 budget proposal. CCC Export Credit Guarantee Programs secure commercial financing of U.S. agricultural exports. An estimated FY2007 program level of $3.2 billion reflects the level of sales expected to be registered under the program. Actual sales could vary from this estimate, depending upon demand for credit, market conditions, and other factors. Both the Senate-reported and the House bill provide $5.3 million for administrative expenses of CCC export credit programs, an increase of $104,000 above the amount provided in FY2006 and the amount requested in the budget proposal. The Senate-reported bill deletes statutory authority for the intermediate export credit guarantee program (guarantees up to 10 years). Earlier, the Administration had suspended the operation of the intermediate guarantee program in response to an adverse ruling by the World Trade Organization (WTO) in the U.S.-Brazil cotton dispute. The President's budget contained suggested legislative language for the statutory change. The farm bill-authorized funding level for the Market Access Program (MAP), an export market development program, is set at $200 million for FY2007. Neither the Senate-reported nor the House-passed bills concurred with an Administration proposal to cut $100 million from MAP in FY2007. During floor consideration, the House rejected a perennial amendment to bar the use of funds to carry out MAP by a vote of 79-342. The export program that mainly promotes bulk commodities, the Foreign Market Development Program, would receive $34.5 million, the farm bill authorized amount. For export subsidy programs, the budget requests $28 million for the Export Enhancement Program ($28 million in FY2006) and $35 million to the Dairy Export Incentive Program ($2 million in FY2006). The Administration requests $90 million for Trade Adjustment Assistance to Farmers, the maximum allowed in the 2002 Trade Act. The House bill stipulates that $3 million of these funds be made available for an intensive risk management technical assistance program for farmers. For additional information on USDA's international activities, see CRS Report RL33553, Agricultural Export and Food Aid Programs , by [author name scrubbed], updated regularly. Four agencies carry out USDA's research, education, and economics (REE) function. The Department's intramural science agency is the Agricultural Research Service (ARS), which conducts long term, high risk, basic and applied research on subjects of national and regional importance. The Cooperative State Research, Education, and Extension Service (CSREES) distributes federal funds to the land grant Colleges of Agriculture to provide partial support for state-level research, education and extension programs. The Economic Research Service (ERS) provides economic analysis of agriculture issues using its databases as well as data collected by the National Agricultural Statistics Service (NASS). The USDA research, education, and extension budget, when adjusted for inflation, remained essentially flat in the period from FY1972 through FY1991. From FY1992 through FY2000, the mission area experienced a 25% increase (in deflated dollars) over the previous two decades, as a federal budget surplus allowed greater spending for all non-defense research and development. From FY2001 through FY2003, supplemental funds appropriated specifically for anti-terrorism activities, not basic programs, accounted for most of the increases in USDA research budget. Funding levels since have trended downward to historic levels. Although the states are required to provide 100% matching funds for federal funds for research and extension, most states have regularly appropriated two to three times that amount. Fluctuations in state-level appropriations can have significant effects on state program levels, even when federal funding remains stable. Cuts at either the state or federal level can result in program cuts down to the county level. In 1998 and 2002 legislation authorizing agricultural research programs, the House and Senate Agriculture Committees tapped sources of available funds from the mandatory side of USDA's budget and elsewhere (e.g., the U.S. Treasury) to find new money to boost the availability of competitive grants in the REE mission area. In FY1999 and every year since FY2002, however, annual agriculture appropriations acts have prohibited the use of those mandatory funds for the purposes the Agriculture Committees intended. On the other hand, in most years since FY1999, and again in FY2006, appropriations conferees have provided more funding for ongoing REE programs than was contained in either the House- or Senate-passed versions of the bills. Nonetheless, once adjusted for inflation, these increases are not viewed by some as significant growth in spending for agricultural research. Agricultural scientists, stakeholders, and partners express concern for funding over the long term in light of high budget deficit levels and lower tax revenues. The bill that the Senate Appropriations Committee reported out on June 22, 2006, would provide a total of $2.645 billion for USDA's research, extension, and economics mission area for FY2007. This is $45 million (+1.7%) more than the House-passed bill, and represents approximately nearly level funding compared with FY2006 (-0.2%) and a 17% increase over the President's budget. The Senate-reported bill provides a total of $1.21 billion for USDA's in-house science agency, the Agricultural Research Service (ARS has $1.25 billion in FY2006, Figure 9 ). Although the House-passed bill would provide the same total funding for ARS, the Senate-reported bill would allocate $1.13 billion of the total for research salaries and expenses ($1.06 billion in the House bill) and $83.4 million for building construction and renovation ($140 million in the House bill). The Senate appropriations committee concurred with the Administration's request to terminate some projects in lower priority research areas and redirect the funds to higher priority projects in the areas of emerging diseases of crops and livestock, food safety, bioenergy, obesity and nutrition, and invasive species, among other topics. The House measure contains similar language. CRS's initial estimate, based on information provided in each Committee report, is that approximately $35 million (of the Administration's proposed $100 million) would be redirected. The Senate-reported bill would provide $83.4 million in FY2007 for ARS buildings and facilities ($130 million in FY2006). The House-passed bill would provide $136.9 million, with almost $66 million of that amount going to support the completion of four high priority ARS research labs in California, Louisiana, New York, and Washington. The Senate Committee designates 20 ARS locations to receive construction funds. The Senate-reported bill provides a total of $1.21 billion for FY2007 for the Cooperative State Research, Education, and Extension Service (CSREES), the agency that sends federal funds to land grant Colleges of Agriculture ($1.18 billion in FY2006, Figure 9 ). The House-passed bill provides a total of $1.17 billion. The Senate bill would allocate $678.1 million of the total to support agricultural research and teaching in the states ($651.5 million in the House bill). As in previous years, the Senate and House appropriations committees concur in not adopting the Administration's proposal to increase the proportion of research funds awarded competitively by decreasing the amount allocated among the states according to a formula in the Hatch Act of 1887, as amended. Instead, the Senate bill would raise Hatch Act formula funds from $176.9 million, a level at which it has remained since 1999, to $185.8 million. The House-passed bill contains a similar provision raising Hatch Act funding to $183.3 million. The historically black land grant (1890) institutions would receive $39.1 million for research ($38.3 million in the House measure; $37.2 million in FY2006). The Senate-reported bill does not concur with the Administration's annual request to cut the majority of funding for Special Research Grants and Federal Administration grants (earmarks): the bill would provide $119.3 million for Special Grants ($103.5 million in the House bill) and $41.3 million for Federal Administration grants ($39.5 million in the House bill). In FY2006, Special Grants have $127 million, and Federal Administration Grants $50 million. The Senate bill would provide $190.2 million for the National Research Initiative (NRI) competitive grants program, about a 5% increase over FY2006 ($181.2 million), but significantly less than the Administration's request for a 26% increase. The House bill contains $190 million for the NRI for FY2007. The Senate-reported bill contains $467 million for the continuing education and outreach activities of the Extension System in the states ($451.4 million in FY2006; $457 million in the House bill). Within that amount, the Committee would allocate $286.6 million for the Smith-Lever formula funded programs ($273.2 million in FY2006; $281.4 million in the House bill). The Senate bill would increase Extension at the 1890s to $35.2 million ($33.5 million in FY2006; $34 million in the House bill). The Expanded Food and Nutrition Education Program (EFNEP) would receive $63.5 million ($62.6 million in the House bill; $62.0 million in FY2006). In agreement with the House-passed bill, the Senate-reported bill does not reflect the Administration's proposal to move funding for the competitively awarded projects under Integrated Activities (joint research and Extension projects) to the Research and Education section portion of the CSREES budget. Instead, the committee provides $58.7 million for this category ($55.2 million in FY2006; $58.3 million in the House bill). The House bill increase reflects the adoption of a floor amendment to increase the funding (to $5 million) for a program that assists producers who wish to adopt organic farming practices. The Senate bill increase reflects higher allocations for homeland security as well as for organic transition. The Senate-reported bill would provide $76 million for USDA's Economic Research Service (ERS), up from $75.2 million in FY2006. The House bill contains $80.9 million ( Figure 9 ). The House measure contains language designating $5 million of the total for an Agricultural and Rural Development Information System to support greater economic research on the well-being of farm and non-farm rural households. For the National Agricultural Statistics Service (NASS), the Senate Committee bill includes $148.7 million ($148.2 million in the House bill, $139.3 million in FY2006). Committee report language encourages NASS to conduct a follow-up survey to collect data on all aspects of the organic industry. USDA's Food Safety and Inspection Service (FSIS) conducts mandatory inspection of meat, poultry, and processed egg products to insure their safety and proper labeling. The Senate-reported bill provides $865.9 million for FSIS, or $36.5 million above FY2006 ( Figure 10 ). The House-passed bill provides $853.2 million in appropriations for FSIS. The congressional appropriation would be supplemented in FY2007 by an estimated $124 million in existing user fees. The President's FY2007 budget proposed a $987 million program level. However, this proposed total anticipated the collection of $105 million in new user fees to replace a portion of the appropriation, which neither the House nor Senate bill assumes. FSIS has been authorized since 1919 to charge user fees for holiday and overtime inspections. Presently, regularly scheduled second shifts are not considered overtime. The President's proposal would collect such fees to cover inspection costs beyond a plant's single primary approved shift. The Administration has included the expanded user fee proposal in the past four years' budget requests, and previous administrations have proposed that more of (or the entire) inspection program be funded through user fees. Administration officials assert that the fees are needed to achieve budgetary savings without compromising food safety oversight, and that producer and consumer price impacts would be "significantly less than one cent per pound of meat, poultry, and egg products." Congress has not agreed with these proposals, responding that assuring the safety of the food supply is an appropriate function of taxpayer-funded federal government. The accompanying Senate and House committee reports state that the appropriation includes the full increase requested, $16.6 million, to cover pay costs; a $2.6 million increase for risk-based Salmonella control; $2 million for microbiological baseline studies; $3 million to support international food safety work with Codex Alimentarius ; and an increase of $1.9 million for information technology (IT) to support inspection (although in the House report there is an explicit cut of $4 million in other IT, as requested). The Senate committee report designates approximately $16 million for food defense activities; the House figure is about $4 million. The House report specifies $5 million to continue enforcement of the Humane Methods of Slaughter Act; the Senate report recommends funding to maintain the 63 full-time positions for enforcing the act. Both versions recommend $3 million for maintenance of the Humane Animal Tracking System. The House report directs the transfer of $500,000 from FSIS to the Foreign Agricultural Service to support the Miami-based Food Safety Institute of the Americas. The House bill also includes language (Sec. 747), added during subcommittee action by Representative DeLauro, to prohibit USDA funds for implementing a final rule to permit some processed poultry to be imported from China. The final FSIS rule, published in the April 24, 2006, Federal Register to take effect May 24, 2006, permits China to ship processed poultry if the meat comes from third country plants already eligible to export to the United States. Opponents of the rule contend that Chinese imports would be risky due to outbreaks of highly pathogenic avian flu among birds in that country. The Senate version lacks the DeLauro language. The largest appropriation for USDA marketing and regulatory programs goes to APHIS, the agency responsible for protecting U.S. agriculture from domestic and foreign pests and diseases, responding to domestic animal and plant health problems, and facilitating agricultural trade through science-based standards. APHIS has key responsibilities for such prominent concerns like avian influenza, bovine spongiform encephalopathy (BSE or "mad cow disease"), and establishment of a national animal identification (ID) program for animal disease tracking and control (see below). The Senate-reported bill provides a $906.4 million appropriation for APHIS, compared with the President's FY2007 budget request of $952 million and a FY2006 level of $812 million. The House-passed measure provides a $927.6 million appropriation for APHIS ( Figure 11 ). The budget estimates collection of an additional $139 million in existing user fees which fund various APHIS operations, bringing the agency's total program level for FY2007 to approximately $1.1 billion. The Administration has again proposed new user fees of $8 million, to pay for some of the agency's animal welfare activities. Neither the House nor Senate bill assumes these new fees. Similar Administration user fee proposals in FY2003, FY2004, FY2005, and FY2006, were not adopted by Congress. Within the APHIS appropriation, the Senate committee report designates that $161.7 million be devoted to foreign pest and disease exclusion programs (compared with the Administration request for $181.6 million). The House committee report provides $164.1 million. Also within the total appropriation, the Senate committee report designates $273.6 million for plant and animal health monitoring and surveillance activities. The House version designates $263.6 million; the Administration requested $303.9 million. The Senate committee report further includes, within the APHIS total, $351.6 million for pest and disease management, which is above the Administration's proposed $340.2 million allocation and slightly below the House's $352.7 million. The Secretary of Agriculture has the authority to transfer funds from the CCC to APHIS to deal with animal and plant health emergencies. In recent years, the Office of Management and Budget (OMB) has expressed concern over the frequent use of such transfers, arguing that these activities should be funded through regular appropriations after the initial outbreak. However, congressional appropriations committees have consistently reiterated, including in the House report ( H.Rept. 109-463 , p. 73), that the Secretary should use the authority to transfer CCC funds, in addition to using the funds explicitly provided by Congress under, for example, APHIS's "emerging plant pests" account. The Senate report contains a similar admonishment ( S.Rept. 109-266 , p. 54). The emerging plant pests (EPP) account within the pest and disease management spending area (see above), would be funded by the Senate committee at $107.4 million in FY2007, and by the House plan at $114.8 million compared with an Administration request of $126.9 million and a FY2006 level of $99.2 million. Both committee reports further specify how most of this money should be divided among plant problems of major concern: for citrus pests and diseases, $37.4 million in the Senate and $39 million in the House; for the Glassy-winged sharpshooter/Pierces' Disease, about $24.1 million in both the Senate and the House; for the Emerald Ash Borer, $16.3 million in the Senate and $20 million in the House; for Sudden Oak Death, $4.1 million in the Senate and $6.5 million in the House; for the Asian Long-horned Beetle, $16.9 million in the Senate and $19.9 million in the House; and for Karnal bunt, $2.8 million in the House (Senate report language emphasizes the importance of adequately compensating grain handlers for infected wheat). During the House floor debate, Members adopted a Weiner amendment by a vote of 234-184 to provide more funding for emerging plant pests. Specifically, it would provide an additional $23 million; Representative Weiner noted that the funds were needed in particular for control of the Asian longhorned beetle. The increase would come through a cut of nearly $26 million from the Department's common computing environment account. (For more on animal and plant health emergencies, see CRS Report RL32504, Funding Plant and Animal Health Emergencies: Transfers from the Commodity Credit Corporation (pdf), by [author name scrubbed] and [author name scrubbed].) The Senate-reported bill provides $70.4 million for avian flu activities in APHIS. Of this, $56.7 million is for the Administration's request for the newly established highly pathogenic avian influenza (HPAI) program. The Senate report expects the Secretary to transfer, if needed, additional funds from the separate low pathogenic avian influenza (LPAI) program to bring total HPAI funding to about $70.4 million. The House-passed bill provides $63.9 million (total) for avian flu activities in APHIS. The House committee report designates $47.2 million for HPAI activities, including more than $17.5 million for domestic surveillance and diagnosis, $14.2 million for wildlife surveillance, $11 million for preparedness and communication, and $4.6 million for international capacity building in countries most affected by HPAI. The House committee report notes that approximately $14 million is expected to be carried forward into FY2007, from a FY2006 supplemental. For the LPAI program, the Senate committee report designates $13.7 million in FY2007. The House version designates $16.7 million, the same as requested by USDA, further specifying that $2.8 million should support surveillance through the National Poultry Improvement Plan and $5.3 million should be for surveillance in live bird markets. Both the Senate and House reports note that $12 million for AI indemnities was provided in FY2006 and remains available. The HPAI monitoring and surveillance line item was begun with the pandemic flu supplemental enacted in December 2005; the LPAI program continues what the Congress and the Department ramped up with appropriations and CCC transfers in FY2004-05. The overall surveillance program includes both monitoring and surveillance for wild and migratory birds which can enter the country naturally via migratory routes, increased smuggling interdiction efforts which are done jointly by USDA and DHS at the border, monitoring and control of live bird markets in the United States, and outreach to small holders/backyard farms. In FY2006, APHIS received $13.8 million for avian flu in regular appropriations, plus $71.5 million in emergency supplemental appropriations (which will remain available, if unspent, through FY2007). The emergency appropriations were part of the $3.8 billion pandemic flu supplemental in Division B of P.L. 109-148 , which included $111 million for agencies in the agriculture appropriations bill: $91 million for USDA's avian flu program and $20 million for FDA's pandemic flu vaccine program. (For more on avian flu, see CRS Report RL33795, Avian Influenza in Poultry and Wild Birds , by [author name scrubbed] and [author name scrubbed].) Both the Senate and House committee reports designate, within the APHIS appropriation, $17.2 million for BSE surveillance, to support 40,000 individual animal tests per year. The agency has been testing the brains of some 7,000 or more U.S. cattle weekly, in mainly higher-risk categories (e.g., nonambulatory, older, sick animals) to determine the prevalence of the disease in the U.S. herd. Over two years of surveillance, two out of approximately 750,000 head have tested positive for BSE. The Department is expected to adjust, and likely scale back, this intensive testing program after consulting a May 2006 peer review of its results. On the House floor, Representative Kucinich offered but later withdrew an amendment aimed at maintaining BSE testing at the enhanced level. During its markup on May 9, 2006, the House Appropriations Committee defeated, on a voice vote, an amendment by Representative Tiahrt that would have barred USDA from enforcing its restriction on the private testing of cattle for BSE. Several private companies led by Creekstone Beef of Kansas have been seeking USDA's approval to test all animals if beef customers like Japan want it. USDA and other opponents of private testing argue that it has no scientific basis because BSE cannot be detected in younger cattle, among other problems. Many Members of Congress have expressed their frustration over the delays in reopening both the Japanese and Korean markets, despite two and a half years of effort. The Senate-reported bill contains a "sense of the Senate" amendment (Sec. 757) that the United States should impose retaliatory tariffs on Japanese imports if Japan does not permit U.S. beef imports by the date of enactment of the FY2007 appropriation. The provision is nonbinding, but stronger language could be offered by the time the full Senate considers H.R. 5384 . The most recent U.S. BSE case was reported in an older Alabama cow in early March 2006; it was destroyed and its meat did not enter the food or feed supply. Difficulties determining the animal's previous whereabouts have intensified interest in a comprehensive national program for identifying and tracking livestock for disease purposes. The Department has devoted an estimated $85 million over three years to this effort and has requested another $33 million for FY2007. USDA does not anticipate that an animal identification (ID) system will be fully operational until early 2009, as it contends with widely divergent views among those in animal agriculture over such controversial issues as whether a program should be mandatory, who should pay its costs, and producer privacy concerns. Both the Senate-reported and House-passed bills fulfill the Administration's budget request. However, the House version conditions use of the money on the Secretary first providing the House Appropriations Committee with a "complete and detailed plan" for the program, "including, but not limited to, proposed legislative changes, cost estimates, and means of program evaluation, and such plan is published as an Advanced Notice of Proposed Rulemaking in the Federal Register for comment by interested parties." The accompanying House report expresses concerns about the ID program's progress and transparency. The Senate report requests the Government Accountability Office (GAO) to review USDA's steps toward establishment of a program, and it also emphasizes that the Department should work with private industry on animal ID. A House floor amendment by Representative Paul, to prohibit all funding for the animal ID program, was defeated by a vote of 34 to 389. Withdrawn, on a point of order, was a King amendment to create a mandatory but privately administered animal ID system. The amendment parallels his bill ( H.R. 3170 ) to do the same. (See also CRS Report RL32012, Animal Identification and Meat Traceability , by [author name scrubbed].) AMS is responsible for promoting the marketing and distribution of U.S. agricultural products in domestic and international markets. User fees and reimbursements rather than appropriated funds account for nearly $2 of every $3 in spending by the agency. Such fees, which now cover AMS activities like process verification programs, commodity grading, and Perishable Agricultural Commodities Act licensing, will total an estimated $196 million in FY2006 and a projected $195 million in FY2007. The Senate report anticipates that AMS will receive $101.4 million more in federal funds, either directly appropriated or transferred to AMS from the Section 32 account. The House-passed level is $104.9 million. The Administration's FY2007 proposal recommended about $100 million, compared with an estimated $114 million in FY2006 ( Figure 11 ). Neither the Senate nor House bill assumes the Administration's plan to reduce this total in FY2007 by the equivalent of $14 million in new user fees. These new fees would come from charging for the costs of the development of commodity grade standards for those requesting AMS grading services ($2 million), and for recovering the costs associated with AMS oversight of marketing orders ($12 million). Most of the Senate's anticipated decrease of approximately $13 million in new budget authority (i.e., appropriated or transferred funds) apparently reflects a reduced level of spending in FY2007, from $20 million in FY2006, for the ongoing development of the agency's Web-based Supply Chain Management System which is replacing an older commodity inventory management system. The Senate committee report recommends $15.3 million for the Pesticide Data Program and $2.9 million for the Pesticide Recordkeeping Program. It also reminds the Administration of a provision in the 2002 farm bill ( P.L. 107-171 ) requiring that it purchase at least $200 million annually in additional Section 32 fruits and vegetables, over and above previous levels. The Senate-reported version again sets spending for the Federal-State Marketing Improvement Program at $3.8 million, including a designated $2.5 million marketing grant to Wisconsin. The House version deletes the $2.5 million. The House committee report notes that it is not eliminating the $6 million Microbiological Data Program for domestic and imported produce, as proposed by the Administration. The House bill also continues the Farmers Market Promotion Program with funding of $1 million. Elsewhere within the AMS total, both the Senate and House versions endorse an Administration proposal to increase National Organic Program funding to more than $3 million in FY2007, from the current $2 million, to improve operations. A provision in Title VII of the Senate-reported bill would provide $10 million in FY2007 for specialty crop block grants to states. The House-passed bill includes $15.6 million for the program, compared with $7 million in FY2006 and an Administration request of zero. These grants are authorized by the Specialty Crops Competitive Act of 2004 ( P.L. 108-465 ), which seeks to promote the consumption and competitiveness of specialty crops (fruits, vegetables, tree nuts, and nursery crops). The act authorizes up to $54 million annually through FY2009. One branch of this agency establishes the official U.S. standards, inspection and grading for grain and other commodities. Another branch is charged with ensuring competition and fair-trading practices in livestock and meat markets. The Senate-reported bill would provide $38.7 million in FY2007 for GIPSA salaries and expenses. The House-passed bill would provide $39.7 million, which compares with the Administration's FY2007 request of nearly $42 million and the FY2006 estimate of $38.1 million ( Figure 11 ). The Administration proposes to reduce its $42 million requested appropriation by nearly $20 million, through the collection of two new user fees, for grain standardization and for Packers and Stockyards license fees. Neither the House nor Senate versions adopt this proposal which, like most other proposed USDA fees, would have to be approved by Congress. (GIPSA is expected to collect $42 million in already authorized user fees in FY2007, for its Inspection and Weighing Services.) GIPSA's Packers and Stockyards branch has been working to improve its understanding and oversight of livestock markets, where increasing concentration and other changes in business relationships (such as more contractual relationships between producers and processors) have raised concerns among some producers about the impacts of these developments on farm-level prices and the structure of U.S. agriculture. GIPSA is now overseeing a contractor's study of livestock marketing practices, funded through a $4.5 million congressional appropriation in FY2003 ( P.L. 108-7 ). The House committee report said it has been notified that a draft final report is to be completed in November 2006. Earlier in 2006, GIPSA was sharply criticized by USDA's Office of Inspector General (OIG) and by a number of Senators for shortcomings in its enforcement of the Packers and Stockyards Act and other federal competition laws. The House committee stated in its report that it was "encouraged" by the Administration's recent efforts to correct these problems and expected an update when all OIG recommendations are implemented. (See also CRS Report RL33325, Livestock Marketing and Competition Issues , by [author name scrubbed] and [author name scrubbed].) Three agencies are responsible for USDA's rural development mission area: the Rural Housing Service (RHS), the Rural Business-Cooperative Service (RBS), and the Rural Utilities Service (RUS). An Office of Community Development provides community development support through Rural Development's field offices. This mission area administers the rural portion of the Empowerment Zones and Enterprise Communities Initiative, Rural Economic Area Partnerships, and the National Rural Development Partnership. For FY2007, the Senate-reported bill recommends $2.223 billion in discretionary budget authority to support $14.247 billion in USDA rural development loan and grant programs. This is about $280 million less (-11%) in budget authority than FY2006 but $62 million more than (+2.9%) the House bill ( Figure 12 ). The Senate bill would support $3.2 billion (+29%) more in rural development loan authority than the House bill (+27% over FY2006), focusing most of the increase in rural electric loans. The Senate-reported bill, like the House measure, rejects the Administration's proposal for zero funding for Rural Business Enterprise Grants, Rural Business Opportunity Grants, and the Empowerment Zones/Enterprise Communities program. The Administration had requested no funding for these programs and had proposed moving these programs to a new rural program in the Department of Commerce. For mandatory programs authorized by the 2002 farm bill, the Senate bill would block a total of $25 million in funding, compared with $22 million by the House bill. The Senate bill would block $10 million of the broadband program and limit the value-added grant program to not more than $28 million. The Administration had requested that these funds be cancelled along with $3.0 million from renewable energy. The Senate bill would block the renewable energy funds but also recommends $25 million in discretionary funding ( Table 9 ) for the program. Authorized by the 1996 farm bill ( P.L. 104-127 ), RCAP consolidates funding for 12 rural development loan and grant programs into three funding streams. For FY2007, the Senate bill recommends $715 million for the three RCAP accounts, which is $20.0 million above FY2006 levels, $10 million more than the House measure, and $114.2 million more than the Administration's request ( Figure 12 ). The Senate bill recommends $101.7 million for the community facilities account ($81.7 enacted for FY2006), $525.0 million for the utilities account ($524.8 enacted for FY2006), and $88.2 million for the business development account (nearly the same as that for FY2006). The Senate measure reduces by over half water and waste water loan subsides ($80.0 million) and increases the grant program approximately 27% ($440.0 million) over the Administration's request. For FY2006, subsides and grants for water and waste water were $506.1 million. The House bill would also increase the grant portion of the program by 38% over the request and reduce the direct loan subsidies. As was the case in FY2006, the Senate bill also recommends directed spending from the RCAP accounts ( Table 10 ). These authorized programs in the request include $26.0 million for water and waste water improvements for Native tribes and $25.0 for the colonias. The Senate measure, unlike the House bill, also recommends $25.0 million funding for Alaskan rural and native communities ($25.0 million in FY2006). The Senate bill also recommends funding for Rural Community Development Grants ($6.3 million enacted for FY2006), Economic Impact Initiative Grants ($18.0 million enacted for FY2006), and High Energy Cost Grants ($26.0 million enacted for FY2006). Rural Business Enterprise Grants and Rural Business Opportunity Grants would get $39.6 million and $3.0 million respectively under the Senate measure, nearly the same as enacted for FY2006 and recommended by the House bill. The Senate measure also recommends $21.4 million for the Empowerment Zones/Enterprise Communities program, the same as enacted for FY2006 and slightly less than the House measure. For FY2007, the Senate-reported bill recommends $1.144 billion in budget authority for RHS loans and grants (-22% from FY2006, Figure 12 ). Of this amount, $220.6 million in subsidies would support $5.029 billion in loan authorization, approximately $2 million more than in FY2006, ( Figure 13 ). This is somewhat less than the level of loan authorization recommended by the House measure or requested, but it is about $24.0 million more in loan subsidy. The Senate measure recommends $4.773 billion in loan authorization for direct and guaranteed loans under the single family housing (Section 502), the largest RHS loan program. This is $28.1 million less than recommended by the House measure or requested by the Administration, but is the same as enacted for FY2006. The recommended loan authority for housing repair loans (Section 504) is the same as enacted for FY2006 and about $1.7 million less than requested or recommended by the House measure. The Senate bill recommends $100.0 million for multi-family loan guarantees (Section 538) and $100.0 million for rental housing loans (Section 515), the same as recommended by the House bill and nearly constant with FY2006. The Administration proposes doubling the loan authority of Section 538 to $198 million and requests zero funding for Section 515 rental housing loans. For the rental assistance program (Section 521), the Senate-reported bill recommends $335.4 million, the same as recommended by the House measure. This is a 48% reduction over FY2006 ($311.0 million) and $150.9 million less than requested. For mutual and self-help housing grants and rural housing assistance grants, the Senate bill recommends$33.6 million (the same as in FY2006) and $40.6 million (-7% from FY2006) respectively. For the farm labor account (Section 514/516), the Senate bill recommends $30.6 million. This is nearly the same as enacted for FY2006 and requested and approximately $17.0 million less than the House measure. The Senate bill recommends $28.0 million for the multifamily housing revitalization program ($0 enacted for FY2006), the same as the House measure. The Administration is requesting $74.2 million. For the rural housing voucher program, both the Senate and House measures and the request are for zero funding ($15.8 enacted for FY2006). The Senate-reported bill recommends $92.0 million in budget authority for FY2007 (+5% from FY2006), which, in addition to grants, supports a loan authorization level of $68.6 million in the Rural Development Loan Fund and the Rural Economic Development Loan Program. The Senate measure recommends the same level of loan authorization as the House and as the Administration requested (+17% from FY2006, Figure 13 ). The Senate bill recommends $10.0 million for the rural Empowerment Zone/Enterprise Communities (EZ/EC) programs ($11.1 for FY2006) and $25.0 million for the Renewable Energy Program. The House measure recommends $20 million for the energy program and $11.1 million for the EZ/EC program. The Administration requested zero funding for the EZ/EC program and $10.2 million for the renewable energy program. The Senate measure also prohibits spending $3.0 million in available mandatory funds for the energy program. The Senate bill recommends $29.5 million in Rural Cooperative Development Grants, almost the same as enacted for FY2006 ($29.2 million) and $2.6 million less than requested. The House measure recommends $9.9 million for the program. For FY2007, the Senate-reported bill recommends budget authority of $94.7 million to support RUS's loan and grant programs. Of that amount, $43.9 million would support $8.649 billion in electric and telecommunication loans. This is $3.72 billion (+61%) more in loan authorization than the House bill, and $2.57 billion (+42%) more than enacted for FY2006. The Senate measure's recommendation for subsidies to support these loans, however, is only slightly higher than the House bill (+1.5%), and even slightly less than FY2006 (-1.7%). Loan authorization levels in the rural electrification portfolio are the major sources of difference between the request and the Senate measure. For loans under the Distance Learning/Telemedicine program, the Senate measure recommends zero funding, the same as requested (-$24.7 million from FY2006) and the same as recommended by the House measure. For grants under the Distance Learning/Telemedicine grant program, the Senate measure recommends $30.0 million, nearly the same as enacted for FY2006. This amount is $5.3 million more than the request and that recommended by the House bill. The Senate bill recommends $500.0 million for broadband loans, $143.6 million more than the request (+40%) and $19.0 million less than FY2006 (-4%). The recommended loan subsidy ($10.7 million), however, is nearly the same as requested ($10.8 million) and nearly constant with FY2006. The Senate measure also recommends $10.0 million for broadband grants, about $1.0 million more than enacted for FY2006. The Administration is requesting no funding for the broadband grant program for FY2007. For more information on USDA rural development programs, see CRS Report RL31837, An Overview of USDA Rural Development Programs , by [author name scrubbed]. Funding for domestic food assistance represents over one-half of the USDA's budget. These programs are, for the most part, mandatory entitlements . Spending for the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC program), the Commodity Supplemental Food Program (the CSFP), and nutrition program administration are the three largest discretionary budget items. For FY2006, P.L. 109-97 provided appropriations (new budget authority) totaling $58.9 billion in domestic food assistance. However, FY2006 spending (new obligations) for these programs and activities—those under the auspices of the Food Stamp Act, child nutrition programs, the WIC program, commodity assistance programs like the CSFP, and nutrition program administration costs—is projected to be about 9% less at $53.7 billion. The difference between the appropriation and spending amounts is accounted for by contingency appropriations (e.g., $3 billion for food stamps), lower costs than were anticipated when the appropriations were proposed/made, and expected carryovers into FY2007, offset by spending financed from money available from prior years and other USDA budget accounts (e.g., permanent appropriations, commodity purchases for school meal programs). For FY2007, the Senate-reported bill would appropriate a total of $57.1 billion for domestic food assistance, about $100 million more than requested. This would finance spending totaling $54.3 billion (essentially the same overall figure as forecast by the Administration). On the other hand, the House-passed bill provides an appropriation of $56.8 billion, financing an overall spending level approximately the same as the Senate and as requested by the Administration. The Administration proposed domestic food assistance appropriations totaling $57 billion for FY2007, a $1.9 billion decrease from FY2006. This level, together with money from other USDA accounts, would finance estimated spending of $54.3 billion, an overall increase of about $600 million when compared to FY2006. With the major exceptions of the CSFP (proposed for termination) and the WIC program, the appropriation request proposed "full funding" for domestic food assistance, based on the Administration's projections of likely participation and food costs. But its FY2007 budget estimates depend on (1) improved economic conditions (e.g., smaller food stamp caseloads), (2) the end of costs associated with the Gulf Coast hurricanes, and (3) enactment of some changes to program benefit and eligibility rules. The FY2007 appropriations measures also include several changes to the terms under which domestic food aid programs operate and expand the program of free fresh fruit and vegetables in schools (see the section on " Special Program Initiatives ", below). However, they do not adopt most of the Administration's proposed changes in program rules. Separate from the domestic food assistance appropriation (in Title IV of the bills) and changes in program rules and new funding for the fruit and vegetable program (in Title VII of the bills), the Senate-reported measure would provide approximately $100 million in grants to states to support specialty crops and livestock (in Title VIII). These block grants could be used for (among other purposes) supplementing state food bank programs or other nutrition assistance. Appropriations under the Food Stamp Act fund (1) the regular Food Stamp program, (2) a Nutrition Assistance Block Grant for Puerto Rico (in lieu of food stamps), (3) the cost of commodities and administration/nutrition education through the Food Distribution Program on Indian Reservations (the FDPIR), (4) small nutrition assistance grant programs in American Samoa and the Commonwealth of the Northern Mariana Islands, (5) the cost of commodities (not distribution/administrative expenses covered under the Commodity Assistance Programs account) for The Emergency Food Assistance Program (TEFAP), and (6) the Community Food Project. The bills reported in the Senate and adopted by the House would appropriate $37.865 billion for Food Stamp Act programs. This is slightly less than requested by the Administration—$69 million (-0.2%) less. They also reject most of the Administration's suggestions for rule changes in programs covered by the Food Stamp Act (see the section on " Special Program Initiatives " below), although the Administration's requested $3 billion contingency fund (in case spending estimates prove too low) is included. Estimated spending under the House and Senate bills would be essentially the same as that forecast under the Administration's request. The Administration requested a FY2007 appropriation of $37.9 billion for Food Stamp Act programs, a $2.8 billion reduction from FY2006 ( Figure 14 ). Anticipated spending for these programs (after accounting for contingency funding and program changes) would be just under $35 billion, the same as in FY2006. Regular food stamp spending in FY2007 would be an estimated $33.2 billion, matching the FY2006 level. An improved economy and the absence of hurricane-related costs are reasons cited for no increase in spending. Puerto Rico's block grant is targeted for a $41 million increase to $1.6 billion (as mandated by law). Grants to American Samoa and the Northern Marianas are effectively unchanged at $14 million in total. And the FY2007 budgeted amounts for TEFAP commodities and the Community Food Project are the same as for FY2006—$140 million and $5 million, respectively. On the other hand, the Administration proposed (and the House and Senate bills adopt) a small reduction in funding for the FDPIR. A net decrease of $2 million (to $77.5 million) would result from ending a specific funding for a bison meat purchase project ($3 million in FY2006) while adding funding of $1 million for nutrition education efforts. Note: While there is a substantial ($2.8 billion) drop in Food Stamp Act appropriations from FY2006 to FY2007 in the House and Senate bills, and the Administration's request, spending is not expected to go down, and a $3 billion contingency fund would be on hand to cover unexpected increases in participation. FY2006 appropriations for Food Stamp Act programs were higher ($40.7 billion) than proposed for FY2007; however, some $5 billion is expected to go unused. The bill reported in the Senate would appropriate $13.654 billion for child nutrition programs, as compared to the House's $13.345 billion and the Administration's request for $13.645 billion. The Senate bill includes the Administration's request for a $300 million contingency fund and adds a small amount of money for expansion of the program for free fresh fruit and vegetables in schools (see the section on " Special Program Initiatives ," below). The House-passed bill does not provide any contingency funding, but, in a separate part of the bill, includes an initiative to expand the free fresh fruits and vegetables program. The Administration requested an FY2007 appropriation of $13.645 billion for child nutrition programs, up from $12.7 billion in FY2006 ( Figure 14 ). These programs/activities include the School Lunch and Breakfast programs, the Child and Adult Care Food program, the Summer Food Service program, after-school and outside-of-school nutrition programs, the Special Milk program, some food commodities bought for schools and other child nutrition providers, assistance to states for their child-nutrition-related administrative costs, and nutrition education and other special projects (e.g., "Team Nutrition," food safety, and program integrity initiatives). Similarly, overall spending for child nutrition efforts under the Administration's request (and the House and Senate bills)—drawing on all available resources—would be an estimated $13.8 billion compared to $13.1 billion in FY2006 (see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding , by [author name scrubbed]). The bill reported in the Senate provides $5.264 billion for the WIC program, $20 million more than the $5.244 billion recommended by the House, $64 million more than requested, and $60 million over the FY2006 appropriation of $5.204 billion. Differences among the Senate, House, and Administration appropriation figures reflect changed estimates of program participation and food costs since the budget was submitted and the fact that the House and Senate bills reject the rule changes affecting the WIC program proposed by the Administration. FY2007 WIC spending under the House and Senate bills is anticipated at about $5.35 billion, up from $5.2 billion in FY2006, when the availability of unused money from FY2006 and a projected carryover into FY2008 are factored in. The Administration's $5.2 billion FY2007 request was nearly the same as the FY2006 appropriation ( Figure 14 ). Spending (at just over $5.2 billion) also was projected to be the same as FY2006, but $200 million over FY2005. However, the requested FY2007 amount was predicated on changes in WIC rules not adopted in the House and Senate (see the section on " Special Program Initiatives ," below). The commodity assistance budget account covers four program areas: (1) the Commodity Supplemental Food Program (the CSFP), (2) funding for TEFAP distribution/administrative costs (in addition to the cost of commodities provided through money under the Food Stamp account), (3) two farmers' market programs for WIC participants and seniors, and (4) expenses for food donation programs for disaster assistance, aid to certain Pacific islands affected by nuclear testing, and a few commodities supplied to Older Americans Act grantees operating the Nutrition Services Incentive program for the elderly. The bill reported in the Senate would appropriate $179 million for commodity assistance programs, and, like the House measure, rejects the Administration's request to terminate the CSFP. The House bill provides $189 million for commodity assistance programs and differs from the Senate proposal in that it funds the CSFP at $118 million (an increase over FY2006 and $10 million more than provided in the Senate). Both measures include small amounts of added funding (totaling to $1 million) for administration of TEFAP, the WIC farmers' market program, and assistance for Pacific Islands. The Administration requested an appropriation of $70 million for this account, substantially less than the $188 million available for FY2006, because it proposed terminating the CSFP. Other than ending the CSFP, the Administration proposed no other significant funding changes for commodity assistance. This account provides money for federal administrative expenses related to domestic food assistance programs and special projects. The Senate-reported measure includes $143 million for nutrition program administration, $17 million less than requested and $1 million more than agreed to in the House. The Senate and House figures effectively reject funding most of the Administration's proposals for new nutrition education and program integrity initiatives, and a separate portion of the each bill provides $2.5 million for the Congressional Hunger Center. The Administration requested $160 million for FY2007, up from $141 million in FY2006, because of new initiatives for nutrition education and program integrity. However, the Administration did not request funding for the Congressional Hunger Center ($2.5 million was appropriated for FY2006 and earlier years). The bill reported in the Senate and the measure adopted by the House also include a number of special provisions relating to the rules and operations of domestic food assistance programs and expand one program (free fresh fruit and vegetables in schools). In most cases, proposals for change advanced by the Administration were not adopted in either the Senate or House bills. In the case of programs under the Food Stamp Act , the House and Senate bills (1) continue a rule (in place since FY2005) ignoring special military pay for families of those deployed in combat zones when determining food stamp eligibility and benefits, (2) terminate a special bison meat purchase program for the FDPIR ($3 million in FY2006), and (3) permit up to $10 million in commodity funding for TEFAP to be used for TEFAP distribution costs. These provisions were part of the Administration's budget request for FY2007. In addition, the House bill, through a floor amendment, stipulates that existing legal requirements on sponsors of legal aliens who receive food stamps should be followed (e.g., sponsors should be held liable for the cost of food stamp benefits). The Administration's FY2007 budget proposal for Food Stamp Act programs included several additional provisions that were rejected: (1) providing special short-term assistance to those losing CSFP support under a separate initiative (the proposed termination of the CSFP was rejected by the House and Senate), (2) excluding all retirement savings from food stamp financial eligibility tests, (3) disqualifying households with relatively high income/assets who might otherwise be eligible for food stamps because they receive other public assistance, and (4) allowing states to access the National Directory of New Hires when verifying food stamp eligibility. The Senate-reported bill includes only one significant provision related to WIC rules/operations—as suggested by the Administration (and stipulated in the FY2006 appropriations law), it adopts a specific rule barring approval of new retailers whose major source of revenue is sales of WIC food items (so-called "WIC-only" stores). The House bill includes no provisions changing WIC rules/operations. In addition to the WIC-only store provision noted above, the Administration called for a cap on the proportion of grants that can be spent on nutrition services and administration (leading to a state match requirement after FY2007) and an income limit on those who can get WIC services automatically because of their participation in Medicaid. For programs under the child nutrition, commodity assistance, and nutrition program administration accounts , the House and Senate bills adopt one proposal advanced by the Administration—barring the use of Senior Farmers' Market Nutrition program funds to pay sales taxes, coupled with disregarding the value of the program's benefits as financial resources for tax and public assistance purposes. But, as noted earlier, they continue funding for the CSFP and the Congressional Hunger Center. In a separate part of its bill, the Senate-reported measure also adds one state (Minnesota) to the list of states in which simplified Summer Food Service program rules (so-called "Lugar" rules) apply; under these rules, summer program sponsors do not have to document all costs in order to receive maximum federal subsidies. In addition, the Senate and House bills reject the Administration's proposal to provide no new funds to continue a five-state extension of the free fresh fruit and vegetable program in schools and, instead, provide more funding for the program. The Senate measure appropriates $9 million (in addition to the existing $9-million-a-year mandatory appropriation for this program); this $18 million total is intended to support the existing program (operating through selected schools in the 14 states and on 3 Indian reservations in FY2006), plus 3 states named in the Senate committee's report (Arkansas, California, and Georgia). In FY2006, $15 million was available for this program ($9 million in mandatory funding and $6 million in discretionary money included in the FY2006 appropriation). On the other hand, the House bill provides a total of $25 million for the free fresh fruit and vegetable program. This is intended to allow expansion of the existing (FY2006) program to selected schools in all states (albeit at a per-state payment amount lower than received by states currently allowed to participate). The $25 million total appropriation in the House bill represents a substantial increase over the $15 million available in FY2006, but the House proposal also makes all of the funding for this program discretionary. Finally, the Senate-reported measure effectively removes a relatively long-standing general bar against using funds from the food stamp, child nutrition, and WIC budget accounts for studies, evaluations, and other research . The Food and Drug Administration (FDA) regulates the safety of foods, and the safety and effectiveness of drugs, biologics (e.g., vaccines), and medical devices. Now part of the Department of Health and Human Services (HHS), FDA was originally housed in the Department of Agriculture, and the congressional appropriation subcommittees on Agriculture and Rural Development still have jurisdiction over the FDA budget. FDA's budget has two components: direct appropriations and user fees. For FY2007, the Senate-reported bill ( H.R. 5384 ) would provide a direct appropriation of $1.57 billion to FDA, $27.3 million more than the House-passed bill, $25.4 million more than the President's request, and $96 million more than the FY2006 enacted appropriation ( Figure 15 ). For the entire FDA budget (direct appropriations and user fees), the Senate-reported bill would provide FDA $1.947 billion, compared with $1.919 billion in the House-passed bill, $1.921 billion in the President's request, and $1.832 billion in the FY2006 appropriation. The President, the House committee, and the Senate committee account for various user fees differently, resulting in a different calculation of the President's request. The President's budget justification includes three sets of fees: (1) those from existing programs under the Prescription Drug User Fee Act, the Medical Device User Fee and Modernization Act, and the Animal Drug User Fee Act ($375.9 million); (2) ongoing collections from mammography clinics and for export and import certifications ($26.0 million); and (3) proposed reinspection and food and animal feed export certification fees ($25.5 million). The $401.9 million of fees in the President's request includes the first and second. The House Committee, however, includes only the first in its numerical calculation; it mentions the second in text. The result is a $26 million difference in the user fee part of the budget and therefore in the total program level. The Senate Committee also includes only the first in its totals but does note the second and third. A separate issue: the $25.5 million in proposed new fees that would require legislative action. None of the three includes these fees in the appropriations totals. The President's request outlines programs—distributed across most FDA Centers and field units—related to: pandemic preparedness ($30.5 million increase); the House-passed and Senate-reported bills would annualize the FY2006 $20 million supplemental; for new activities, the House would provide another $8.1 million and the Senate would give another $30.5 million; food defense ($19.8 million increase); the House-passed bill would include $4.9 million and the Senate-reported bill recommends $5.5 million; critical path to personalized medicine ($5.9 million increase); the House-passed bill would include a $4.9 million increase; and the Senate-reported bill would include the $5.9 million requested; drug safety ($4 million increase); the House-passed bill would include the requested $4 million plus $1 million relating to anti-counterfeiting technologies; and the Senate-reported bill would include $4 million; and human tissues ($2.5 million increase), also in the House-passed and Senate-reported bills. The President's request also highlights triggers needed for the user fees authorized by the device and animal drug user fee acts; the House-passed bill would provide $8.2 million for this. The President's budget request included $20.2 million for cost of living pay increases, for which the House-passed bill would provide $15.6 million and the Senate-reported bill would give $20.3 million. The House-passed bill would increase the President's request for generic drug review by $5 million and the Senate-reported bill would add another $5 million so that the Office of Generic Drugs would receive $10 million more than the President requested. Both the House-passed and Senate-reported bills would provide $14.3 million for consolidation at the White Oak campus and rental payments to GSA. To achieve the program goals in its proposed budget, the President used "FDA re-deployed resources from base programs." The reductions—affecting each Center and program area—total $52.3 million. The House committee recommended that CFSAN funds not be redirected. The Senate-reported bill would restore $29.7 million—specifically to CFSAN and NCTR—of the $52.3 million. The Senate-reported bill expanded an amendment in the House-passed bill regarding financial conflicts of interest of FDA advisory committee and panel members. Adding to the House's prohibiting FDA from waiving specific financial conflicts of interest restrictions of individuals serving as voting members of FDA advisory committees and panels; the Senate-reported bill would allow such an individual to serve if the HHS Secretary were to disclose, on the FDA website at least 15 days before the relevant meeting, the nature of the conflict, and the nature and basis of the waiver or any recusal due to the potential for conflict of interest. The Senate-reported bill also would require that the FDA commissioner submit a semiannual report to Senate and House appropriations and authorizing committees and the HHS inspector general that describes, in detail outlined in the amendment, efforts that FDA took to find individuals without potential conflicts or interest. Not included in the Senate-reported bill is a House-passed amendment that would prohibit FDA from using funds to prevent individuals, pharmacists, or wholesalers from importing prescription drugs that comply with core requirements of the Federal Food, Drug, and Cosmetic Act. Thus, this year's conference committee may face the annual struggle over drug importation: the FY2005 conference report had prohibited FDA from using funds to enforce the current statute that bans importation of prescription drugs by parties other than drug companies, and the FY2006 appropriations conferees did not adopt a House amendment that would have allowed prescription drug importation, thus averting a possible veto. Table 11 displays, by program area, the budget authority (direct appropriations), user fees, and total program levels in the enacted FY2006 appropriation, the President's FY2007 request, the House-passed bill, and the Senate-reported bill. The Commodity Futures Trading Commission (CFTC) is the independent regulatory agency charged with oversight of derivatives markets. The CFTC's functions include oversight of trading on the futures exchanges, registration and supervision of futures industry personnel, prevention of fraud and price manipulation, and investor protection. Although most futures trading is now related to financial variables (interest rates, currency prices, and stock indexes), Congressional oversight is vested in the Agricultural Committees because of the market's historical origins. For FY2007, the Senate-reported bill provides $99.5 million for the CFTC, an increase of $2.1 million (2.2%) from the FY2006 appropriation of $97.4 million. The House-passed bill provides $109.4 million, a 12% increase over FY2006, but $17.6 million less than (-14%) the Administration's request of $127.0 million ( Figure 15 ). The Administration requested a large increase in recognition of growth and change in the markets that the agency regulates, and the House-passed bill supports some of that increase. Both the House and Senate bills reject the Administration's proposal that CFTC be funded by a transaction fee rather than by appropriated funds. The Administration's request did not specify any particular fee rate, but said that the proposed fee would "cover the cost of the CFTC's regulatory activities." To fund the CFTC at the $127 million level, a fee of about six or seven cents per transaction on the futures exchanges would be required (based on 2005 trading volumes). The same futures transaction fee proposal was last included in the Administration's FY2003 budget but was not enacted by Congress. In fact, every Administration since Ronald Reagan's has called unsuccessfully for such a fee. The futures industry argues that such a fee would be anti-competitive and could divert trading to foreign markets or to the unregulated over-the-counter market. However, it is not clear that a fee of this relatively modest size would have a significant impact on trading decisions in a market where the value of a single contract may rise or fall by hundreds or thousands of dollars in a day. The Administration notes that the "CFTC is the only federal financial regulator that does not derive its funding from the specialized entities it regulates." For more information about the CFTC user fee proposal, see CRS Report RS22415, Proposed Transaction Fee on Futures Contracts , by [author name scrubbed]. | The Agriculture and Related Agencies appropriations bill includes all of USDA (except the Forest Service), plus the Food and Drug Administration and the Commodity Futures Trading Commission. The full House passed the FY2007 agriculture appropriations bill on May 23, 2006 (H.R. 5384, H.Rept. 109-463). On June 22, 2006, the Senate Appropriations Committee reported its version (H.R. 5384, S.Rept. 109-266). The full Senate took up the bill on December 5, 2006, but only to consider a crop disaster amendment, which was defeated. Because a final bill has not been enacted, a continuing resolution (P.L. 109-383) is providing funds for agriculture-related agencies through February 15, 2007, at the lower of either the FY2006 level or the House-passed level in H.R. 5384. The House-passed bill provides a total of $93.9 billion, $691 million (-0.7%) less than the $94.6 billion Senate-reported bill. In addition, the Senate-reported bill includes $4 billion of emergency agricultural disaster assistance, which does not count against budgetary caps. The House bill has no disaster provisions. The House bill provides $17.8 billion in "net" discretionary appropriations, but because certain mandatory programs are limited, the "gross" discretionary amounts are higher. The House's $18.4 billion "gross" discretionary subtotal is 1.5% less than the Senate's, and 0.7% less than in FY2006. About $76 billion, or about 81%, of both bills is for mandatory programs (e.g., Commodity Credit Corporation, crop insurance, and most food and nutrition programs). Mandatory funding would decline nearly $7 billion from FY2006, due to how crop subsidies are financed and economic conditions for food stamps. The House bill would allow prescription drug importation, and the Senate bill would facilitate travel to Cuba for selling licensed agricultural and medical goods. Both provisions have drawn veto threats from the White House in previous years. Two farm commodity provisions were stripped from the House bill by points of order. The provisions would have extended the Milk Income Loss Contract (MILC) and a peanut storage subsidy. The latter remains in the Senate-reported bill. The Senate-reported bill reduces rural development programs by 11% from FY2006 (-14% in the House bill). Discretionary conservation programs fall by $3 million in the Senate bill and $75 million in the House bill. Animal and plant health programs rise $94 million (+12%) in the Senate and $115 million in the House. Both bills reject the President's proposal to award more research funds competitively. Both bills reject an Administration proposal to terminate the Commodity Supplemental Food Program. Moreover, the House bill would provide $25 million of discretionary funds to expand a fresh fruit and vegetable program to school in all states, while the Senate bill would add $9 million in discretionary funds to a $9 million mandatory pool. This report will be updated as events warrant. |
The party ratio in a House of Representatives standing committee refers to the proportional number of members of each party caucus assigned to each committee. Determining sizes, ratios, and committee assignments are among the first actions taken following a general election and at the beginning of a Congress. The Standing Rules of the House of Representatives are silent regarding committee sizes and party ratios; the apportionment of committee seats is a decision of the majority leadership that may include discussions between majority and minority party leaderships occurring during early organization meetings. Historically, the number of majority seats on some committees has exceeded, in varying degrees, the strength of the majority party in the House chamber, regardless of which party has been in power. This generally has ensured that the majority party has a sufficient number of members distributed across committees to control voting in many committees. The exception has been the House Committee on Ethics (known as the Committee on Standards of Official Conduct prior to the 112 th Congress), for which House Rules guarantee an equal share of the seats to the two parties. This report shows House committee party ratios for 18 Congresses from the 98 th Congress (1983-1985) through the beginning of the 115 th Congress (2017-2019). Tables for each Congress include the standing committees and a permanent select committee as established and named in each Congress. An additional table ( Table 1 ) provides a comparison of majority party strength in the House chamber and total committee seats. The data presented in this report are drawn from the official lists of standing committees and any permanent select committees published by the Clerk of the House early in each Congress. The data reflect the full number of seats assigned to each party, even in instances when some assignments made by a party left seats unfilled. Data on overall party strength in the House are taken from historical tables in the 2009-2010 Official Congressional Directory, 11 1 th Congress , for the 98 th through 111 th Congresses. The data for the 112 th -115 th Congresses are from the Clerk of the House website. Independent Members are listed separately, consistent with the Clerk's committee lists. The Delegates representing American Samoa, the District of Columbia, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands, as well as the Resident Commissioner of Puerto Rico, are included in the figures for total number of committee seats. They are not included in total House data; total House data and percentages are based on 435 Members. For most Congresses, the total party division numbers reflect party strength after the November elections; they do not reflect changes due to deaths or resignations followed by special elections, or changes in party affiliation after the beginning of the Congress. Table 1 shows a comparison of majority party strength in the House chamber with total majority committee seats for the 98 th Congress through the 115 th Congress. Unfilled seats on committees (if so noted in the Clerk's lists) are counted in individual and overall committee totals for consistency. Tables 2-1 9 show for each of the 18 Congresses examined, by majority, minority, and Independents (where present) House party breakdown and majority margin; total committee seats, majority and minority committee seats, and majority margin; the standing and select committees (with legislative jurisdiction) as established and named in each Congress; committee seats allocated to the majority and minority parties, including Independents (where present), for each committee; and majority-minority seat margin for each committee. | The party ratio in a House of Representatives standing committee refers to the proportional number of members of each party caucus assigned to each committee. Determining sizes, ratios, and committee assignments are among the first actions taken following a general election and at the beginning of a Congress. The Standing Rules of the House of Representatives are silent regarding committee sizes and party ratios; the apportionment of committee seats is a decision of the majority leadership that may include discussions between majority and minority party leaderships. Historically, the number of majority seats on some committees has exceeded, in varying degrees, the strength of the majority party in the House chamber, regardless of which party has been in power. This generally has ensured that the majority party has a sufficient number of members distributed across committees to control voting in many committees. The exception has been the House Committee on Ethics (known as the Committee on Standards of Official Conduct prior to the 112th Congress), for which House Rules guarantee an equal share of the seats to the two parties. This report shows House committee party ratios for 18 Congresses, covering the period from the 98th Congress (1983-1985) through February 2017, the first part of the 115th Congress (2017-2019). Table 1 shows a comparison of majority party strength in the House chamber with total majority committee seats for the 98th Congress through the beginning of the 115th Congress. Unfilled seats on committees (if so noted in the Clerk's lists) are counted in individual and overall committee totals for consistency. Tables 2-19 show for each of the 18 Congresses examined, by majority, minority, and Independents (where present) House party breakdown and majority margin; total committee seats, majority and minority committee seats, and majority margin; the standing and select committees (with legislative jurisdiction) as established and named in each Congress; committee seats allocated to the majority and minority parties, including Independents (where present), for each committee; and majority-minority seat margin for each committee. Committee ratios data for this report are from the official committee lists for each Congress issued by the Clerk of the House, using editions that generally reflect the party ratios in effect at the beginning of each Congress. Later versions of the Clerk's lists, or the use of alternate sources or methodologies, may yield different results. Independent Members are listed separately, consistent with the Clerk's committee lists. Tables for each Congress include the standing committees and any permanent select committees as established and named in each Congress. |
Immigration reform was a key issue in the first session of the 113 th Congress. The Senate passed the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ), a comprehensive immigration reform bill that includes provisions on border security, interior enforcement, employment eligibility verification and worksite enforcement, legalization of unauthorized aliens, immigrant visas, nonimmigrant visas, and humanitarian admissions. Taking a different approach to immigration reform, the House acted on a set of immigration bills that separately address many of the same areas of immigration policy. House Committees reported or ordered to be reported immigration bills on border security ( H.R. 1417 ); interior enforcement ( H.R. 2278 ); employment eligibility verification and worksite enforcement ( H.R. 1772 ); and immigrant and nonimmigrant visas ( H.R. 2131 , H.R. 1773 ). The House and Senate also acted on other pieces of immigration-related legislation. Among these, the Violence Against Women Reauthorization Act of 2013 ( P.L. 113-4 ) includes provisions on noncitizen victims of domestic abuse or certain other crimes and on victims of human trafficking. The trafficking provisions address the care and custody of unaccompanied alien children (UAC), among other issues. Additionally, in response to the recent surge in arrivals of unaccompanied minors from Central America, the House-passed supplemental appropriations bill for 2014 ( H.R. 5230 ) contains UAC-related provisions, including language that would change the procedures for screening and processing unaccompanied alien children who arrive at the U.S. border from certain countries. Many other UAC-related bills were introduced in the 113 th Congress but have not seen legislative action. In addition to P.L. 113-4 , the 113 th Congress enacted multiple immigration-related bills. Enacted appropriations measures ( P.L. 113-6 , P.L. 113-76 , and P.L. 113-164 ) variously include policy provisions on temporary nonagricultural workers, refugees, and special immigrants, among other immigration-related issues. P.L. 113-42 , P.L. 113-66 , and P.L. 113-160 also contain provisions on special immigrants. P.L. 113-74 concerns international adoption. P.L. 113-100 concerns inadmissibility to the United States. This report discusses these and other immigration-related issues that received legislative action or have been of significant congressional interest in the 113 th Congress. The Department of Homeland Security (DHS) is charged with protecting U.S. borders from weapons of mass destruction, terrorists, smugglers, and unauthorized aliens. Border security involves securing the many means by which people and things can enter the country. Operationally, this means controlling the official ports of entry (POE) through which legitimate travelers and commerce enter the country, and patrolling the nation's land and maritime borders to prevent illegal entries. DHS's U.S. Customs and Border Protection (CBP) protects 7,000 miles of U.S. international land borders with Mexico and Canada and 95,000 miles of coastal shoreline. At ports of entry, the CBP Office of Field Operations (OFO) is responsible for conducting immigration, customs, and agricultural inspections of travelers seeking admission to the United States. Between POEs, CBP's U.S. Border Patrol (USBP) is responsible for enforcing immigration law and other federal laws along the border and for preventing unlawful entries into the United States. According to USBP data, apprehensions of unauthorized migrants have declined since FY2005, reaching a 40-year low in FY2011. Although apprehensions remain at historically low levels, there have been increases since FY2011, driven by increased apprehensions of Central American families and unaccompanied alien children (UAC) at the Southwest border (see " Unaccompanied Alien Children "). Border security has been an important issue for the last several Congresses. In recent years, some Members of Congress have proposed to strengthen border security as part of a "comprehensive immigration reform" bill, while others have argued that Congress should not consider other immigration reforms until the border has been secured. Debate in the 113 th Congress focused primarily on border security strategy and metrics; border personnel, equipment, and infrastructure; improvements to the entry-exit system for tracking aliens' travel into and out of the United States; and DHS's access to federal lands and authority to waive certain federal laws. DHS, CBP, OFO, and USBP all have published strategic plans, but they have not laid out a comprehensive operational strategy for securing U.S. borders or published clear metrics for measuring and evaluating border security. The absence of such a strategy and metrics arguably has contributed to disagreements about the existing level of border security. S. 744 , as passed by the Senate, would require DHS to develop a pair of planning documents: a Comprehensive Southern Border Security Strategy and a Southern Border Fencing Strategy. The bill includes a detailed list of surveillance equipment and other assets to be deployed in each Border Patrol sector along the southern border as required elements of the Comprehensive Security Strategy. It also requires that the Fencing Strategy describe plans to deploy 700 miles of southern border pedestrian fencing (up from about 352 miles of pedestrian fencing and 299 miles of vehicle barriers today). In general, the submission and implementation of the two southern border strategies are among the "triggers" that S. 744 would establish as preconditions for DHS to begin processing legalization applications for certain unauthorized aliens and to begin adjusting the status of such aliens under the bill. The goal of the Comprehensive Security Strategy would be to achieve and maintain "effective control" of all Border Patrol sectors along the southern border. Effective control would be defined to include "persistent surveillance" and at least a 90% "effectiveness rate." The bill would require DHS to report to Congress biannually on implementation of the Comprehensive Security Strategy, with such reports to include sector-level effectiveness rates and information about alien recidivism (i.e., repeat apprehensions). If the DHS Secretary cannot certify that DHS has achieved effective control of all southern border sectors for at least one fiscal year within five years of the bill's passage, S. 744 would require that additional border security recommendations be issued by a Southern Border Security Commission to be composed of the governors or gubernatorial appointees from each of the southern border states (and Nevada), along with congressional and presidential appointees. The Border Security Results Act of 2013 ( H.R. 1417 ), as reported by the House Homeland Security Committee, would likewise require DHS to develop a Strategy to Secure the Border. H.R. 1417 differs from S. 744 in that H.R. 1417 does not describe specific assets or miles of fencing to be included in its strategy. Instead, the House bill includes an extensive list of considerations to be taken into account in the development of the strategy; and it requires that the strategy be designed to allow DHS to gain and maintain operational control of the border within deadlines established by the bill. Operational control is defined in the House bill to include at least a 90% effectiveness rate with respect to illegal border crossing as well as a "significant reduction in the movement of illegal drugs and other contraband through such areas." H.R. 1417 also describes a more comprehensive set of border metrics than those identified in S. 744 , including measures of illegal migration, recidivism, and drug seizures between ports of entry; measures of immigration and drug enforcement as well as crossing times at ports of entry; and immigration and drug enforcement data for maritime borders. The bill would require DHS to collaborate with outside partners in the development and review of these metrics; and it would require DHS and the Government Accountability Office (GAO) to submit regular reports to Congress indicating whether operational control of the southern border has been achieved and maintained. Across a variety of indicators, the United States has substantially expanded border enforcement resources over the last three decades. Particularly since 2001, such increases have included border security personnel, fencing and infrastructure, and surveillance technology. Senate-passed S. 744 would authorize additional increases in each of these areas. Under the bill, DHS would be required to more than double the number of Border Patrol agents deployed to the southern border (to 38,405, up from 18,462 in FY2013); to increase the number of CBP officers and CBP flight hours; and to deploy the specific surveillance equipment, fencing, and infrastructure assets described in the bill's border strategies (see "Border Security Strategies and Metrics"). S. 744 also would direct DHS to continuously deploy unmanned aircraft, along with other surveillance equipment, to ensure surveillance of border areas 24 hours a day, with necessary funding authorized for FY2014–FY2018. And it would support recent CBP efforts to increase the proportion of border crossers subject to criminal prosecutions and other "high consequence" enforcement outcomes by setting aside funding to triple the number of border crossing prosecutions in the Border Patrol's Tucson sector, which has accounted for the largest number of illegal crossings in recent years. The bill would support these increases with about $45 billion in direct spending on border enforcement over a 5-10 year period. The House-passed supplemental appropriations bill for 2014 ( H.R. 5230 ) would appropriate, or otherwise make available, funds for the deployment of National Guard units and personnel to the southern border to provide support for border operations, particularly in high-traffic areas experiencing substantial crossings by unaccompanied alien children. With respect to border security personnel compensation, S. 1691 , as passed by the Senate, would create a new system for determining overtime compensation for Border Patrol agents. According to the Senate report that accompanies the bill, S. 1691 would update the Border Patrol pay system "to reflect the number of hours those agents regularly work and the way in which those hours are scheduled." The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 ( P.L. 104-208 , Div. C), as amended, requires DHS to maintain an automated, biometric entry-exit system that collects a record of every alien arriving to and departing from the United States. The Office of Biometric Identity Management (OBIM), formerly known as the United States Visitor and Immigration Status Indicator Technology (US-VISIT) program, is responsible for collecting and storing these data and for providing entry-exit information to other components within DHS and to other federal agencies. The entry-exit system has been a subject of ongoing congressional attention because—in spite of the mandate—DHS collects only biographic data (i.e., it does not collect biometric data) from certain visitors entering the United States, and it does not collect any data from certain visitors leaving the United States. Border security and immigration legislation considered in the 113 th Congress would reiterate the entry-exit mandate, with a particular focus on further development of the exit tracking system. In the House, committee-reported H.R. 1417 would require DHS, within 180 days of the bill's enactment, to submit a plan to Congress to implement immediately a biometric exit system at U.S. ports of entry, or to submit alternative plans that would achieve the same level of security within two years if DHS determines that a biometric exit system is not feasible. And the Strengthen and Fortify Enforcement (SAFE) Act ( H.R. 2278 ), as ordered to be reported by the House Judiciary Committee, would require that DHS establish a biometric entry-exit system within two years of the bill's enactment. Senate-passed S. 744 would impose a new exit-tracking requirement by making air and sea carriers responsible for collecting machine-readable passport data and other travel information from departing passengers, and for transmitting such data to DHS. (Air and sea carriers currently submit passenger manifest data to DHS.) DHS also would be required, within two years of enactment, to establish a biometric exit system at the 10 U.S. airports with the greatest volume of international travel. Following a report to Congress, DHS would be required to expand biometric data collection to 30 airports and to develop a plan for such data collection at major land and sea ports. S. 744 would further require that DHS ensure that "reasonably available enforcement resources are employed" to locate and remove visa overstays identified by the entry-exit system, and that at least 90% of people who enter the United States after the bill's enactment and who overstay their visas by more than 180 days are placed in removal proceedings or otherwise have their cases resolved. More than 40% of the southern border abuts federal and tribal lands overseen by the Department of Agriculture (USDA) or the Department of the Interior (DOI), including some areas that have been identified as "high-risk areas" for marijuana smuggling and illegal migration. DHS is not the lead law enforcement agency on USDA and DOI lands, but the three departments have signed Memoranda of Understanding (MOUs) concerning information sharing with respect to border security and DHS access to these lands. Some Members of Congress have argued that DHS should have more complete access to public lands for law enforcement purposes, though Border Patrol officials have testified that existing MOUs allow USBP to carry out its border security mission. Legislation considered in the 113 th Congress would broaden DHS authority on such lands. Senate-passed S. 744 would require USDA and DOI to provide CBP personnel with immediate access to federal lands within Arizona for certain security activities. CBP would be required to conduct its activities, to the maximum extent possible, in a manner that the DHS Secretary determines will best protect natural and cultural resources when acting on federal lands and to prepare an environmental impact statement in connection with its enforcement efforts. More broadly, both House-passed H.R. 5230 and H.R. 2278 , as ordered to be reported by the House Judiciary Committee, would give DHS immediate access to USDA and DOI lands within 100 miles of international land borders; and it would explicitly prohibit USDA or DOI from impeding or restricting CBP's border security activities on such lands. In general, federal agencies are required to review the potential impact of proposed projects on natural and cultural resources prior to committing resources to a project. These environmental and other review requirements may delay the construction of certain border infrastructure; but existing law grants DHS broad authority to waive legal requirements that might delay construction of border barriers. Senate-passed S. 744 would grant the DHS Secretary authority to waive any law, as the Secretary deems necessary, to ensure expeditious construction of barriers, roads, and other infrastructure to secure the southern border. This provision potentially applies to a broader range of border infrastructure projects than the waiver authority in current law, but only applies to projects along the southern border. The waiver authority would terminate upon certification by DHS that the bill's border fencing and border security strategies have been substantially implemented (see " Border Security Strategy and Metrics "). Both House-passed H.R. 5230 and H.R. 2278 , as ordered to be reported by the House Judiciary Committee, would also exempt application of specific laws (previously waived by the Secretary of DHS in 2008 with respect to certain border construction projects) to CBP border construction projects on all federal lands under DOI and USDA jurisdiction within 100 miles of U.S. international land borders. In addition to establishing a comprehensive set of rules governing the admission, continued presence, and departure of foreign nationals, the Immigration and Nationality Act (INA) establishes an enforcement regime to deter violations of federal immigration law. Some violations are subject to civil monetary penalties; other violations may be subject to criminal fines and imprisonment; and still others, if committed by an alien, may be grounds for denying the alien admission into the country, removing the alien from the United States, or making the alien ineligible for certain immigration benefits or relief from removal. Legislative proposals in the 113 th Congress, including H.R. 2278 , as ordered to be reported by the House Judiciary Committee, and Senate-passed S. 744 , would modify the INA's enforcement provisions applicable to persons found within the United States ("interior enforcement" provisions). Both bills would heighten criminal penalties associated with violations of federal immigration law and establish new grounds for inadmissibility and deportability. The bills differ in several important ways, however, with H.R. 2278 generally imposing more significant penalties for immigration-related violations and more stringent requirements relating to the detention and removal of aliens than S. 744 . H.R. 2278 also contains provisions encouraging states and localities to play a more active role in immigration enforcement. S. 744 and H.R. 2278 would make numerous changes to existing immigration-related criminal offenses. Among other things, both bills would amend existing criminal statutes concerning passport and immigration-related document fraud, along with the criminal prohibitions on the smuggling and harboring of unauthorized aliens. In each case, the modifications would generally involve widening the scope of proscribed conduct and heightening the available criminal penalties, at least when certain aggravating circumstances exist. Both bills would revise the criminal statutes addressing unlawful entry by an alien and unlawful reentry of an alien in violation of an outstanding order of removal, including by increasing available penalties in certain circumstances. H.R. 2278 would expand the scope of the unlawful entry and reentry statutes to expressly cover illegal border crossings, regardless of whether a crossing occurred while the alien was under surveillance by immigration authorities. S. 744 would establish a new criminal offense for hindering or obstructing the apprehension of aliens unlawfully entering the United States. S. 744 would also eliminate current criminal penalties associated with attempting to unlawfully enter the country. In addition, the Senate bill would provide an affirmative defense to an alien criminally charged with unlawful reentry into the country in violation of an outstanding removal order, if the alien had been removed from the country while a minor, and would exempt from criminal liability certain reentry offenses that involve the provision of emergency humanitarian assistance. H.R. 2278 would make unlawful alien presence a criminal offense. Specifically, the bill would make it a crime for an alien to either (1) knowingly violate the terms of his admission or parole or (2) otherwise knowingly be unlawfully present in the country for any period of time. Criminal liability would not attach to periods of unlawful presence as a minor or generally to unauthorized aliens with bona fide pending asylum applications, battered women or children, or victims of severe forms of trafficking. The INA provides that aliens who engage in specified activities, including various forms of criminal conduct and activities posing a threat to U.S. security (e.g., terrorism), are generally barred from admission and subject to removal. Some forms of conduct may also make an alien ineligible for many forms of relief from removal (e.g., asylum). The most significant immigration consequences typically attach to aliens convicted of any offense defined as an "aggravated felony" by the INA. Both S. 744 and H.R. 2278 would add new grounds for alien inadmissibility and/or deportability. For example, both bills include provisions making aliens who commit certain fraud-related offenses or who are involved with criminal street gangs inadmissible or deportable; and modify the grounds of inadmissibility to cover crimes of domestic violence, child abuse, stalking, and violation of protection orders (all of which are already grounds for deportability). Both bills contain provisions concerning the removability of aliens convicted of multiple driving under the influence (DUI) offenses. S. 744 would add or expand existing grounds of inadmissibility relating to the withholding of information for biometric screening and severe human rights violations. H.R. 2278 would amend the grounds of inadmissibility to expressly cover aggravated felony convictions (already a ground for deportability) and additional firearms offenses. Both H.R. 2278 and S. 744 would authorize immigration authorities, in certain circumstances, to consider evidence that is extrinsic to the conviction record when determining whether an alien engaged in conduct making him or her removable under specified grounds. Both bills would also make changes to the INA's definition of aggravated felony, with H.R. 2278 making the more substantial modifications. Among other things, the House bill would designate as aggravated felonies, criminal convictions for unlawful entry, presence, or reentry, as long as the length of imprisonment for the offense is at least a year. Both H.R. 2278 and S. 744 would also designate DUI convictions as aggravated felonies in certain circumstances. S. 744 would increase immigration authorities' discretion to waive certain grounds of inadmissibility. Among other things, it would give immigration judges discretion to not order certain aliens in removal proceedings to be removed, deported, or excluded if the judge determines that such actions would be against the public interest, would create a hardship to the alien's U.S. citizen or permanent resident immediate relatives, or if the alien appears eligible for naturalization. This waiver would not be available to individuals who are inadmissible or deportable based on certain criminal and national security grounds. The Secretary of DHS would have similar discretion to waive grounds of inadmissibility. H.R. 2278 would modify the immigration consequences for some types of criminal activity. For example, it would prohibit refugees and asylees who have committed aggravated felonies from obtaining legal permanent residence. It would make aliens who are removable due to involvement with criminal street gangs or who are described in the terrorism-related grounds for inadmissibility or removal, ineligible for many forms of relief from removal. H.R. 2278 also would make streamlined removal proceedings potentially applicable to a broader category of criminal aliens. House-passed H.R. 5230 would make ineligible for asylum those aliens believed to have committed, prior to their arrival in the United States, a drug-related offense punishable by more than one year's imprisonment. P.L. 113-100 directs the President to deny admission to a person seeking to enter the United States as a representative to the United Nations if it is determined that the person has engaged in terrorist activity against the United States or its allies. This provision may be waived if the President deems it to be in the national security interests of the United States. The House-passed defense authorization bill for 2015 ( H.R. 4435 ) and the competing Senate version that was reported by the Senate Committee on Armed Services ( S. 2410 ) contain provisions that would limit the application of the INA's terrorism-related provisions to the Kurdistan Democratic Party and the Patriotic Union of Kurdistan. Under the INA, individual aliens placed in removal proceedings are potentially subject to detention, but could also be released on parole or bond. Certain categories of aliens, however, are subject to mandatory detention during removal proceedings. The INA also contains provisions concerning the detention of aliens ordered removed until such time as their removal may be effectuated. S. 744 contains provisions that appear intended to reduce the number of aliens held in DHS custody throughout removal proceedings. For example, under S. 744 , except in the cases of certain terrorists and criminal aliens, detention would be required only if the Secretary of DHS demonstrates that no conditions, including the use of alternatives to detention that maintain custody over the alien, would reasonably assure the appearance of the alien at immigration proceedings and the safety of any other person. The bill would also generally require determinations by immigration judges as to whether an alien's continued detention is warranted. For aliens not eligible for bail or to be released on recognizance, another provision of S. 744 would require DHS to establish a secure alternatives program offering a "continuum of supervision mechanisms and options." Most aliens, including many who are subject to mandatory detention, would potentially be eligible for the secure alternatives program. H.R. 2278 , in contrast, would seek to augment immigration authorities' ability to detain aliens identified for removal until their removal may be effectuated. Some provisions seek to ensure that certain categories of aliens—particularly those involved in criminal activity or deemed to pose a threat to the community—remain detained throughout the removal process and until removed. Other provisions of the bill would make unlawfully present aliens convicted of one or more DUI offenses and aliens removable on account of involvement with criminal street gangs subject to mandatory detention during removal. Other provisions would establish detention requirements that are more generally applicable to any alien placed in removal proceedings or ordered removed. The Obama Administration has issued several documents that provide guidance regarding the exercise of prosecutorial discretion in immigration enforcement activities. In so doing, it has emphasized that the exercise of discretion in individual cases is appropriate to "ensure that agency resources are focused on our enforcement priorities, including individuals who pose a threat to public safety, are recent border crossers, or repeatedly violate our immigration laws." The Administration has also claimed that the exercise of such discretion can promote humanitarian interests. Others, however, have suggested that the Administration's prosecutorial discretion policies are tantamount to "amnesty," and that the Deferred Action for Childhood Arrivals (DACA) initiative, in particular, contravenes certain provisions of the INA. H.R. 2278 , as ordered to be reported by the House Judiciary Committee, contains provisions that would respond to the Obama Administration's initiatives, apparently with the intent of foreclosing certain exercises of prosecutorial discretion and promoting more vigorous enforcement of federal immigration law. The bill would require annual reports on exercises of prosecutorial discretion. It would also bar DHS from finalizing, implementing, administering, or enforcing recent guidance regarding prosecutorial discretion, including DACA. A similar restriction is contained in the House-passed version of H.R. 2217 , the Department of Homeland Security Appropriations Act, 2014. House-passed H.R. 5272 would bar federal funds from being used to consider any new or previously adjudicated DACA application; authorize deferred action for any class of unlawfully present aliens; or provide work authorization to any alien not lawfully admitted into the country who is not in lawful immigration status on the bill's date of enactment. As previously discussed, S. 744 would provide statutory authorization to DHS and immigration judges to exercise discretion in a broader range of cases involving removable aliens (see " Inadmissibility, Deportability, and Relief from Removal "). The role that states and localities play in enforcing federal immigration law has been a topic of significant interest in recent years. Some states and localities, concerned about what they perceive as inadequate federal enforcement of immigration law, have sought to independently enforce federal law, as well as to penalize conduct that may facilitate the presence of unauthorized aliens within their jurisdiction. Other states and localities, in contrast, have proscribed activities (e.g., sharing information, honoring federal requests to hold aliens) that could assist in federal immigration enforcement because they maintain that the federal government has been too aggressive in removing aliens who are not criminals and have ties to the community. At least until 2012, there had been considerable debate regarding the ability of states and local officers to independently act to enforce federal immigration law, or to impose criminal sanctions upon activities that facilitate unauthorized immigration, separate and apart from any sanctions imposed under federal law. In its decision in the case of Arizona v. United States , however, the Supreme Court found that existing federal law contemplates states and localities having a limited role in immigration enforcement. The Court indicated that states' ability to criminally sanction immigration-related activities is limited, even when these sanctions mirror those of the federal government. The Court also ruled that states generally cannot arrest aliens on the basis of suspected removability except with express federal statutory authorization or pursuant to the request, approval, or instruction of federal immigration authorities. H.R. 2278 includes several provisions that seem intended to override aspects of the Supreme Court's ruling in Arizona and provide states and localities with express statutory authorization to engage in immigration enforcement activities. Among other things, H.R. 2278 would authorize states and localities to arrest and transfer removable aliens to federal immigration authorities' custody and permit states and localities to impose their own criminal penalties for conduct constituting a criminal offense under federal immigration law. Other provisions would require greater information sharing by federal, state, and local authorities for immigration purposes; encourage the continuation and expansion of cooperative arrangements with states or localities on immigration enforcement matters, including through written agreements under INA Section 287(g); and require that DHS consider assuming custody of removable aliens in state or local custody if requested to do so. The bill would also condition certain federal funding for states and localities upon their cooperation in enforcing federal immigration law. Employment eligibility verification and worksite enforcement (one component of interior enforcement) are widely viewed as essential elements of a strategy to reduce unauthorized immigration. Under Section 274A of the INA, it is unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be so employed. Employers are further required to participate in a paper-based (I-9) employment eligibility verification system in which they examine documents presented by new hires to verify identity and work eligibility, and to complete and retain I-9 verification forms. Employers violating prohibitions on unlawful employment may be subject to civil and/or criminal penalties. Enforcement of these provisions, termed "worksite enforcement," is the responsibility of DHS's U.S. Immigration and Customs Enforcement (ICE). While all employers must meet the I-9 requirements, they may also elect to participate in the E-Verify electronic employment eligibility verification system. E-Verify is administered by DHS's U.S. Citizenship and Immigration Services (USCIS). Participants in E-Verify electronically verify new hires' employment authorization through Social Security Administration (SSA) and, if necessary, DHS databases. E-Verify is a temporary program, currently authorized through September 30, 2015. Several bills on electronic employment eligibility verification have been introduced in the 113 th Congress. Two measures have seen legislative action. The House Judiciary Committee has ordered to be reported the Legal Workforce Act ( H.R. 1772 ). S. 744 , as passed by the Senate, includes provisions on employment eligibility verification and worksite enforcement in Title III. Both bills would amend the INA to permanently authorize a new electronic verification system modeled on E-Verify. Under both bills, an employer, after reviewing employee documents evidencing identity and employment authorization and completing a verification form with the employee, would seek confirmation of the employee-provided information through the electronic verification system. The new electronic verification system proposed in H.R. 1772 would be mandatory for all employers in cases of hiring, recruitment, and referral. The verification requirements with respect to hiring would be phased in by employer size, with the largest employers (those with 10,000 or more employees) required to participate six months after the date of enactment and the smallest employers (those with less than 20 employees) required to participate two years after the date of enactment. The requirements with respect to recruitment and referral would apply one year after the date of enactment. The bill also would provide for mandatory reverification of workers with temporary work authorization, which would be phased in on the same schedule as the verification requirements for hiring. Special provisions would apply to agriculture; the hiring, recruitment and referral, and reverification provisions would not apply to agricultural workers until two years after the date of enactment. Prior to these phase-in dates, existing requirements to use E-Verify would remain in effect. H.R. 1772 would require or permit electronic verification in ways not currently allowed under E-Verify. Employers could conduct electronic verification after making an offer of employment but before hiring, and could condition a job offer on final verification under the system. Verification of previously hired individuals would be mandatory in some cases (such as, federal, state, and local government employees). DHS could authorize or direct a critical infrastructure employer to use the system to the extent DHS determines is necessary for critical infrastructure protection. In addition, employers could verify current employees on a voluntary basis. H.R. 1772 would significantly increase existing civil and criminal penalties for violations of the revised INA Section 274A prohibitions on unauthorized employment and for violations of requirements to conduct verification. It would establish as violations of the prohibition on unauthorized employment, the failure to seek electronic verification as required or the knowing provision of false information to the electronic system. H.R. 1772 would provide for the blocking of social security numbers from use in the verification system in cases of misuse and in other specified circumstances. It also would enable individuals to limit use of their social security numbers or other information for verification purposes. In addition, H.R. 1772 includes language to expressly preempt any state or local law that relates to the hiring, employment, or verification of the employment eligibility of unauthorized aliens. At the same time, a state or locality could exercise its authority over business licensing and similar laws as a penalty for failure to use the verification system and a state, at its own expense, could enforce the revised INA Section 274A provisions, under specified terms. The bill also would require DHS to establish an office to receive complaints from state and local agencies about potential violations. Among its other provisions, H.R. 1772 would direct DHS to establish an Identity Authentication Employment Eligibility Pilot Program, which would "provide for identity authentication and employment eligibility verification with respect to enrolled new employees." The Senate bill, as discussed below, would mandate the use of an identity authentication mechanism. Like H.R. 1772 , Senate-passed S. 744 would amend the INA to authorize a new Electronic Verification System (EVS) modeled on E-Verify, through which employers would seek confirmation of employee-provided information. Employers also would be required to use a new identity authentication mechanism to be developed by DHS to verify the identity of each individual an employer seeks to hire. For certain documents, the mechanism would consist of a "photo tool" to enable an employer to compare the photograph on a document provided by an individual to the original image on that same document. Under S. 744 , the EVS would be mandatory for all employers in cases of hiring, recruitment, and referral for a fee. Employers also would have to reverify the employment authorized status of individuals with temporary work authorization. As under H.R. 1772 , the verification requirements would be phased in, but on a different timetable. All federal agencies would be required to participate in the EVS on the earlier of the date of enactment, to the extent each agency is required to participate in E-Verify and as already implemented, or 90 days after the date of enactment. Federal contractors would be required to participate in the EVS in accordance with current regulatory requirements to participate in E-Verify. Beginning one year after implementing regulations are published, DHS could direct any employer involved in critical infrastructure to participate in the EVS to the extent the Secretary determines such participation would assist in critical infrastructure protection; these employers could be required to participate in the EVS with respect to newly hired employees as well as current workers. The phase-in of the EVS participation requirements for other employers with respect to newly hired employees and employees with expiring employment authorization documents would begin no later than two years after the publication of implementing regulations (for employers with more than 5,000 employees) and would end no later than five years after the publication of implementing regulations (for the last group, tribal government employers). Agricultural employers would be required to participate in the EVS no later than four years after regulations are published. DHS would be directed to develop procedures to provide individuals with direct access to their case histories in the EVS, and to notify them of queries and EVS responses. S. 744 would establish processes for an individual to seek administrative review and judicial review of a final nonconfirmation. The bill would enable individuals to limit the use of their social security numbers or other information for verification purposes. In addition, S. 744 would provide for regular privacy and accuracy audits and civil rights assessments of the EVS. With respect to enforcement, S. 744 would direct DHS to establish procedures for the filing and investigation of unlawful employment-related complaints by individuals and entities. Like H.R. 1772 , the Senate bill would significantly increase existing civil and criminal penalties for violations of the revised INA Section 274A prohibitions on unauthorized employment and for violations of requirements to conduct verification. An employer who hires a worker without using the electronic system when required to do so would be presumed to have violated the Section 274A prohibitions on unauthorized employment. Among the new penalties S. 744 would create, DHS would be authorized to establish an "enhanced civil penalty" in cases in which an employer both fails to use the EVS and violates a federal, state, or local law on the payment of wages, work hours, or workplace health and safety. Like H.R. 1772 , S. 744 includes language to expressly preempt any state or local law that relates to the hiring, employment, or verification of the employment eligibility of unauthorized aliens, though a state may exercise its authority over business licensing or similar laws to impose penalties for failure to use the federal employment verification system. Unlike H.R. 1772 , however, it does not make provision for state enforcement of the INA Section 274A provisions on unauthorized employment. The Department of State (DOS) and DHS both play key roles in administering the law and policies on the admission of aliens to the United States. All foreign nationals seeking visas (see " Temporary Admissions ," " Permanent Admissions ") must undergo admissibility reviews performed by DOS consular officers abroad. These reviews are intended to ensure that applicants are not ineligible for admission to the United States under the grounds for inadmissibility spelled out in INA Section 212. These criteria include health-related grounds, criminal history, security and terrorist concerns, public charge (e.g., indigence), and previous immigration offenses. Consular officers use the Consular Consolidated Database (CCD) to screen visa applicants. Records of all visa applications are now automated in the CCD, with some records dating back to the mid-1990s. Since February 2001, the CCD has stored photographs of all visa applicants in electronic form, and the CCD has stored 10-finger scans since 2007. In addition to indicating the outcome of any prior visa application and comments by consular officers, the system links to other security databases to flag problems that may have an impact on the issuance of the visa. Although DOS's Consular Affairs is responsible for issuing visas, DHS agencies perform related functions. There was discussion of assigning all visa issuance responsibilities to DHS when the department was being created, but the Homeland Security Act of 2002 (HSA, P.L. 107-296 ) drew on compromise language stating that DHS would issue regulations regarding visa issuances, and that DOS would continue to issue visas. The question of which agency should take the lead in visa issuances continues to be debated. Along these lines, Title IV of H.R. 2278 , as ordered to be reported by the House Committee on the Judiciary, would give the Secretary of Homeland Security "exclusive authority to issue regulations, establish policy, and administer and enforce the provisions of the [INA] and all other immigration or nationality laws relating to the functions of consular officers of the United States in connection with the granting and refusal of a visa." The bill would broaden the exception to the confidentiality requirement relating to the sharing of information with foreign governments, including by allowing such sharing for purposes of "determining a person's deportability or eligibility for a visa, admission, or other immigration benefit,'' or any other instance when "the Secretary of State determines that it is in the national interest." H.R. 2278 would narrow DOS's authority to waive personal interviews for visa applicants and would add national security and "high risk of degradation of visa program integrity" as reasons for requiring a personal interview. The legislation would also give consular officers the authority not to interview visa applicants deemed to be ineligible for the visas they are seeking. In addition, H.R. 2278 would give DHS the authority to refuse or revoke any visa to any alien or class of aliens if the Secretary determines that such refusal or revocation is necessary or advisable in the security interests of the United States. Some in Congress have been particularly interested in the Visa Security Program (VSP), which the ICE Office of International Affairs (OIA) operates in certain high-risk consular posts. As described by DHS, the VSP sends ICE special agents with expertise in immigration law and counterterrorism to foreign consulates, where they perform visa security activities that complement the DOS visa screening process. According to DHS, the VSP provides law enforcement resources not available to consular officers. One of the major tasks for VSP agents is to screen visa applicants to determine their risk profiles. GAO, however, released an evaluation of the VSP that identified several shortcomings. In addition to noting that tensions exist between consular officials and VSP agents, GAO was especially concerned about the lack of standard operating procedures for VSP agents across the various posts. Most importantly, perhaps, GAO stated that ICE has not expanded the VSP to key high-risk posts despite well-publicized plans to do so. H.R. 2278 would seek to expand the VSP by requiring DHS to conduct an on-site review of all visa applications and supporting documentation before adjudication, at the top 30 visa-issuing posts designated jointly by the Secretaries of State and Homeland Security as high-risk posts. It further would call for expedited clearance and placement of DHS personnel at overseas embassies and consular posts. Nonimmigrants—such as tourists, foreign students, diplomats, temporary workers, cultural exchange participants, or intracompany business personnel—are admitted to the United States 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 are "dual intent," meaning that they may maintain nonimmigrant status while, at the same time, seeking to adjust to lawful permanent resident (LPR) status if they otherwise qualify. Current law describes 24 major nonimmigrant visa categories, and over 70 specific types of nonimmigrant visas, which are often referred to by the letter that denotes their section in the statute, such as H-2A agricultural workers, F-1 foreign students, or J-1 cultural exchange visitors. The 113 th Congress considered legislation that would make extensive revisions to nonimmigrant categories for professional specialty workers (H-1B visas), intra-company transferees (L visas), and other skilled temporary workers. S. 744 , as passed by the Senate, and the Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas Act (SKILLS Visa Act; H.R. 2131 ), as ordered to be reported by the House Committee on the Judiciary, would substantially revise these visa categories. Current law makes H-1B visas available for professional specialty workers. H-1B visas are good for three years, renewable once; and they are "dual intent," meaning aliens on H-1B visas may seek LPR status while maintaining H-1B status in the United States. Current law generally limits annual H-1B admissions to 65,000, but most H-1B workers are admitted outside the cap because they are returning workers and are, therefore, exempt from the cap or they work for universities and nonprofit research facilities that are exempt from the cap. Employers seeking to hire an H-1B worker must attest that the employer will pay the nonimmigrant the greater of the actual wages paid to other employees in the same job or the prevailing wages for that occupation; working conditions for the nonimmigrant will not adversely affect U.S. workers; and there is no applicable strike or lockout. The employer must provide a copy of the labor attestation to representatives of the bargaining unit where applicable, or must post the labor attestation in conspicuous locations at the work site. Prospective H-1B nonimmigrants must demonstrate to USCIS that they have the requisite education and work experience for the posted positions. Both S. 744 and H.R. 2131 would seek to address perceived H-1B shortages by increasing the annual numerical limits. S. 744 would replace the 65,000 per year cap on new H-1B admissions with a flexible cap that would range from a floor of 115,000 to a ceiling of 180,000 annually, with a "market-based" mechanism to increase or decrease the cap based on demand during the previous year (i.e., whether and how quickly the previous year's limit was reached). Under S. 744 , up to 25,000 visas would be exempted from the cap for foreign nationals with graduate degrees in a science, technology, engineering, or mathematics (STEM) field. H.R. 2131 would raise the cap to 155,000 and would include an additional 40,000 H-1B visas for STEM graduates with masters' or doctoral degrees. Both bills would permit spouses of H-1B workers to work. S. 744 would seek to protect U.S. workers by modifying H-1B application requirements and procedures for investigating H-1B complaints. The bill would amend the H-1B labor certification process to revise wage requirements based on Department of Labor (DOL) surveys, and would require employers to advertise for U.S. workers on a DOL website. S. 744 also would broaden DOL's authority to investigate alleged employer violations, would require DOL to conduct annual compliance audits of certain employers, and would increase DOL reporting requirements and information sharing between DOL and USCIS. Both S. 744 and H.R. 2131 would revise the prevailing wage schedules. H.R. 2131 would give DOL subpoena powers in an attempt to assure employer compliance with the H-1B rules. Current law permits certain workers to enter the United States on nonimmigrant L visas as intracompany transferees. The L visa is designed for executives, managers, and employees with specialized knowledge of a firm's products. It permits multinational firms to transfer top-level personnel to their locations in the United States for up to five to seven years. Some Members of Congress have raised concerns that the L visa may result in displacement of U.S. workers employed in those positions. L workers are often comparable in skills and occupations to H-1B workers, but the L visa is not subject to the labor market attestation requirements the law sets for hiring H-1B workers. These concerns have been raised, in particular, with respect to certain outsourcing and information technology firms that employ L workers as subcontractors within the United States. S. 744 would add prohibitions on the outsourcing and outplacement of L employees. Employers seeking to bring an L visa worker to the United States to open a new office would face special application requirements. DHS would be required to work with DOS to verify the existence of multinational companies petitioning for the L workers. With respect to compliance, DHS would be authorized to investigate and adjudicate alleged employer violations of L visa program requirements for up to 24 months after the alleged violation; and DOL would be required to conduct annual compliance audits of certain employers. H.R. 2131 would add new labor market conditions to the INA pertaining to L petitions. The bill would require employers of certain L workers who will be working a cumulative period of six months over a three-year period to pay either the actual wage paid to similarly employed workers or the prevailing wage, whichever is higher. Under H.R. 2131 , the employer would have to provide working conditions that will not adversely affect working conditions of similarly employed workers. Current law includes two nonimmigrant visa categories similar to H-1B visas for temporary professional workers from specific countries: North American Free Trade Agreement (NAFTA) TN visas for Canadian and Mexican temporary professional workers, and E-3 treaty professional visas for Australians. Among the related provisions in legislation that received action in the 113 th Congress, S. 744 would create a new category for specialty workers from countries with whom the United States has signed a free trade agreement. H.R. 2131 would extend the required $500 fee for H-1B visa and L visa fraud detection and prevention programs to employers of TN, E-3, and certain H-1B workers. Several other employment-based nonimmigrant visas are intended to attract outstanding individuals, entrepreneurs, professionals, and high-skilled workers. Among these visas is the O visa for persons with outstanding and extraordinary ability. S. 744 and H.R. 2131 would add visa portability for foreign nationals on O-1 visas, enabling them to change employers, and would add flexibility to the requirements for being admitted on an O-1 visa based on achievement in motion picture or television production. S. 744 would significantly amend the E-1 and E-2 visa categories for treaty traders and treaty investors from countries with whom the United States has signed a treaty of commerce and navigation. Although more than 70 countries are eligible for these visas, the United States no longer enters into treaties of commerce and navigation. Among other changes, S. 744 would allow E visas to be issued to citizens of countries where there is a bilateral investment treaty or a free trade agreement. In addition, the Senate bill would create a new nonimmigrant X visa for qualified entrepreneurs whose U.S. business entities meet certain requirements regarding attracting investment, or generating revenues and creating jobs. None of the House bills that have seen committee action contain similar provisions, but H.R. 2131 would create a pathway for E-2s to become LPRs (see " Investor Visas "). Under current law, lower-skilled temporary workers (sometimes referred to as guest workers) can enter the United States on H-2A agricultural worker visas and H-2B nonagricultural worker visas to perform temporary or seasonal work. Bringing in an H-2A or H-2B worker is a multi-agency, multi-step process. Among the required steps, employers must apply to the Department of Labor for a certification that there are not sufficient U.S. workers who are qualified and available to perform the work; and that the employment of foreign workers will not adversely affect the wages and working conditions of U.S. workers who are similarly employed. Before filing such a labor certification application with DOL, prospective H-2A and H-2B employers must attempt to recruit U.S. workers. As part of the labor certification process, employers must offer and provide required wages and benefits to guest workers and similarly employed U.S. workers. Senate and House bills that have received action in the 113 th Congress variously contain provisions on lower-skilled temporary workers. S. 744 , as passed by the Senate, and the Agricultural Guest Worker Act, or the AG Act ( H.R. 1773 ), as ordered to be reported by the House Judiciary Committee, would establish new temporary agricultural worker visas. S. 744 would establish new W-3 and W-4 nonimmigrant visas for agricultural workers, and H.R. 1773 would create a new H-2C nonimmigrant agricultural worker visa. While the new agricultural worker visas proposed in the Senate and the House measures differ, they share some similarities that distinguish them from the existing H-2A visa. Both the Senate and the House bills would sunset the H-2A visa program. Among the new features of the Senate-proposed and the House-proposed replacement agricultural worker visa programs, these visas, unlike the H-2A visa, would not be limited to temporary or seasonal agricultural work and would not require prospective employers to apply for DOL labor certification or to meet all existing certification requirements. Both new programs also would provide for at-will employment by agricultural workers. In addition, both the Senate and the House agricultural worker proposals include provisions to enable certain unauthorized aliens to obtain legal temporary or permanent immigration status. S. 744 , as passed by the Senate, would make changes to the H-2B visa. Current law permits the admission of H-2B visa holders to perform temporary, non-agricultural work when sufficient qualified U.S. workers are not available. H-2B visas are subject to a statutory cap of 66,000 visas per year. S. 744 would provide for the admission of additional H-2B workers outside the statutory cap, while also imposing additional requirements on H-2B employers. Among these provisions, S. 744 would renew an H-2B returning worker exemption from the annual cap that was in effect in FY2005-FY2007 and provide that H-2B nonimmigrants counted toward the H-2B cap for FY2013 would not be counted again for FY2014 through FY2018. In addition to revising the H-2B visa, S. 744 would create a new W-1 visa for nonagricultural temporary workers and a new W-2 visa for the spouses and children of such workers. Unlike the H-2B visa, the W-1 visa would not be limited to temporary or seasonal work and would not require prospective employers to apply for DOL labor certification. More generally, the W-1 visa would be subject to a different set of requirements than the H-2B visa. W-1 nonimmigrants would be admitted to work in registered positions, which would be limited to lower-skilled occupations and generally to metropolitan areas where the unemployment rate is 8.5% or less. The number of positions would range from 20,000 to 200,000 per year, to be determined as specified in S. 744 . Additional positions could be created for shortage occupations and as special allocations for certain employers who meet specified recruitment requirements. W-2 nonimmigrants also would be authorized to work in the United States. An H-2B provision was enacted as part of the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). It allows an employer in the seafood industry with an approved H-2B petition to bring in H-2B workers at any time during the 120-day period beginning on the employer's stated date of need for workers, without filing another petition. This provision, which was initially in effect until September 30, 2014, has been extended until December 11, 2014, by the Continuing Appropriations Resolution, 2015 ( P.L. 113-164 §140). The 113 th Congress also considered changes to the temporary visa categories for foreign visitors to the United States and foreign students. There has been long-standing interest in Congress in promoting international tourism to the United States. S. 744 would allow Canadians over age 55 entering on B tourist visas who own or have rented property in the United States to be admitted for a period not to exceed 240 days. Currently, the maximum admission time on a B visa is 180 days. S. 744 would also create a new nonimmigrant visa category (Y) for those over 55 years of age who own property in the United States. Similar provisions are contained in the Jobs Originated through Launching Travel (JOLT) Act of 2013 ( H.R. 1354 ). The Visa Waiver Program (VWP) allows nationals from certain countries to enter the United States as temporary visitors for business or pleasure without first obtaining a visa from a U.S. consulate abroad. Aliens entering under the VWP must get approval from the Electronic System for Travel Authorization (ESTA), a web-based system that checks the alien's information against relevant law enforcement and security databases, before they can board a plane to the United States. To qualify for the VWP, the INA specifies that a country must offer reciprocal privileges to U.S. citizens; have had a nonimmigrant refusal rate of less than 3% for the previous year; issue their nationals machine-readable passports that incorporate biometric identifiers (see " Entry-Exit System "); certify that it is developing a program to issue tamper-resistant, machine-readable visa documents that incorporate biometric identifiers which are verifiable at the country's port of entry; and not compromise the law enforcement or security interests of the United States by its inclusion in the program. Senate-passed S. 744 would make several changes to the VWP, including authorizing the Secretary of DHS, in consultation with the Secretary of State, to designate a country as a VWP country if the country's nonimmigrant refusal rate and/or nonimmigrant overstay rate was less than 3% in the previous fiscal year. As indicated above, only the refusal rate is currently used in deciding whether a country should be in the VWP. S. 744 would also allow the Secretary of DHS to waive the refusal rate requirement if certain conditions are met. In addition, the bill would revise the current probationary period and procedures for terminating a country's participation in the VWP if that country fails to comply with any of the program's requirements. In 2009, Congress created the Corporation for Travel Promotion (called Brand USA), a public-private entity to promote U.S. tourism that is funded by a $10 travel promotion fee levied against ESTA applicants. By statute, the travel promotion fee expires at the end of FY2015. H.R. 4450 , as passed by the House, would extend the travel promotion fee though FY2020. H.R. 938 , as passed by the House, and S. 2673 , as passed by the Senate, would declare that it is U.S. policy to admit Israel to the VWP when Israel satisfies—and for as long as Israel continues to satisfy—the program's statutory requirements. The most common nonimmigrant visa for foreign students is the F visa. It is for international students pursuing an education at an "established college, university, seminary, conservatory, academic high school, elementary school, or other academic institution or in an accredited language training program." Both S. 744 , as passed by the Senate, and H.R. 2131 , as ordered to be reported by the House Judiciary Committee, would make changes to the F visa category. S. 744 would allow aliens on F visas who are seeking a bachelor's or graduate degree to have dual intent; thus, they could seek LPR status while maintaining F status. H.R. 2131 would allow dual intent only for aliens on F visas who are seeking a bachelor's or graduate degree in a STEM field. S. 744 also would increase the accreditation requirements for schools accepting F students, and would remove the 12 month time limit for foreign students on F visas who are attending public secondary schools. H.R. 5401 , as ordered to be reported by the House Judiciary Committee, would terminate the nonimmigrant status of any Libyan national, or any other foreign national acting on behalf of a Libyan entity, engaging in aviation maintenance, flight operations, or nuclear-related studies or training. In addition, the bill would prohibit these foreign nationals from transferring schools, extending their period of stay, obtaining employment or practical training authorization, reinstating their student status, or changing their nonimmigrant status. Congress first mandated a foreign student and exchange visitor tracking system in 1996, and Congress expanded the system's requirements for an electronic tracking system after the September 11, 2001, terrorist attacks. This monitoring system, known as the Student and Exchange Visitor Information System (SEVIS), became operational in 2003, and is administered by ICE's Student and Exchange Visitor Program (SEVP). ICE is developing a new system, known as SEVIS II, in an effort to address limitations in the current SEVIS system. In addition, SEVP certifies schools as being eligible to accept foreign students. S. 744 , as passed by the Senate, and H.R. 2278 , as ordered to be reported by the House Judiciary Committee, both contain several provisions related to SEVP and SEVIS. Among other provisions, both S. 744 and H.R. 2278 would change accreditation requirements for academic institutions and flight schools accepting foreign students, and require periodic background checks for those accessing SEVIS. Both bills would make changes to the law to try to accelerate the process of withdrawing a school's certification to prevent problematic institutions from accepting foreign students. Both bills would also increase penalties for fraud related to visa documents committed by the owner or certain employees of SEVP-certified schools, and prohibit individuals convicted of such fraud from holding a position of authority at any school that accepts foreign students. In addition, S. 744 would require DHS to implement a real-time transmission of data from SEVIS to CBP databases. This interoperability would have to be completed within 120 days of enactment or the DHS Secretary would be required to suspend the issuance of foreign student (F and M) visas. The J-1 visa is for individuals participating in cultural exchange programs and encompasses a variety of different, often work-related, programs, the largest of which is the summer work/travel program. S. 744 would impose a fee on program sponsors (employers) for each nonimmigrant entering as part of a summer work/travel exchange. In addition, S. 744 would make eligible for a J visa, aliens who are coming to the United States to perform specialized work that requires proficiency in languages spoken in countries with less than 5,000 permanent admissions in the previous year. Immigrants are persons admitted as legal permanent residents 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, employment, and geographic diversity of sending countries. These limits include an annual flexible worldwide cap of 675,000 immigrants, plus certain humanitarian admissions. 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 with approved petitions must wait to receive a numerically limited visa (commonly referred to as the "backlog" or "queue"). The immediate relatives of U.S. citizens are admitted outside of the numerical limits and are the flexible component of the worldwide cap. S. 744 , as passed by the Senate, and H.R. 2131 , as ordered to be reported by the House Committee on the Judiciary, would revise the numerical limits on legal permanent immigration and would alter the system that allocates the visas. Both bills would eliminate the per-country ceiling for employment-based preferences, and would increase the per-country ceiling for family-based preferences from 7% to 15%. Both bills would also make substantial changes to the allocation of visas to family-based and employment-based LPRs and would modify rules for investor visas. To qualify as a family-based LPR under current law, a foreign national must be the spouse or minor child of a U.S. citizen; the parent, adult child, or sibling of an adult U.S. citizen; or the spouse or unmarried child of a lawful permanent resident. At least 226,000, and no more than 480,000, family preference LPRs are admitted each year within four different preference categories: (1) adult unmarried children of U.S. citizens; (2) spouses, minor children, and adult unmarried children of LPRs; (3) adult married children of U.S. citizens; and (4) siblings of adult U.S. citizens. Foreign nationals who are immediate relatives of U.S. citizens (spouses, minor children, or parents) are not subject to numerical caps and may be admitted in unlimited numbers. S. 744 , as passed by the Senate, includes three sets of provisions that would substantially affect family-based admissions. First, the bill would introduce two "Merit-Based" systems for allocating visas, the second of which would reduce and possibly eliminate the current family-based visa queue of persons with approved immigration petitions, currently estimated at 4.3 million. As discussed more fully below, the Merit-Based Track Two system would allocate LPR visas to family-preference petitioners in the visa queue who had filed before the date of enactment of S. 744 . The allocation would occur at a rate of 1/7 of all such pending petitioners per year over the seven years from FY2015 through FY2021. During FY2022-FY2023, visas would be issued to family-preference petitioners filing for up to 18 months after the date of enactment, with half of such petitioners receiving visas in each year (see " Merit-Based Track Two "). In a second set of provisions, S. 744 would alter the number of family-based categories and the applicable numerical limits. It would reclassify spouses and minor unmarried children of LPRs as immediate relatives, making them exempt from family-preference numerical limits. The bill would then reallocate family-preference visas in two stages. In the first stage, during the first 18 months after enactment, family-preference visas would be allocated as follows: (1) adult unmarried children of U.S. citizens would be capped at 20% of the worldwide limit for family-preference immigrants; (2) adult unmarried children of LPRs would be capped at 20% of the worldwide limit, plus unused visas from the first category; (3) adult married children of U.S. citizens would be capped at 20% of the worldwide limit, plus unused visas from the first two categories; and (4) siblings of U.S. citizens would be capped at 40% of the worldwide limit, plus unused visas from the first three categories. In the second stage, beginning 18 months after enactment, S. 744 would eliminate the fourth preference category for adult siblings of U.S. citizens and would change the third preference category for adult married children. Under the revised system, family-preference visas would be allocated, as follows: (1) adult unmarried children of U.S. citizens could not exceed 35% of the worldwide level; (2) adult unmarried children of LPRs could not exceed 40% of the worldwide level; and (3) adult married children (31 years of age or younger) of U.S. citizens could not exceed 25% of the worldwide level. A third set of provisions in S. 744 would make nonimmigrant V visas available to all persons with approved petitions pending within a family preference category. Such visas would allow the adult unmarried children of U.S. citizens and LPRs, as well as U.S. citizens' adult married children who are age 31 or younger, to reside in the United States until their visas become available. They would also be granted work authorization during that period. The current employment-based LPR visa system consists of five numerically limited preference categories. To qualify within one of these categories, a foreign national must be a person of extraordinary or exceptional ability in a specified area; an employee whom a U.S. employer has received approval from the Department of Labor to hire; 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 currently allocates 140,000 admissions annually for employment-preference immigrants. S. 744 , as passed by the Senate, would make substantial changes to the employment-based system. Foremost, the bill would exempt from the numerical limits on employment-based LPRs the following: derivatives (i.e., accompanying immediate family members) of employment-based LPRs; persons of extraordinary ability in the arts, sciences, education, business, or athletics; outstanding professors and researchers; and certain multinational executives and managers (the current first preference employment-based category); persons who earned a doctorate degree from an institution of higher education in the United States or an equivalent foreign institution; or persons who earned a graduate degree in a science, technology, engineering, or math (STEM) field from a U.S. institution within the five-year period before the petition filing date and who have a U.S. offer of employment in the related field; and foreign national physicians who have completed foreign residence requirements. In addition to establishing exemptions from numerical limits, the Senate bill would amend existing employment-based preference categories and would change certain procedures for admitting employment-based immigrants. For example, S. 744 would amend the first preference category (described above) to include aliens who are members of the professions holding advanced degrees who have a U.S. job offer (subject to certain requirements), including alien physicians accepted to a U.S. residency or fellowship program, or prospective employees of national security facilities. The second preference category would consist of advanced degree holders and generally would be allocated 40% of the 140,000 employment-based visa total. S. 744 also would change the allocation for the third preference employment-based category (i.e., skilled workers with at least two years training, professionals with baccalaureate degrees, and unskilled workers in occupations in which U.S. workers are in short supply) from 28.6% to 40% of the worldwide level and would repeal the existing cap of 10,000 on unskilled workers within that 40%. Rather than shift certain visa categories outside numerical limits as in S. 744 , H.R. 2131 , as ordered to be reported, would eliminate the family-based fourth preference category for siblings of U.S. citizens (see " Family-Based Immigration ") and the diversity visa lottery (see " Diversity Visas "), and would reallocate these visas to increase the total number of employment-based LPR visas to 235,000 per year. The bill would provide up to 55,000 visas for foreign STEM graduates of U.S. universities. Foreign graduates who have a medical, dental, or veterinary degree, or who have completed their medical, dental, or veterinary residency at a U.S. university, would also be eligible. H.R. 2131 would require the STEM graduates to have completed 85% of their education while being physically present in the United States. Any LPR visas not used by STEM doctorates would be available for those with master's degrees in STEM fields from a U.S. university. In addition, H.R. 2131 would increase to 55,040 each, the number of visas available for immigrants in professions with advanced degrees and persons of exceptional ability, and the number of visas available for skilled workers and professionals with bachelor's degrees. It would not alter the existing cap of 10,000 on unskilled workers. The fifth preference category under the current employment-based admissions system is for foreign investors (LPR investors). The basic purpose of the LPR investor visa, commonly referred to as the EB-5 visa, is to benefit the U.S. economy, primarily through employment creation and an influx of foreign capital into the United States. EB-5 visas are designated for individuals wishing to develop a new commercial enterprise in the United States. The INA stipulates that for an investor to qualify for an EB-5 visa, the investor must invest $1 million into the enterprise. The investor receives conditional LPR status, and after two years if USCIS determines that the investor has invested the money, created 10 jobs, and the business is still operational, the conditional status is removed. In 1992, the Regional Center Pilot Program was authorized under the EB-5 visa category to provide a coordinated focus for foreign investment toward specific geographic regions. The majority of EB-5 immigrant investors come through the pilot program. S. 744 , as passed by the Senate, and H.R. 2131 , as ordered to be reported by the House Judiciary Committee, would make changes to the existing EB-5 program. Both bills would adjust the required amount of capital by the Consumer Price Index for Urban Consumers (CPI-U), and provide procedures for allowing the Secretary of DHS to extend the alien's conditional LPR status if the alien is close to meeting the requirements to have the conditional status removed. Both S. 744 and H.R. 2131 would make the regional center pilot program permanent, and would generally make persons found liable for certain civil, or convicted of certain criminal, offenses ineligible to be involved as an owner, or in management or promotion of, a regional center. Both bills also include procedures for terminating a regional center designation as well as requirements related to ensuring that regional centers comply with securities laws. In addition to making changes to the existing EB-5 visa category, H.R. 2131 and S. 744 would create new employment-based preference categories for investors, allowing foreign nationals under certain circumstances to receive investment money from qualified investors. Each bill would make a total of about 10,000 new visas available per year under the new categories. The bills contain similar but not identical requirements regarding the amount of money that must be invested and raised, and the number of jobs that must be created within the first three years after investment to have the conditional status removed. S. 744 also includes separate requirements for those who have degrees in a STEM field from a U.S. college or university. In addition, H.R. 2131 would allow E-2 treaty investor visa holders (see " Other Skilled and Professional Workers ") to adjust to LPR status under one of the new categories if they meet certain conditions. The purpose of the diversity immigrant visa lottery, as the name suggests, is to encourage legal immigration from countries other than the major sending countries of current immigrants to the United States. The diversity lottery currently makes 50,000 visas available annually to natives of countries that accounted for fewer than 50,000 immigrant admissions in total over the preceding five years. Some critics of the diversity visa warn that it is vulnerable to fraud and misuse. They argue that the diversity lottery should be eliminated and its visas used for backlog reduction in other visa categories. Supporters of the diversity visa, however, argue that the diversity visa provides "new seed" immigrants for an immigration system weighted disproportionately toward family-based immigrants from a handful of countries. Both S. 744 , as passed by the Senate, and H.R. 2131 , as ordered to be reported by the House Committee on the Judiciary, would repeal the diversity visa lottery; however, S. 744 would enable those who received diversity visas for FY2013 and FY2014 to be eligible to obtain LPR status. S. 744 , as passed by the Senate, would augment the current preference system of LPR admissions based upon close family relationships and certified employment offers (see preceding " Family-Based Immigration " and " Employment-Based Immigration ") with two new pathways. Labeled in the legislation as "Merit-Based" systems, these pathways would enable immigration that is not necessarily dependent on sponsors in the United States and not allocated to achieve country of origin diversity. One system would be designed as a point system to admit aliens based on their employment skills, and the other would be designed to expedite the admission of certain people in the existing visa backlog. The proposed Merit-Based Track One visa in Senate-passed S. 744 would admit 120,000 to 250,000 LPRs annually, with the annual flow based upon a sliding formula that would depend on demand for the visa in the previous year. If the average annual unemployment rate in the previous fiscal year was greater than 8.5%, the level would not be increased. Unused visas from past years would be recaptured. During each of the years FY2015 through FY2017, Track One visas would be made available to foreign nationals who meet existing criteria for the employment-based third preference category for professional, skilled shortage, and unskilled shortage workers. In FY2018 and subsequent years, visas would be allocated as follows: 50% would be allocated to Tier 1 based upon factors including education (college plus), employment experience, high-demand occupation, entrepreneurship, relative youth, English language ability, familial relationship to a U.S. citizen, country of origin diversity, and civic engagement. 50% would be allocated to Tier 2 based upon factors including employment experience, employment in high-demand occupations that require little to medium preparation (high school diploma or GED), experience as primary caregiver, relative youth, English language ability, familial relationship to a U.S. citizen, country of origin diversity, and civic engagement. S. 744 , as passed by the Senate, would create a second Merit System (Track Two) with 4 components. The first component would consist of employment preference petitioners who filed before enactment of S. 744 and whose petitions were pending (i.e., were in the visa queue or backlog) for at least five years on the date of enactment. The second would consist of family-preference petitioners who filed before enactment and whose petitions were pending (i.e., were in the visa queue or backlog) for at least five years. The third component would consist of persons filing third or fourth preference family petitions during the first 18 months after the date of enactment (i.e., before the bill's final changes to the family-preference categories become effective; see " Family-Based Immigration ") and whose visas are not issued during the first five years after the bill's date of enactment. The fourth would consist of individuals who have been in a legally present status that allows for employment authorization for 10 years, a category apparently designed to describe unauthorized aliens who would be granted a new registered provisional immigrant status under separate provisions of the bill (see " Legalization of Unauthorized Aliens "). Under S. 744 , the first two components of the Merit-Based Track Two system would function as current backlog reduction, as visas would be issued to 1/7 of the petitioners in these two categories, ordered by filing date, during each year from FY2015 through FY2021, regardless of country of origin or other numerical limits. During FY2022-FY2023, Merit-Based Track Two visas would be issued to petitioners filing after the date of enactment under the current family-based third and fourth preference categories, with one half of such filers receiving visas in each of these years (ordered by filing date). These visas would thus accommodate certain family petitioners who no longer would be eligible following the implementation of reforms to the family preference system in S. 744 (see " Family-Based Immigration ""Family-Based Immigration"). Ten years after enactment of S. 744 (i.e., beginning in FY2024), the Merit-Based Track Two system would become a pathway for individuals granted legal temporary registered provisional immigrant status under the bill to adjust to LPR status (see below). Beginning in FY2029, aliens would be required to have been lawfully present in an "employment authorized status" for 20 years prior to filing for LPR status under Track Two. The bill expressly waives the unlawful presence ground of inadmissibility for Track Two adjustments of status. How to address the unauthorized alien population in the United States is a key and controversial issue in comprehensive immigration reform. There is a fundamental split between those who want to grant legal status to unauthorized aliens in the United States and those who want unauthorized aliens to leave the country. S. 744 , as passed by the Senate, proposes to establish legalization programs for certain unauthorized aliens in the United States. The implementation of certain enforcement provisions under Section 3 of S. 744 would serve as pre-conditions for the bill's legalization provisions (see " Border Security Strategy and Metrics "). A general legalization program would initially grant registered provisional immigrant (RPI) status, a new legal temporary status, to unauthorized aliens who have been continuously physically present in the United States since December 31, 2011, and meet other requirements. Dependent spouses and children of these aliens could be classified as RPI dependents if they have maintained continuous physical presence in the United States since December 31, 2012, and meet the other RPI eligibility requirements. RPIs could subsequently apply to adjust to LPR status, subject to specified requirements; there would be a special pathway to LPR status for RPIs who entered the country as children and satisfy criteria under the DREAM Act provisions in S. 744 . RPIs who are not eligible for the DREAM Act pathway would have to adjust to LPR status under the new Merit-Based Track Two system of permanent admissions that S. 744 would separately establish (see " Merit-Based Track Two "). A separate legalization program would grant Blue Card status, another new legal temporary status, to eligible agricultural workers, who could subsequently apply to adjust to LPR status. The general and agricultural legalization programs and the DREAM Act pathway would each be subject to a different set of requirements, which would variously include employment/education, penalty fees, and payment of federal income taxes. The time frames for eligibility for LPR status also vary under the general and agricultural legalization programs and the DREAM Act pathway. The House has not acted on any legislation to establish a general legalization program for unauthorized aliens. A bill ( H.R. 1773 ) that was ordered to be reported by the House Judiciary Committee, however, would enable certain unauthorized aliens to obtain legal temporary status. H.R. 1773 would establish a new H-2C visa for temporary agricultural workers (see " Agricultural Guest Workers "). The bill includes provisions to permit aliens who were unlawfully present in the United States on April 25, 2013, the day before the bill's date of introduction, to obtain legal temporary status as H-2C agricultural workers. The bill would not provide any special pathway to LPR status for H-2C workers. A number of bills in the 113 th Congress contain provisions amending naturalization, including S. 744 , as passed by the Senate, and H.R. 2278 , as ordered to be reported by the House Judiciary Committee. Generally, S. 744 would expedite and streamline naturalization, while H.R. 2278 would restrict naturalization. S. 744 would streamline and waive naturalization requirements for certain categories of LPRs, including for certain elderly or physically/mentally disabled applicants, employees of certain national security facilities, and widows of U.S. citizen spouses. In addition, other provisions in S. 744 would (1) treat U.S. service members who have received combat awards as having satisfied certain naturalization requirements, including good moral character, English/civics knowledge, and honorable service/discharge; (2) develop and expand programs for immigrant integration and naturalization education, outreach, and ceremonies; (3) exempt certain LPRs, who were lawfully present and eligible for work authorization for at least 10 years before becoming LPRs, from the usual residence/physical presence in LPR status required for naturalization; (4) treat admission and periods in registered provisional immigrant status for Dream Act beneficiaries as satisfying admission and periods in LPR status required for naturalization; and (5) amend automatic naturalization for a child born abroad to require physical presence after a lawful admission, instead of residence as an LPR, and to include a person who no longer has legal status nor is physically present in the United States if s/he would have satisfied amended requirements had they been in effect when the person was originally lawfully admitted. H.R. 2278 , among other things, would (1) bar aliens involved in many terrorism or crime-related activities from satisfying the naturalization requirement for good moral character; (2) clarify that the list of conduct identified in the INA as barring a finding of good moral character is not exhaustive, and that when considering whether an applicant possesses good moral character, immigration authorities may consider that applicant's conduct at any time; (3) bar the naturalization of any alien determined by the Secretary of DHS to have been at any time described in the security-related grounds of deportability or inadmissibility; (4) bar consideration or approval of naturalization applications while proceedings are pending that could result in the applicant's removal, loss of LPR status, or denaturalization; (5) limit judicial review of naturalization delays and denials; (6) purport to authorize the Attorney General to denaturalize persons who have engaged in specified conduct involving terrorism or support for terrorism, the receipt of military training from a terrorist organization, or activities committed with the purpose of overthrowing or opposing the U.S. government through violence or other unlawful means; and (7) strengthen immigration consequences for unlawful procurement of naturalization. The United States has long held to the general principle that it will not return a foreign national to a country where his or her life or freedom would be threatened. This principle is embodied in several provisions of the INA, most notably in provisions defining refugees and asylees. Refugees are persons outside their home country who are unable or unwilling to return because of persecution or a well-founded fear of persecution on account of their (1) race, (2) religion, (3) nationality, (4) membership in a particular social group, or (5) political opinion; under certain conditions, refugees may be persons within their home country who are persecuted or have a well-founded fear of persecution on one of these grounds. Refugees are processed and admitted to the United States from abroad. Foreign nationals may claim asylum in the United States if they demonstrate a well-founded fear that if returned home, they will be persecuted based upon one of the five grounds enumerated above. They may apply for asylum affirmatively with USCIS after arrival into the country, or they may seek asylum defensively before an immigration judge during removal proceedings. S. 744 , as passed by the Senate, would increase the flexibility of the INA asylum and refugee provisions in several ways. For example, S. 744 would repeal a current provision that requires asylum claims to be filed within one year of an alien's arrival in the United States, and would provide for the reconsideration of certain asylum claims that were denied because of the failure to file within one year. Under certain circumstances, a U.S. asylum officer would be authorized to grant asylum to an alien found to have a credible fear of persecution based on an interview during expedited removal rather than referring the alien to an immigration judge. The bill also would authorize the spouse or child of a refugee or asylee who is admitted to the United States to bring his or her own accompanying child in the same status. S. 744 would establish requirements for overseas refugee adjudications, including the right to legal counsel (not at government expense), a written record of the decision, and administrative review of a denial. Other refugee-related provisions would authorize the President, based on a recommendation by DOS, to designate certain groups of aliens on the basis of humanitarian concerns or national interest, and thereby facilitate the admission of group members as refugees. In addition, a new category of "stateless persons" would be defined, and such persons would be permitted to apply for conditional lawful status under certain conditions, and to adjust to LPR status after one year under the employment-based preference category for special immigrants. At the same time, S. 744 includes provisions that would tighten refugee and asylum laws for national security purposes. Specifically, an alien granted refugee status or asylum who returns to his or her country of nationality or habitual residence would have that refugee or asylee status terminated unless the DHS Secretary determines that the alien returned for good cause, or another exception applies. S. 744 also would expand law enforcement and national security checks during the refugee and asylum application process. (See " Inadmissibility, Deportability, and Relief from Removal " for a related discussion.) Special legislative provisions facilitate relief for certain refugee groups. The "Lautenberg amendment," first enacted in 1989, required the Attorney General (now the Secretary of DHS) to designate categories of former Soviet and Indochinese nationals for whom less evidence would be needed to prove refugee status, and provided for adjustment to LPR status for certain former Soviet and Indochinese nationals denied refugee status. P.L. 108-199 amended the Lautenberg amendment to add a new provision, known as the "Specter amendment," to direct the Attorney General to establish categories of Iranian religious minorities who may qualify for refugee status under the Lautenberg amendment's reduced evidentiary standard. The Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ) extended the Lautenberg amendment through FY2013. The amendment subsequently lapsed but was re-enacted as part of P.L. 113-76 for the remainder of FY2014. Language to extend the amendment through FY2015 is included in House-reported and Senate-reported FY2015 Department of State, Foreign Operations, and Related Programs Appropriations bills ( H.R. 5013 , S. 2499 ). Foreign national spouses of U.S. citizens and LPRs can acquire legal status through the family-based immigration provisions of the INA. In general, they must be sponsored by their U.S. citizen or LPR spouses and meet the requirements for LPR status. The INA also includes provisions to assist foreign national victims of domestic abuse and allow them to self-petition for LPR status independently of their U.S. citizen or LPR relatives. These provisions, which were initially enacted in the Immigration Act of 1990 ( P.L. 101-649 ) and the Violence Against Women Act (VAWA) of 1994 ( P.L. 103-322 , Title IV), have been periodically reauthorized . The 2000 reauthorization (VAWA 2000), part of the larger Victims of Trafficking and Violence Protection Act (TVPA, P.L. 106-386 ), created the nonimmigrant U visa for foreign national victims of certain crimes—including domestic abuse—who assist law enforcement to investigate and prosecute such crimes. Successful petitioners for such a visa are classified as U nonimmigrants for up to four years. Program authorizations in VAWA expired in 2011. Efforts to reauthorize the VAWA programs in the 113 th Congress culminated in the enactment of Violence Against Women Reauthorization Act of 2013 ( P.L. 113-4 ). Among its immigration-related provisions, P.L. 113-4 includes "stalking" in the definition of criminal activity covered under the U visa. It extends VAWA coverage to "derivative" children who are included in their parents' petitions and whose parents die during the petition process. It exempts VAWA self-petitioners, U visa petitioners, and battered foreign nationals from being classified as inadmissible for LPR status if their financial circumstances raise concerns over their becoming potential public charges. It protects U visa petitioners under age 21 and derivative children of adult U visa petitioners from aging out of eligibility if they reach age 21 after filing a U visa petition. The law also includes a provision that allows DHS to share VAWA petition information with other government agencies for national security purposes. P.L. 113-4 includes additional protections for foreign nationals who intend to marry U.S. citizens and LPRs. These provisions require increased disclosure about U.S. citizen and LPR sponsors and more stringent restrictions for international marriage brokers. The law requires DHS to provide foreign nationals with information about inconsistent self-disclosures by sponsors regarding past domestic abuse and to conduct more extensive background checks on each U.S. citizen who petitions on behalf of an alien fiancé/fiancée to provide the latter with additional information about potentially abusive relationships. It prohibits international marriage brokers from marketing information about foreign nationals under age 18 and requires more extensive record-keeping of age-related documentation. It expands federal criminal penalties for specified marriage broker and other VAWA violations. S. 744 , as passed by the Senate, also includes several VAWA-related provisions. It would expand the number of U visas from 10,000 to 18,000 annually. It would grant aging-out protection, deferred status eligibility (to allow spouses and children of nonimmigrant visa holders to receive independent immigration status), and work authorization eligibility to any derivative child on a VAWA petition. It would provide financial relief to VAWA petitioners by requiring that DHS grant them work authorization no later than six months following the petition filing date. It would allow VAWA applicants to adjust to LPR status without being subject to the family-based immigration numerical limits. Finally, S. 744 would permit battered immigrants access to public housing. It is a crime to engage in trafficking in persons (TIP) for the purposes of commercial exploitation. TIP involves violations of labor, public health, and human rights standards. The 2000 TVPA created a new visa category for victims of severe forms of trafficking (T visa). The 2000 act and subsequent reauthorizations also created several grant programs to aid trafficking victims and to train law enforcement to combat TIP. P.L. 113-4 modifies some of the grant programs under the TVPA, expands reporting requirements, creates new criminal penalties for trafficking offenses, modifies the criteria for T visas, and reauthorizes appropriations for FY2014 through FY2017. P.L. 113-4 makes it a criminal offense to knowingly destroy, or for a period of more than 48 hours, conceal, remove, confiscate, or possess, another person's passport or immigration or personal identification documents in the course of committing or attempting to commit the offense of fraud in foreign labor contracting or alien smuggling, and allows for civil remedies for personal injuries caused during the commission of most criminal trafficking offenses. P.L. 113-4 makes the adult or minor children of a beneficiary of derivative T status eligible for T status if it is determined that such a person faces a present danger of retaliation as a result of the trafficking victim's cooperation with law enforcement. In addition, P.L. 113-4 amends the grant program for state and local law enforcement's anti-trafficking programs that focus on U.S. citizen victims, so that the grants can also be used for anti-trafficking programs for noncitizen victims. Several other bills in the 113 th Congress would further amend the TVPA. H.R. 3610 , as passed by the House, would amend the TVPA to require that, beginning in FY2017, the Secretary of the Department of Health and Human Services (HHS) award grants for a national communication system to help victims of severe forms of trafficking communicate with service providers. The bill would also require the Attorney General to collect and tabulate data on mandatory restitution orders (the TVPA requires the court to order restitution—to be paid by the defendant to the victim—for any crime of peonage, slavery, or trafficking in persons). H.R. 3530 , as passed by the House, would authorize the Attorney General to award grants to an eligible entity to develop, improve, or expand domestic child human trafficking deterrence programs designed to aid victims while investigating and prosecuting the trafficking offenses. H.R. 5135 , as passed by the House, would require the Interagency Task Force to Monitor and Combat Trafficking to produce a report on preventing child trafficking, and would clarify that services for trafficking victims can include housing. The William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (TVPRA, P.L. 110-457 ) contained provisions creating procedures for screening unaccompanied alien children (UAC) from contiguous countries, and for the care, custody, processing, and repatriation of all UAC. P.L. 113-4 amends and expands the TVPRA provisions dealing with the care and custody of unaccompanied minors. The act specifies that the DHS Secretary should consider placing in the least restrictive setting any unaccompanied alien child who turns 18 while in HHS custody. The act also requires the DHS Secretary to create a pilot program at a limited number of immigration detention sites to provide independent child advocates for child trafficking victims and other vulnerable unaccompanied alien children. In addition, P.L. 113-4 specifies that children who receive U status and are in the custody of HHS are eligible for programs and services to the same extent as refugees, and that the federal government will reimburse states for foster care provided to these children. As mentioned under " Border Security ," there has been a large increase in the number of UAC apprehended along the Southwest border in recent years, which has led Congress to evaluate the procedures and processes related to UAC. Division B of H.R. 5230 , as passed by the House, would amend the TVPRA and the INA to change the procedures for screening and processing unaccompanied alien children who arrive at the U.S. border from certain countries. H.R. 5230 also would require the HHS Office of Refugee Resettlement (ORR) to perform a biometric criminal history check as part of the suitability assessment to place an unaccompanied child with a family member or sponsor in the United States and would bar the placement of such children with sex offenders or human traffickers. Most inhabited U.S. territories, including Puerto Rico, Guam, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands (CNMI), are defined by the INA as included in the definition of "United States" for the purpose of federal immigration laws. The notable exception is American Samoa (including Swain's Island), which has its own sui generis immigration system and whose native residents are non-citizen U.S. nationals under the INA. American Samoans who move to the United States, as this term is defined in the INA, are eligible for expedited naturalization. In the 113 th Congress, several bills would establish specific accommodations for the circumstances and immigration needs of the CNMI. Title VII of P.L. 110-229 made the INA applicable to the CNMI, a U.S. territory in the Pacific. Previously, in accordance with an agreement known as the Covenant that sets forth the relationship between the CNMI and the United States, the territory had not been subject to U.S. immigration law. Among other provisions, P.L. 110-229 established a transition period for implementing the INA in the CNMI that began on November 28, 2009, and is scheduled to end on December 31, 2014. This law aimed, in particular, to provide federal regulation and oversight of the admission of foreign workers to the territory, including by establishing a CNMI-only transitional worker visa. It also provided for a CNMI-only investor visa for persons who previously had investor permits under the territorial system. Aliens who were not eligible for the transitional foreign worker or investor visas or other visas under federal immigration laws were able to remain in the CNMI on entry permits issued under the former territorial immigration laws until the earlier of the original permit expiration date or November 28, 2011. S. 1237 , as passed by the Senate, and H.R. 4296 , as ordered to be reported by the House Natural Resources Committee, would extend the transition period for implementing the INA in the CNMI until December 31, 2019. S. 744 , as passed by the Senate, would resolve the status of certain long-term foreign residents of the CNMI who were unable to otherwise acquire LPR status under the federal system. It would authorize admission of these various long-term foreign residents, subject to certain requirements, as immigrants to the CNMI only, and provide a path for most of these CNMI-only residents to adjust later to regular LPR status. The Iraqi special immigrant visa program, which was established by Section 1244 of P.L. 110-181 and subsequently amended by P.L. 110-242 , makes Iraqi nationals eligible for special immigrant status if they were employed by or on behalf of the U.S. government in Iraq for not less than one year during a specified period; provided documented valuable service to the U.S. government; and have experienced "an ongoing serious threat as a consequence of the alien's employment by the United States government." This program had been capped at 5,000 principal aliens (excluding spouses and children) for each of fiscal years 2008 through 2012 and allowed for unused visa numbers to be carried forward from one year to the next through FY2013. P.L. 113-42 amended the numerical limitations provisions to extend the Iraqi special immigrant visa program and provide additional visas. It set the total number of principal aliens who could be provided special immigrant status under the program for the first three months of FY2014 at the sum of the number of aliens with pending applications on September 30, 2013, plus 2,000. Initial applications for new cases (subject to the 2,000 limit) had to be submitted to the DOS Chief of Mission in Iraq by December 31, 2013. The National Defense Authorization Act for Fiscal Year, 2014 ( P.L. 113-66 ) rewrites the extension language in P.L. 113-42 to provide for the issuance of no more than 2,500 visas to principal applicants after January 1, 2014, and to extend the application deadline to September 30, 2014. P.L. 111-8 established a special immigrant program for Afghans modeled on the Iraqi program (see " Iraqi Special Immigrant Visa Program "). Under the program, Afghan nationals are eligible for special immigrant status if they were employed by or on behalf of the U.S. government in Afghanistan for not less than one year during a specified period; provided documented valuable service to the U.S. government; and have experienced "an ongoing serious threat as a consequence of the alien's employment by the United States government." The Afghan special immigrant program was originally capped at 1,500 principal aliens annually for FY2009 through FY2013, with a provision to carry forward any unused numbers from one fiscal year to the next. In the 113 th Congress, P.L. 113-76 amended the Afghan program's numerical limitation provisions to provide for the granting of special immigrant visas to up to 3,000 principal aliens for FY2014 and to provide for the carry forward and use of any unused balance through the end of FY2015. This law required that principal aliens file an application with the Chief of Mission in Afghanistan by September 30, 2014. P.L. 113-160 further amends the numerical limitations provisions under the Afghan program to provide that an additional 1,000 principal aliens may be granted special immigrant status by December 31, 2014. The new language requires that principal aliens apply to the Chief of Mission no later than the same December 31, 2014, date. House-passed H.R. 4435 and Senate-reported S. 2410 would make additional changes to the Afghan special immigrant program. H.R. 4435 would replace the numerical limitations language enacted in P.L. 113-160 with new language to provide up to 1,075 Afghan special immigrant visas for FY2015 (in addition to any unused numbers from FY2014). Under this bill, principal aliens would need to apply to the Chief of Mission by September 30, 2015. S. 2410 , as reported by the Senate Armed Services Committee, would provide that for each of FY2014 and FY2015, up to 4,000 principal aliens could be granted special immigrant visas, with any unused balance carried forward and available through December 31, 2016. Principal aliens would need to apply to the Chief of Mission by December 31, 2015. S. 2410 also would expand eligibility for the Afghan special immigrant program. In addition to aliens employed in Afghanistan by or on behalf of the U.S. government, the eligible population would include aliens employed in Afghanistan by or on behalf of an organization closely associated with the U.S. mission in Afghanistan that has received U.S. government funding through an official contract, award, grant, or cooperative agreement. The Accuracy for Adoptees Act ( P.L. 113-74 ) amends Section 320 of the INA regarding the citizenship of adopted foreign-born children by requiring that all federal documents issued or amended, including a certificate of citizenship, reflect the child's name and date of birth, as shown on state vital records following the adoption or readoption in that state. In 2012, ICE created the Public Advocate Office "to assist individuals and representatives who have concerns about ICE operations and policies in the field." The office was created in response to critiques that the agency was unresponsive to the complaints of those who were detained or investigated. However, some contend that the program is not productive and is not a proper use of ICE resources. P.L. 113-6 , the FY2013 Consolidated and Further Continuing Appropriations Act, stated that no funds under the act could be used to fund the position of Public Advocate within ICE. Nonetheless, some argue that the position of Public Advocate was simply renamed Deputy Assistant Director of Custody Programs and Community Outreach, and that the functions of the disbanded Public Advocate Office are currently being performed under the umbrella of "community outreach." H.R. 3732 , as ordered to be reported by the House Judiciary Committee, would prohibit federal funds from being used to provide funding for the following positions within ICE: Public Advocate; Deputy Assistant Director of Custody Programs and Community Outreach; or any other position with similar functions. | Immigration reform was an active legislative issue in the first session of the 113th Congress. The Senate passed the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), a comprehensive immigration reform bill that includes provisions on border security, interior enforcement, employment eligibility verification and worksite enforcement, legalization of unauthorized aliens, immigrant visas, nonimmigrant visas, and humanitarian admissions. For its part, the House took a different approach to immigration reform. Rather than considering a single comprehensive bill, the House acted on a set of immigration bills that address border security, interior enforcement, employment eligibility verification and worksite enforcement, and nonimmigrant and immigrant visas. House committees reported or ordered to be reported the following immigration bills: Border Security Results Act of 2013 (H.R. 1417); Strengthen and Fortify Enforcement (SAFE) Act (H.R. 2278); Legal Workforce Act (H.R. 1772); Agricultural Guestworker (AG) Act (H.R. 1773); and Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas (SKILLS Visa) Act (H.R. 2131). Beyond their work on immigration reform legislation, the House and Senate acted on other immigration-related bills. Among these measures, the 113th Congress passed the Violence Against Women Reauthorization Act of 2013 (P.L. 113-4), which includes provisions on noncitizen victims of domestic abuse or certain other crimes and on victims of human trafficking. Other immigration issues addressed in enacted measures include Iraqi and Afghan special immigrants (P.L. 113-42, P.L. 113-66, P.L. 113-76, P.L. 113-160), refugees (P.L. 113-6, P.L. 113-76), temporary nonagricultural workers (P.L. 113-76, P.L. 113-164), international adoption (P.L. 113-74), and alien inadmissibility (P.L. 113-100). Several bills passed one house of Congress, but not the other. In addition to the comprehensive immigration reform bill (S. 744), the Senate passed measures dealing with border security personnel compensation (S. 1691), the application of immigration law in the Commonwealth of the Northern Mariana Islands (CNMI) (S. 1237), and the visa waiver program (S. 2673). House-passed measures address, among other issues, border security and unaccompanied alien children (UAC) arriving in the United States (H.R. 5230), human trafficking (H.R. 3530, H.R. 3610, H.R. 5135), prosecutorial discretion (H.R. 2217, H.R. 5272), and the visa waiver program (H.R. 938). This report discusses these and other immigration-related issues that received legislative action or have been of significant congressional interest in the 113th Congress. While the report covers S. 744, as passed by the Senate, a more complete treatment of that bill can be found in CRS Report R43097, Comprehensive Immigration Reform in the 113th Congress: Major Provisions in Senate-Passed S. 744. For the most part, DHS appropriations are not covered in this report; FY2014 appropriations are addressed in CRS Report R43147, Department of Homeland Security: FY2014 Appropriations. |
On June 26, 2015, the Supreme Court issued its decision in Obergefell v. Hodges legalizing same-sex marriage throughout the country by requiring states to issue marriage licenses to same-sex couples and to recognize same-sex marriages that were legally formed in other states. In doing so, the Court resolved a circuit split regarding the constitutionality of state same-sex marriage bans. This report provides background on, and analysis of, significant legal issues raised by the Supreme Court's decision in Obergefell . It first offers background on the constitutional principles on which the Court relied in Obergefell to invalidate state same-sex marriage bans as unconstitutional. Then, it walks through the Court's opinion and rationale. Finally, it discusses potential implications of the Court's decision. Under the Fourteenth Amendment's Equal Protection Clause, "[n]o State shall … deny to any person within its jurisdiction the equal protection of the laws." Though there is no parallel constitutional provision expressly prohibiting the federal government from denying equal protection of the law, the Supreme Court has held that equal protection principles similarly apply to the federal government. Under the Constitution's equal protection guarantees, when courts review governmental action that distinguishes between classes of people, they apply different levels of scrutiny depending on the classification involved. The more suspect the government's classification, or the more likely that the government's classification was motivated by discrimination, the higher the level of scrutiny that courts will utilize in evaluating the government's action. Increased scrutiny raises the likelihood that a court will find the action unconstitutional. Generally speaking, there are three such levels of scrutiny: (1) strict scrutiny; (2) intermediate scrutiny; and (3) rational basis review. Strict scrutiny is the most demanding form of judicial review. The Supreme Court has observed that strict scrutiny applies to governmental classifications that are constitutionally "suspect," or that interfere with fundamental rights. In determining whether a classification is suspect, courts consider whether the classified group (1) has historically been subject to discrimination; (2) is a minority group exhibiting an unchangeable characteristic that establishes the group as distinct; or (3) is inadequately protected by the political process. There are generally three governmental classifications that are suspect—those based on race, national origin, and alienage. When applying strict scrutiny to governmental action, reviewing courts consider whether the governmental action is narrowly tailored to a compelling government interest. The government bears the burden of proving the constitutional validity of its action under strict scrutiny, and, in doing so, must generally show that it cannot meet its goals via less discriminatory means. Intermediate scrutiny is less searching than strict scrutiny, though it subjects governmental action to more stringent inspection than rational basis review. Intermediate scrutiny applies to "quasi-suspect" classifications such as classifications based on gender or illegitimacy. When reviewing courts apply intermediate scrutiny to governmental action, they determine whether the action is substantially related to achieving an important government interest. As with strict scrutiny, the government bears the burden of establishing the constitutional validity of its actions under intermediate scrutiny. Rational basis review is the least searching form of judicial scrutiny, and generally applies to all classifications that are not subject to heightened levels of scrutiny. For governmental action to survive rational basis review, it must be rationally related to a legitimate government interest. When evaluating governmental action under rational basis review, courts consider the legitimacy of any possible governmental purpose behind the action. That is, courts are not limited to considering the actual purposes behind the government's action. Additionally, the governmental action needs only be a reasonable way of achieving a legitimate government purpose to survive rational basis review; it does not need to be the most reasonable way of doing so, or even more reasonable than alternatives. Accordingly, rational basis review is deferential to the government, and courts generally presume that governmental action that is subject to such review is constitutionally valid. Parties challenging governmental actions bear the burden of establishing their invalidity under rational basis review. The U.S. Constitution's due process guarantees are contained within two separate clauses; one can be found in the Fifth Amendment, and the other resides in the Fourteenth Amendment. Each clause provides that the government shall not deprive a person of "life, liberty, or property, without due process of law." However, the Fifth Amendment applies to action by the federal government, whereas the Fourteenth Amendment applies to state action. The Constitution's due process language makes clear that the government cannot deprive individuals of life, liberty, or property without observing certain procedural requirements. The Supreme Court has interpreted this language to also include substantive guarantees that prohibit the government from taking action that unduly burdens certain liberty interests. More specifically, substantive due process protects against undue governmental infringement upon fundamental rights. In determining whether a right is fundamental, Supreme Court precedent looks to whether the right was historically and traditionally recognized, and whether failing to recognize the right would contravene liberty and justice. The Supreme Court has held that governmental action infringing upon fundamental rights is subject to strict scrutiny, and thus must be narrowly tailored to a compelling government interest. Under strict scrutiny, the government must generally show that it has a "substantial" and "legitimate" need for its action to be in furtherance of a compelling government interest. If the government successfully establishes a compelling interest, its action cannot encumber fundamental rights any more than is necessary to achieve the government's need. Additionally, the government could not have possibly taken alternative action that would similarly further its interest while being less burdensome on fundamental rights. Otherwise, the government's action is not narrowly tailored to the government's interest. The Supreme Court has recognized a number of rights as fundamental, including the right to have children, use contraception, and marry. In Obergefell , the Court considered whether the Fourteenth Amendment's substantive due process guarantees require states to issue marriage licenses to same-sex couples and require states to recognize same-sex marriages that were legally formed in other states. The Supreme Court resolved a circuit split on the constitutionality of state same-sex marriage bans, finding them unconstitutional in Obergefell v. Hodges . In doing so, the Court relied on the Constitution's due process and equal protection principles to hold that states must issue marriage licenses to same-sex couples and recognize same-sex marriages that were legally formed in other states. The majority in Obergefell rested its decision upon the fundamental right to marry. The Court observed that it has long found the right to marry to be constitutionally protected, though it acknowledged that its precedent describing the right presumed an opposite-sex relationship. Even so, according to the Court, these cases have identified reasons why the right to marry is fundamental, which apply equally to same-sex couples. These reasons included (1) personal choice in whom to marry is inherent in the concept of individual autonomy; (2) marriage's unique support and recognition of a two-person, committed union; (3) the safeguarding of children within a marriage, as both same-sex couples and opposite-sex couples have children; and (4) marriage as a keystone of the nation's social order, with no distinction between same-sex couples and opposite-sex couples in states conferring benefits and responsibilities upon marriages. Accordingly, the Court extended the fundamental right to marry to same-sex couples. In holding that the fundamental right to marry includes same-sex couples' right to marry, the Court appeared to acknowledge its departure from precedent for determining whether a right is fundamental—mentioned earlier in this report—which considers whether it is "deeply rooted in this Nation's history and tradition and implicit in the concept of ordered liberty." The Court observed that if rights were defined by who could historically use them, old practices could continuously prevent new groups from exercising fundamental rights. As such, the Court found that "rights come not from ancient sources alone. They rise, too, from a better informed understanding of how constitutional imperatives define a liberty that remains urgent in our own era." After determining that the fundamental right to marry includes the right of same-sex couples to marry, the Court also seemed to depart from precedent—and the approaches of courts of appeals that relied on the fundamental right to marry to strike down state same-sex marriage bans—by not applying strict scrutiny to such bans. As previously noted, courts generally subject governmental action that infringes upon a fundamental right to strict scrutiny, requiring that the action be narrowly tailored to a compelling government interest to be constitutional. The states had argued two primary interests for their bans on same-marriage: (1) the desire to wait and see how the same-sex marriage debate progresses before changing long-existing marriage norms; and (2) incentivizing procreating couples to stay together during child rearing. However, the Court made no mention of whether the state same-sex marriage bans at issue were narrowly tailored to these justifications. Rather, the Court noted why these justifications were invalid without appearing to apply any of the typical levels of judicial review (i.e., rational basis review, intermediate scrutiny, or strict scrutiny). The Court held that both equal protection and due process guarantees protect the fundamental right to marry, and that states can no longer deny this right to same-sex couples. Importantly, in doing so, the Court did not hold that classifications based on sexual orientation warrant any form of heightened scrutiny. In fact, the Court made no mention of the proper level of scrutiny applicable to such classifications. Some of the dissenting Justices in Obergefell thought that the majority exceeded the Court's proper role by removing the question of whether same-sex couples have the right to marry from the democratic process, where, they stated, it is properly resolved. According to these Justices, the five-person majority should not have resolved the hotly contested issue of same-sex marriage for the entire country; such resolution should have come from the people. The dissenting Justices also voiced concern with the majority looking beyond history and tradition to establish a fundamental right contrary to Supreme Court precedent. According to the dissenting Justices, the requirement that fundamental rights be rooted in tradition and history exists to prevent the Court from imparting its policy decisions regarding which rights have constitutional protection. Although the Supreme Court answered questions surrounding the constitutionality of state same-sex marriage bans in Obergefell , its decision raised a number of other questions. These include questions regarding, among other things, Obergefell 's broader impact on the rights of gay individuals; the proper level of judicial scrutiny applicable to classifications based on sexual orientation; what the decision might mean for laws prohibiting plural marriages; the Court's approach to recognizing fundamental rights moving forward; and the proper level of judicial scrutiny applicable to governmental action interfering with fundamental rights. This section briefly explores these questions. Obergefell raised questions about the decision's broader impact on the rights of gay individuals—that is, whether its rationale extends rights to gay individuals outside of the marriage context. However, the decision appears limited to the marriage context. Although the majority opinion did make reference to same-sex marriage bans implicating equal protection guarantees, its holding rested entirely on such bans infringing upon the fundamental right to marry in violation of both equal protection and due process guarantees. The Court did not mention whether classifications based on sexual orientation are suspect or quasi-suspect, and thus warrant any form of heightened scrutiny. If the Court had rendered such a holding, its decision would have arguably had broader implications for the rights of gay individuals, as it would have potentially subjected all governmental action that classifies based on sexual orientation to a heightened form of judicial scrutiny. Prior to Obergefell , federal appeals courts were split regarding the proper level of judicial scrutiny applicable to governmental action that classifies based on sexual orientation. The U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) has held that classifications based on sexual orientation warrant heightened scrutiny, though it did not clarify whether this heightened scrutiny was intermediate or strict scrutiny. The U.S. Court of Appeals for the Second Circuit (Second Circuit) has similarly found that classifications based on sexual orientation are quasi-suspect, and thus any governmental action that classifies based on sexual orientation is subject to intermediate scrutiny. Conversely, however, the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit) has held that governmental action that classifies based on sexual orientation is neither suspect nor quasi-suspect, and thus subject only to rational basis review. Because the Court's decision in Obergefell rested on the fundamental right to marry—and therefore seems limited to the marriage context—nothing in the opinion appears to resolve the circuit split between the Second, Sixth, and Ninth Circuits regarding the correct level of scrutiny applicable to classifications based on sexual orientation. Other lower courts will be left to grapple with this issue in the future. This ambiguity leaves open the possibility that, moving forward, circuit courts could either, like the Second and Ninth Circuits, apply heightened scrutiny to laws that classify based on sexual orientation (e.g., laws that provide exemptions from anti-discrimination legislation for religious entities based on their objections to certain sexual orientations), or could apply rational basis review to such laws like the Sixth Circuit. The fact that some lower courts may apply heightened scrutiny to government action that classifies based on sexual orientation where other courts may not is significant because, as discussed earlier in this report, laws subject to higher levels of scrutiny are more likely to be found unconstitutional. As such, this could create a situation wherein similar laws that classify based on sexual orientation receive dissimilar outcomes when facing constitutional challenge, depending on the evaluating court. The Supreme Court's decision in Obergefell also raised questions regarding whether the Court's rationale could potentially extend the fundamental right to marry to polygamy. In fact, Chief Justice John Roberts, in his dissent in Obergefell , seems to suggest that the majority's opinion could lead to the legalization of plural marriages. However, the majority's opinion seems crafted so as to try to limit its reach to the same-sex marriage context, in a possible attempt to prevent its rationale from extending the fundamental right to marry to plural marriages. As previously discussed, the majority in Obergefell found that the four reasons why the right to marry is fundamental apply equally to same-sex couples, and thus extended the fundamental right to marry to same-sex couples. Some commentators have observed that there are distinctions between plural marriages and same-sex marriages sufficient to prevent Obergefell 's rationale from being extended to legalize plural marriage. Conversely, other commentators have observed that parts of the Court's opinion discussing why the fundamental right to marry includes same-sex marriage (e.g., the majority's consideration of individual autonomy and family) could potentially provide basis for extending constitutional protections to plural marriages. Additionally, the majority in Obergefell seemingly departed from precedent for determining whether a right is fundamental by looking beyond historical and traditional recognition. This deviation from prior cases raises the possibility that, when determining whether a right is fundamental in the future, the Court will consider how the right is viewed at the time, in addition to its historical and traditional recognition. This could have the effect of expanding the number of rights that are deemed fundamental for purposes of substantive due process protections. Finally, the Court did not clarify which, if any, of the typical levels of judicial review (i.e., rational basis review, intermediate scrutiny, or strict scrutiny) it applied to state same-sex marriage bans after finding that such bans interfere with same-sex couples' fundamental right to marry. Moving forward, this raises questions regarding the proper level of judicial scrutiny applicable to governmental action that infringes upon fundamental rights. Given that increased scrutiny decreases the likelihood that a court will find government action constitutional, this could create ambiguity regarding the degree to which the government can permissibly take action that interferes with fundamental rights. | On June 26, 2015, the Supreme Court issued its decision in Obergefell v. Hodges requiring states to issue marriage licenses to same-sex couples and to recognize same-sex marriages that were legally formed in other states. In doing so, the Court resolved a circuit split regarding the constitutionality of state same-sex marriage bans and legalized same-sex marriage throughout the country. The Court's decision relied on the Fourteenth Amendment's equal protection and due process guarantees. Under the Fourteenth Amendment's Equal Protection Clause, state action that classifies groups of individuals may be subject to heightened levels of judicial scrutiny, depending on the type of classification involved or whether the classification interferes with a fundamental right. Additionally, under the Fourteenth Amendment's substantive due process guarantees, state action that infringes upon a fundamental right—such as the right to marry—is subject to a high level of judicial scrutiny. In striking down state same-sex marriage bans as unconstitutional in Obergefell, the Court rested its decision upon the fundamental right to marry. The Court acknowledged that its precedents have described the fundamental right to marry in terms of opposite-sex relationships. Even so, the Court determined that the reasons why the right to marry is considered fundamental apply equally to same-sex marriages. The Court thus held that the fundamental right to marry extends to same-sex couples, and that state same-sex marriage bans unconstitutionally interfere with this right. Though the Supreme Court's decision in Obergefell resolved the question of whether or not state same-sex marriage bans are unconstitutional, it raised a number of other questions. These include questions regarding, among other things, Obergefell's broader impact on the rights of gay individuals; the proper level of judicial scrutiny applicable to classifications based on sexual orientation; what the decision might mean for laws prohibiting plural marriages; the Court's approach to recognizing fundamental rights moving forward; and the proper level of judicial scrutiny applicable to governmental action interfering with fundamental rights. This report explores these questions. |
The Social Services Block Grant (SSBG) is permanently authorized by Title XX, Subtitle A, of the Social Security Act as a "capped" entitlement to states. This means that states (and territories) are entitled to their share of funds, as determined by formula, out of an amount that is capped in statute at a specific level (also known as a funding ceiling). Although social services for certain welfare recipients have been authorized under various titles of the Social Security Act since 1956, the SSBG in its current form was created in 1981 ( P.L. 97-35 ). Block grant funds are given to states to achieve a wide range of social policy goals, which include promoting self-sufficiency, preventing child abuse, and supporting community-based care for the elderly and disabled. Since FY2002, annual appropriations laws have funded the SSBG at its authorized level of $1.7 billion. However, starting in FY2013, SSBG appropriations have been subject to sequestration, a spending reduction process by which budgetary resources are canceled to enforce budget policy goals. Full-year FY2017 appropriations were not enacted prior to the start of the fiscal year. Instead, temporary funding for the SSBG has been provided through December 9, 2016, by a continuing resolution ( P.L. 114-223 , Division C). The continuing resolution (CR) maintained SSBG funding at current-law levels ($1.7 billion, less sequestration). Annual appropriations laws since FY2001 have included a provision allowing states to transfer up to 10% of their Temporary Assistance for Needy Families (TANF) block grants to the SSBG. In addition to annual appropriations, the SSBG occasionally receives supplemental appropriations to assist states and territories in responding to natural disasters, including in FY2006, FY2008, and FY2013 (for more information, see Appendix B ). Health reform legislation enacted into law ( P.L. 111-148 ) in March 2010 amended Title XX of the Social Security Act to include a subtitle on elder justice and to establish several other programs. Although these changes, briefly reviewed later, have technical importance for the statutory citations of the SSBG, they did not substantively amend the provisions within Title XX that govern the SSBG itself and they are not discussed at length in this report. Likewise, this report does not discuss the special SSBG program for enterprise communities and empowerment zones that was authorized in 1993 ( P.L. 103-66 ), but is not currently funded. At the federal level, the SSBG is administered by the U.S. Department of Health and Human Services (HHS). Legislation amending Title XX is typically reported by the House Ways and Means Committee and the Senate Finance Committee. Federal law establishes the five broad goals for the SSBG. Social services funded by states must be linked to one or more of these goals. The five goals are achieving or maintaining economic self-support to prevent, reduce, or eliminate dependency; achieving or maintaining self-sufficiency, including reduction or prevention of dependency; preventing or remedying neglect, abuse, or exploitation of children and adults unable to protect their own interests, or preserving, rehabilitating, or reuniting families; preventing or reducing inappropriate institutional care by providing for community-based care, home-based care, or other forms of less intensive care; and securing referral or admission for institutional care when other forms of care are not appropriate, or providing services to individuals in institutions. States have broad discretion in spending SSBG funds to support these broad goals. The following are examples of social services, as specified in law, that relate to the SSBG's broad goals: child care, protective services for children and adults, services for children and adults in foster care, services related to the management and maintenance of the home, adult day care, transportation, family planning, training and related services, employment services, referral and counseling services, meal preparation delivery, health support services, and services to meet the special needs of children, the aged, the mentally retarded, the blind, the emotionally disturbed, the physically handicapped, and alcoholics and drug addicts. In 1993, HHS issued a regulation establishing uniform definitions for 28 SSBG service categories. State spending is not limited to these services; instead, these service categories are used as guidelines for reporting purposes. (Spending on an activity that falls outside the scope of services defined in regulation is characterized under "other services" on annual reports.) In addition to supporting social services, SSBG funds may be used for administration, planning, evaluation, and training. (See Table 3 for a full list of the service categories reported on by states.) States may also transfer up to 10% of their SSBG allotments to block grants for health activities and low-income home energy assistance. Although SSBG funds can be used for a broad array of activities, some restrictions are placed on the use of these funds. Funds cannot be used for the following: (1) purchase of land, construction, or major capital improvements; (2) cash payments as a service or for costs of subsistence or room and board (other than costs of subsistence during rehabilitation, temporary emergency shelter provided as a protective service, or in the case of vouchers for certain families as allowed under welfare reform); (3) payment of wages as a social service (except wages of welfare recipients employed in child day care); (4) most medical care (except family planning, rehabilitation services, initial detoxification of certain individuals, or medical care provided as an "integral but subordinate component of a social service"); (5) social services for residents of institutions (including hospitals, nursing homes, and prisons); (6) educational services generally provided by public schools; (7) child care that does not meet applicable state or local standards; (8) services provided by anyone excluded from participation in Medicare or certain other Social Security Act programs; or (9) items or services related to assisted suicide (this provision was added in 1997, under P.L. 105-12 ). Under extraordinary circumstances, the law does allow HHS to waive two of these prohibitions (use of the SSBG for the purchase of land or capital improvements, or for the provision of medical care). There are no federal eligibility criteria for SSBG participants. Thus, states have total discretion to set their own eligibility criteria. One exception is that welfare reform established an income limit of 200% of poverty for recipients of services funded by TANF allotments that are transferred to the SSBG. The 1996 welfare reform law replaced Aid to Families with Dependent Children (AFDC) with a block grant to states, called Temporary Assistance for Needy Families (TANF), under Title IV-A of the Social Security Act. The law allowed states to transfer up to 10% of their annual TANF allotments into the SSBG. Under provisions of the Transportation Equity Act of 1998 ( P.L. 105-178 ), the amount that states could transfer into SSBG was reduced to 4.25% of their annual TANF allotments, beginning in FY2001. However, this provision was superseded in FY2001 by the FY2001 Consolidated Appropriations Act, which maintained the 10% transfer authority level. Likewise, the FY2002 appropriations bill presented to the President maintained the 10% transfer authority for FY2002. Earlier, the House had passed its version of a Labor, HHS, Education appropriations bill ( H.R. 3061 ) proposing to maintain the 10% transfer authority, while the Senate's amended version proposed a 5.7% transfer level. Ultimately, appropriations acts maintained the transfer authority at 10% in FY2003-FY2016 as well. There has been some confusion about whether or not the Deficit Reduction Act (DRA, P.L. 109-171 ) permanently reinstated the 10% transfer authority. This law extended the TANF program, through the end of FY2010, in the manner authorized for FY2004 . In that fiscal year, the Social Security Act capped states' authority to transfer TANF funds to the SSBG at 4.25%, but this law was superseded by the FY2004 Consolidated Appropriations Act ( P.L. 108-199 ), which maintained the practice of allowing 10% transfers from TANF to the SSBG. In the wake of the DRA, Congress has continued to ensure that the transfer ceiling stays at 10% by including language to that effect in appropriations legislation. Over the course of FY1998-FY2015, states annually transferred roughly $1 billion of their TANF funds to the SSBG. In FY2015 alone, 38 states (including the District of Columbia) transferred a combined $1.2 billion to the SSBG, with 28 of those states taking advantage of the higher transfer ceiling by moving more than 4.25% of their TANF funds to the SSBG (see Table A-1 in Appendix A for FY2015 state-by-state data). Funds transferred from TANF to the SSBG can be used only for children and families whose income is less than 200% of the federal poverty guidelines. Under welfare reform law, states also may use SSBG funds for vouchers for families that are not eligible for cash assistance because of time limits under the welfare reform program, or for children who are denied cash assistance because they were born into families already receiving benefits for another child. On September 29, 2016, President Obama signed into law H.R. 5325 , which contains the Continuing Appropriations Act, 2017, in Division C ( P.L. 114-223 ). This law generally funds annually appropriated entitlements, like the SSBG, at their current-law levels through December 9, 2016, or until full-year appropriations are enacted. In the case of SSBG, the current-law level is $1.7 billion, reduced by an estimated 6.9% due to sequestration (see text box). The FY2017 CR maintains the authorities and conditions placed on appropriations in FY2016. For the SSBG, this would presumably include the provision, carried in annual appropriations laws since FY2001, allowing states to transfer up to 10% of their TANF block grants to the SSBG. Before the passage of the FY2017 continuing resolution, both the House and Senate appropriations committees initiated action on full-year appropriations bills for the Departments of Labor, HHS, Education, and Related Agencies (LHHS). On July 14, 2016, the House Appropriations Committee approved its FY2017 LHHS appropriations bill by a voice vote ( H.R. 5926 ; H.Rept. 114-699 ). On June 6, 2016, the Senate Appropriations Committee approved its FY2017 LHHS bill by a vote of 30-0. Both bills included $1.7 billion for the SSBG (pre-sequester). On February 9, 2016, the Obama Administration released the FY2017 President's budget, which requested $1.7 billion in basic funding for the SSBG. The FY2017 President's budget proposed new language to give HHS the authority to reserve up to 1.5% of SSBG funds for research, evaluation, and demonstration activities. Under the President's proposal, a share of these funds ($10 million) would be reserved for a pilot project to provide low-income families with access to an adequate supply of diapers. The President's budget also included a new legislative proposal that, if enacted, would require all SSBG funds used for child care services to meet the minimum health and safety standards (including monitoring and background checks) required by the Child Care and Development Block Grant Act, as amended. In addition, the President's budget once again proposed funding for an Upward Mobility Project, which would allow up to 10 communities, states, or consortia to combine funds from up to four existing block grants: SSBG, Community Services Block Grant, Community Development Block Grant, and the HOME program. Participating jurisdictions would be eligible to apply for new competitive grant funds to assist with project implementation and cross-program community planning. The President's budget requested $300 million for FY2017 and $1.5 billion over five years for these new competitive grants, which would be funded through the SSBG account and awarded jointly by HHS and the U.S. Department of Housing and Urban Development. The Upward Mobility Project was first proposed in the FY2016 President's budget submission. On September 29, 2016, President Obama signed into law H.R. 5325 , which contains the Zika Preparedness and Response Act, 2016, in Division B ( P.L. 114-223 ). This appropriations act did not contain supplemental funding for the SSBG, in contrast to some earlier legislative efforts. Over the course of 2016, the House and Senate each considered legislation in response to the Obama Administration's request for supplemental appropriations to respond to threats posed by the spread of the Zika virus. On May 18, the House passed a measure ( H.R. 5243 ) that contained no supplemental funding for SSBG. On May 19, the Senate passed a measure ( S.Amdt. 3900 to H.R. 2577 ) that would have provided $75 million in supplemental funding to the SSBG "for health services in territories with active or local transmission cases of the Zika virus." Subsequently, a conference report was filed in the House on June 22 ( H.Rept. 114-640 to accompany H.R. 2577 ). The conference agreement would have provided $95 million to the SSBG "for health services provided by public health departments, hospitals, or reimbursed through public health plans ... in States, territories, or tribal lands with active or local transmission cases of the Zika virus." This provision was the object of much scrutiny. Among other things, some expressed concern that designating funds for only these specific entities could prevent states or territories from directing SSBG funds to other types of entities that offer family planning and women's health services, such as certain Planned Parenthood affiliated health centers. Ultimately, the conference agreement was adopted in the House, but not in the Senate, and the final Zika package contained in P.L. 114-223 did not contain supplemental funds for the SSBG. On December 18, 2015, the President signed into law the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). This law appropriated $1.7 billion for the SSBG. However, SSBG funds are subject to sequestration in FY2016 (see text box). The sequester reduced SSBG funding by 6.8% in FY2016, resulting in an estimated operating level of $1.584 billion. The FY2016 appropriations law maintained a provision, included in annual appropriations laws since FY2001, allowing states to transfer up to 10% of their TANF block grants to the SSBG. Prior to the enactment of the FY2016 Consolidated Appropriations Act ( P.L. 114-113 ), temporary funding for the SSBG had been provided by three short-term continuing resolutions ( P.L. 114-100 , P.L. 114-96 , P.L. 114-53 ). Before the passage of the first continuing resolution, both the House and Senate Appropriations Committees initiated action on full-year funding bills for the Departments of Labor, HHS, Education, and Related Agencies (L-HHS-ED). On June 25, the Senate Appropriations Committee approved its FY2016 LHHS appropriations bill by a vote of 16-14 ( S. 1695 ; S.Rept. 114-74 ). On June 24, the House Appropriations Committee approved its FY2016 LHHS bill by a vote of 30-21 ( H.R. 3020 ; H.Rept. 114-195 ). Both bills included $1.700 billion for the SSBG, pre-sequester. Final action on the FY2016 budget resolution ( S.Con.Res. 11 , H.Rept. 114-96 ) occurred on May 5, 2015. None of the materials associated with the conference version of the FY2016 budget resolution make specific reference to the SSBG. However, the report ( H.Rept. 114-47 ) accompanying an earlier version of the FY2016 budget resolution ( H.Con.Res. 27 ) adopted in the House, specifically recommended eliminating funding for the SSBG. In its critique of the SSBG, the committee report noted that states are not required to match federal SSBG allotments or to demonstrate outcomes ("evidence of effectiveness") from their SSBG spending. The report called the SSBG a "duplicative" funding stream, noting that many services supported by the SSBG may also be supported by other federal programs. On February 2, 2015, the Obama Administration released the FY2016 President's budget, which requested $1.7 billion in basic funding for the SSBG. The President's budget further proposed new language to give HHS the authority to reserve a share ($8.5 million) of the total SSBG appropriation for research and evaluation activities. In addition, the President's budget proposed a new Upward Mobility Project that would allow up to 10 communities, states, or consortia to combine funds from up to four existing block grants: SSBG, Community Services Block Grant, Community Development Block Grant, and the HOME program. Participating jurisdictions would also be eligible to apply for new competitive grant funds to assist with project implementation and cross-program community planning. The President's budget requested $300 million for FY2016 and $1.5 billion over five years for these new competitive grants, which would be funded through the SSBG account and awarded jointly by HHS and the U.S. Department of Housing and Urban Development. Table 1 shows SSBG funding levels from 1985 on, including the high of $2.8 billion, which was provided annually from FY1991-FY1995. Although $2.8 billion was the originally authorized entitlement ceiling for FY1996, Congress reduced funding to $2.38 billion in that year. Welfare reform legislation ( P.L. 104-193 ) subsequently set the annual SSBG entitlement ceiling at $2.38 billion in each of fiscal years 1997 through 2002. Under the welfare reform law, the ceiling was scheduled to return to a permanent level of $2.8 billion in FY2003. After welfare reform was enacted, Congress passed an appropriations measure for FY1997 ( P.L. 104-208 ) that contained $2.5 billion for the SSBG, exceeding the ceiling established in the welfare reform law. For FY1998, President Clinton requested that the amount authorized by welfare reform ($2.38 billion) be appropriated. However, Congress approved an FY1998 appropriations bill ( P.L. 105-78 ) containing $2.299 billion for the SSBG. The Senate Appropriations Committee explained the reduction by stating that funding is provided for social services through other federal programs ( S.Rept. 105-58 ). The House Appropriations Committee expressed concern that HHS lacks information on the effectiveness of SSBG-funded activities ( H.Rept. 105-205 ). In 1998, the Transportation Equity Act (TEA, P.L. 105-178 ) permanently reduced the SSBG entitlement ceiling to $1.7 billion, beginning in FY2001. However, the entitlement ceiling has not always reflected the actual appropriation. For example, the $1.725 billion appropriation level for FY2001 ( H.R. 4577 ) exceeded the $1.7 billion ceiling by $25 million. In addition, a TEA provision limited the authority for states to transfer TANF funds to the SSBG beginning in FY2001 (reducing the transfer cap from 10%, as established in welfare reform, to 4.25%). However, each annual appropriation from FY2001 onward has included override to reinstate the higher cap, effectively enabling states to transfer up to 10% of their TANF funds to the SSBG. In addition to annual appropriations, the SSBG occasionally receives supplemental appropriations, including in FY2006, FY2008, and FY2013. See Appendix B for additional information on these recent supplemental appropriations. Table 1 shows SSBG entitlement ceilings and appropriations from FY1985-FY2016. Also shown for FY1997-FY2015 are the amounts transferred from TANF to SSBG. SSBG funds are allocated to states according to the relative size of each state's population. Grants to Puerto Rico, Guam, the Virgin Islands, and Northern Mariana Islands are based on their share of Title XX funds in FY1981, while grants to American Samoa are based on the relative size of their population compared to the population of the Northern Mariana Islands. No match is required for federal SSBG funds, and federal law does not specify a sub-state allocation formula. In other words, states have complete discretion for the distribution of SSBG funds within their borders. Table 2 displays FY2014-FY2016 SSBG allotments by state. Each year, states are required to submit an intended use plan, often called a "pre-expenditure report," as a prerequisite to receive SSBG funds. The pre-expenditure report must be submitted 30 days prior to the start of the fiscal year. States must also submit a revised report if their planned uses for SSBG funds change during the course of the year. In pre-expenditure reports, states outline their plans for SSBG funds, including the types of services to be supported, and the categories and characteristics of individuals to be served (e.g., children, adults 59 and younger, adults 60 and older, and the disabled). States are also required to report annually on their actual SSBG expenditures in each of the 29 service categories. For this report, submitted within six months after the end of the reporting period, states use a standard post-expenditure reporting form. HHS published regulations (November 15, 1993) to implement this requirement and to provide states with a uniform set of service category definitions. States are not required to submit pre-expenditure reports using a standard format like the one required for post-expenditure reporting (e.g., states may simply submit a narrative or chart of their proposed activities and the individuals to be served). However, HHS issued a new Information Memorandum in December 2008, asking states to voluntarily include additional documentation as part of their pre-expenditure reports. Specifically, HHS requested that states submit a copy of the form used for post-expenditure reports, completed with estimated (rather than actual) expenditures and recipient data. The reason for this request was to allow for a more accurate analysis of the extent to which states are spending their SSBG funds "in a manner consistent" with their intended use plans. HHS issued a second Information Memorandum on this topic in June 2010, again encouraging states to submit pre-expenditure estimates using the same reporting form that is required for post-expenditure reports. Finally, in February 2012, HHS issued an Information Memorandum about a new performance measure that will compare spending plans with actual spending. To support implementation of the performance measure, HHS requested that states submit pre- and post-expenditure reports in Excel using standard reporting forms. HHS also requested that states choosing not to use the standard pre-expenditure reporting form (since the standard form is not technically required) provide a crosswalk to SSBG service categories. In addition, HHS requested that states differentiate in their pre-expenditure reports between estimated spending from the state's SSBG allocation and estimated state spending from projected TANF transfers, because the performance measure will apply only to those funds provided as part of a state's SSBG allocation. Table 3 shows national SSBG expenditures for FY2014, the most recent year for which SSBG data are available. Expenditures are separated into those made from the annual SSBG allocation and those made from funds transferred from the TANF block grant, and are displayed by service category. In FY2014, the largest expenditures for services under the SSBG were for foster care services for children (16%), protective services for children (12%), child care (11%), and special services for the disabled (10%). Other than appropriations legislation, no bills in the 109 th Congress or 110 th Congress that proposed changes to the SSBG were enacted into law. Notably, however, several bills from the 109 th Congress included proposals that, if enacted, would have increased funding for the SSBG (see S. 6 , S. 667 , and H.R. 751 from the 109 th Congress). Subsequently, several bills ( S. 795 , H.R. 2006 , S. 1796 , H.R. 3590 ) were introduced in the 111 th Congress that sought to amend Title XX of the Social Security Act (SSA)—the authorizing statute for the SSBG—to establish new programs to address the prevention, detection, and treatment of elder abuse or elder justice. Ultimately, the health care reform legislation passed by Congress in March 2010 included three provisions amending Title XX of the SSA (addressed briefly below), including one on elder justice. Separately, there have been several proposals in recent Congresses to reduce or eliminate funding for the SSBG. In the 114 th Congress, for instance, the House Committee on Ways and Means reported out a bill ( H.R. 4724 ) to repeal the SSBG. Previously, in the 112 th Congress, a bill containing similar provisions ( H.R. 5652 ) passed the House, but the measure was not taken up in the Senate. There have also been calls to repeal the SSBG in the 112 th , 113 th , and 114 th Congresses associated with various budget resolutions adopted by the House, and as part of the House Budget Committee's July 2014 discussion draft on Expanding Opportunity in America . However, none of these activities have received the attention H.R. 5652 received in the 112 th Congress and, as such, are not discussed here. On May 10, 2012, the House passed the Sequester Replacement Reconciliation Act of 2012 ( H.R. 5652 in the 112 th Congress) by a recorded vote of 218-199. This bill included a provision (§621) that, if enacted, would have repealed the SSBG, effective October 1, 2012. However, the Senate did not take up this measure prior to the end of the 112 th Congress. The Sequester Replacement Reconciliation Act of 2012 was a budget reconciliation bill. Budget reconciliation is an optional process that may be used by Congress to bring existing spending, revenue, and debt-limit laws into compliance with fiscal priorities established in the annual budget resolution. The FY2013 House budget resolution included a reconciliation directive in Section 201. To comply with this directive, on April 18, 2012, the House Ways and Means Committee marked up legislation to meet its deficit reduction targets. This legislation included a provision to repeal the SSBG that was agreed to by the committee by a vote of 22-14. The House Budget Committee compiled this legislation, along with submissions from other House committees, into the Sequester Replacement Reconciliation Act of 2012 and reported the bill out of committee ( H.Rept. 112-470 ) on May 9, 2012. The report accompanying the Sequester Replacement Reconciliation Act of 2012 ( H.Rept. 112-470 ) included text explaining the decision to repeal the SSBG. The report called the SSBG a duplicative funding stream lacking in focus and accountability. The report also criticized the SSBG for not requiring states to match federal SSBG allotments. Committee reports accompanying House budget resolutions for FY2012 and FY2013 included similar critiques of the SSBG and, in each year, recommended that the program be eliminated. Similar arguments had previously been made by the George W. Bush Administration in proposing, as part of annual budget requests, to reduce and eventually eliminate funding for the SSBG. The committee report accompanying H.R. 5652 also included a summary of dissenting views, which focused largely on how the elimination of the SSBG might affect the vulnerable individuals served by these funds. Similar concerns were raised by other critics of the proposal to eliminate the SSBG, such as the National Conference of State Legislatures (NCSL). The NCSL argued that the flexible nature of the SSBG allows states to address the needs of vulnerable populations and respond to local concerns, arguing that eliminating the SSBG might shift costs of such services directly to states. On March 23, 2010, President Obama signed into law a comprehensive health care reform bill, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ). This law included three provisions that amended the SSBG's authorizing legislation, Title XX of the SSA. These provisions, discussed briefly below, created new programs related to elder justice, the health care workforce, and environmental health hazards. Notably, these changes were primarily of technical importance with respect to the SSBG. That is, they affected statutory citations for the SSBG, but they did not substantively amend the provisions within Title XX that govern the SSBG itself. The health reform law re-titled Title XX as Block Grants to States for Social Services and Elder Justice (formerly, Title XX was entitled Block Grants to States for Social Services ). The law also divided Title XX into two subtitles: Subtitle A retained provisions related to the SSBG, while Subtitle B comprised a series of new provisions related to elder justice. The elder justice provisions established (1) an Elder Justice Coordinating Council; (2) an Advisory Board on Elder Abuse, Neglect, and Exploitation; (3) a new grant program for stationary and mobile forensic centers to develop forensic expertise pertaining to elder abuse, neglect, and exploitation; and (4) several new grant programs (and other activities) to promote elder justice. The health care reform law ( P.L. 111-148 ) also included provisions establishing two new sections within Subtitle A of Title XX. The first created two demonstration projects related to the health care workforce. The second called for HHS to establish a competitive grant program for the early detection of medical conditions related to environmental health hazards. The health reform law established these new programs within the SSBG subtitle of Title XX and subjected their funding to the same prohibited uses as SSBG funds (though the new law made two exceptions to this rule). However, these new programs do not substantively alter the SSBG itself. The funding for these programs was provided separately in the health reform law (through mandatory pre-appropriations) and is not subject to the SSBG allocation formula. Appendix A. TANF Transfers to SSBG in FY2015 Appendix B. Recent Supplemental Appropriations This appendix presents background and spending information on supplemental appropriations to the SSBG in FY2013, FY2008, and FY2006. FY2013 Supplemental: Hurricane Sandy On January 29, 2013, the President signed into law the Disaster Relief Appropriations Act, 2013 ( P.L. 113-2 ), in response to Hurricane Sandy. This law reserved roughly $500 million ($474.5 million when accounting for sequestration) for the SSBG. The supplemental stipulated that these funds were to be used to address necessary expenses resulting from Hurricane Sandy, including social, health, and mental health services for individuals; and for repair, renovation, and rebuilding of health care facilities (including mental health facilities), child care facilities, and other social services facilities. The supplemental also included a provision giving states up to three years to expend these funds, one year longer than the SSBG's standard two-year expenditure period. On March 28, 2013, HHS issued an information memorandum regarding the availability of these supplemental funds. According to this memorandum, five states were allocated supplemental funds based on their relative share of Hurricane Sandy Individual Assistance registrants, as reported by the Federal Emergency Management Agency (FEMA) on March 18, 2013. These states were Connecticut ($10.6 million), Maryland ($1.2 million), New Jersey ($226.8 million), New York ($235.4 million), and Rhode Island ($0.5 million). HHS subsequently released a number of additional SSBG resources related to Hurricane Sandy, including two new information memoranda on reporting requirements, two rounds of Questions and Answers, copies of states' intended use plans, and various other resources. Of note, the most recent information memorandum (Transmittal No. 01-2015) revised the expenditure deadline for these funds to September 30, 2017, which represents an extension of two fiscal years from the previous deadline of September 30, 2015. Prior to the enactment of P.L. 113-2 , the Obama Administration had submitted a request to Congress on December 7, 2012, for disaster relief to support states affected by Hurricane Sandy. As part of this request, the Administration called for Congress to provide $500 million in supplemental funding for the SSBG. On December 28, 2012, the Senate approved this request as part of a disaster supplemental package (introduced as an amendment to H.R. 1 ), with some special provisions not included in the President's request. However, the House took no action on this bill. FY2008 Supplemental: Major Disasters of 2008 (and Hurricanes Katrina and Rita) The first FY2009 CR ( P.L. 110-329 ) included, as Division B, the Disaster Relief and Recovery Supplemental Appropriations Act of 2008. This law provided $600 million in supplemental funds for the SSBG in FY2008. These funds were appropriated on the last day of FY2008 and were not allotted to states by HHS until FY2009. The supplemental funds were appropriated for necessary expenses resulting from "major disasters" (as declared by the President and defined in Title IV of the Stafford Act) occurring during 2008, including hurricanes, floods, and other natural disasters. The appropriation also made these funds available for necessary expenses resulting from Hurricanes Katrina and Rita. The appropriations language specified that in addition to other uses permitted by Title XX of the Social Security Act, states could use their supplemental SSBG funds to provide social and health services (including mental health services) for individuals, as well as to support the repair, renovation, or construction of health care facilities, mental health facilities, child care centers, and other social services facilities affected by related disasters. Allocation of Funds The appropriations language explicitly required HHS to distribute funding to eligible states based on "demonstrated need in accordance with objective criteria that are made available to the public." HHS outlined their criteria in Information Memorandum Transmittal No. 02-2009, FY2008 SSBG Supplemental Appropriation of Disaster Assistance Funds Awarded in FY2009 , which was issued by the Department on January 6, 2009. Figure B-1 illustrates how the criteria selected by HHS were used to allocate funds to states. As specified in the Information Memorandum, HHS identified criteria to determine which disasters qualified for supplemental SSBG funds. First, HHS specified that qualifying major disasters were those that occurred between January 1, 2008, and the date of enactment of the supplemental appropriation (September 30, 2008); in addition, Hurricanes Katrina and Rita were considered to qualify automatically based on appropriations language. Second, HHS restricted qualifying disasters to those which triggered authorizations for Federal Emergency Management Agency (FEMA) Individual Assistance. The FEMA Individual Assistance program provides money or direct assistance to individuals, families, and businesses in an affected area whose property has been damaged or destroyed and whose losses are not covered by insurance. HHS chose Individual Assistance data to serve as a proxy for "demonstrated need," noting that these data represent individual households that have declared a loss associated with the disaster and who have registered for assistance. Twenty states (including the Commonwealth of Puerto Rico) were directly affected by qualifying disasters in 2008, as determined by the HHS criteria. Based on these same criteria, four states were deemed to be eligible for supplemental funds as a result of the lasting effects of Hurricanes Katrina and Rita (all but one of these states had also been affected by disasters in 2008). In total, 21 states (including Puerto Rico) were eligible to receive some share of the $600 million in supplemental funds under the HHS methodology. As shown in Figure B-1 , the HHS methodology called for three-fourths of the supplemental funds ($450 million) to be reserved for the states that were directly affected by major disasters occurring in 2008. One-fourth of the supplemental ($150 million) was then dedicated to the states facing ongoing needs as a result of Hurricanes Katrina and Rita. From there, funds in each category were allocated to states using two equally weighted sets of data: (1) the proportional share of FEMA registrants for Individual Assistance (that is, individuals from affected communities who validly registered with FEMA after the natural disaster), and (2) the relative size of state populations according to 2007 data from the Census Bureau's American Community Survey. Table B-2 displays the amount allocated to each state. Expenditure of Funds Typically, SSBG funds are subject to a two-year expenditure period—meaning that funds must be spent by the end of the fiscal year subsequent to the fiscal year in which they were allotted to states. The funds from this supplemental were allotted to states in FY2009, giving states until the last day of FY2010 (September 30, 2010) to spend them. However, most states had not spent all of their supplemental funds by the end of FY2010. Recognizing this, Congress passed a bill ( S. 3774 ), which the President signed into law ( P.L. 111-285 ) on November 24, 2010, extending the expenditure deadline for these funds by one fiscal year (to September 30, 2011). According to expenditure data from HHS, states spent more than $522 million (or 87%) of the $600 million in supplemental funds prior to the extended expenditure deadline. As shown in Table B-2 , six states (Alabama, Indiana, Kentucky, Louisiana, Maine, and Mississippi) spent all of the supplemental funds they were allotted, while two states (Oklahoma and West Virginia) spent none. The remaining states (plus Puerto Rico) spent some portion of their funds, ranging from 3.5% of Arkansas's allotment to 99.8% of Texas's. FY2006 Supplemental: Gulf Coast Hurricanes of 2005 The FY2006 Defense Appropriations Act ( P.L. 109-148 ) included supplemental SSBG funding in the amount of $550 million. These funds were for expenses related to the consequences of the Gulf Coast hurricanes of 2005. The Defense Appropriations Act expanded the potential services for which the additional $550 million could be used to include "health services (including mental health services) and for repair, renovation and construction of health facilities." Allocation of Funds Factors used to allocate these supplemental funds included the number of FEMA registrants from hurricanes Katrina, Rita, and Wilma, as well as the percentage of individuals in poverty in each state. HHS distributed funds to all states that took in evacuees, not just the states that were directly affected, noting in a February 8, 2006, press release that the Bush Administration had promised no state would be unfairly disadvantaged for providing services to those affected by the storms. Although all states received a portion, Louisiana ($221 million), Mississippi ($128 million), Texas ($88 million), Florida ($54 million), and Alabama ($28 million) received the bulk of funding from the supplemental (94%). Expenditure of Funds On May 25, 2007, an FY2007 supplemental appropriations act was signed into law ( P.L. 110-28 ), extending the availability of the supplemental SSBG funds for expenditure through the end of FY2009. In practical terms, this provision gave states until September 30, 2009, to spend all of their supplemental funds. According to HHS, states failed to spend approximately $28.7 million (or 5%) of the $550 million in supplemental funds prior to the expenditure deadline. This means that about 95% of the supplemental funds were spent prior to the close of FY2009 (see Table B-3 for state-by-state data). Unspent funds were to revert to the U.S. Treasury. The 2009 SSBG annual report (most recent available) indicates that states spent supplemental funds on 28 of the 29 SSBG service categories defined in federal regulation, including education and training, counseling services, and health-related services. The report shows that most of the supplemental funds were spent in the "other services" category, including expenditures for certain construction and renovation costs, as well as costs for certain health and mental health services. | The Social Services Block Grant (SSBG) is a flexible source of funds that states use to support a wide variety of social services activities. States have broad discretion over the use of these funds. In FY2014, the most recent year for which expenditure data are available, the largest expenditures for services under the SSBG were for foster care, child protective services, child care, and special services for the disabled. Since FY2002, annual appropriations laws have funded the SSBG at its authorized level of $1.700 billion. However, starting in FY2013, SSBG appropriations have been subject to sequestration, a spending reduction process by which budgetary resources are canceled to enforce budget policy goals. Most recently, temporary FY2017 funding for the SSBG has been provided through December 9, 2016, by a continuing resolution (P.L. 114-223, Division C). The FY2017 continuing resolution provided funding for the SSBG at current-law levels ($1.7 billion, less sequestration) under the same authorities and conditions as in FY2016. The FY2016 operating level for the SSBG was roughly $1.584 billion post-sequester. This is roughly $116 million (7%) less than the SSBG's FY2016 pre-sequester funding level of $1.700 billion and $9 million (0.5%) more than the SSBG's FY2015 post-sequester operating level of $1.576 billion. In addition to annual appropriations, the SSBG occasionally receives supplemental appropriations to assist states and territories in responding to natural disasters. Most recently, the SSBG received supplemental funding of $474.5 million (post-sequester) in FY2013 to support states affected by Hurricane Sandy. (These funds were in addition to the $1.613 billion, post-sequester, appropriated in the FY2013 annual appropriations law.) Annual appropriations laws since FY2001 have included a provision allowing states to transfer up to 10% of their Temporary Assistance for Needy Families (TANF) block grants to the SSBG. The SSBG is permanently authorized in Title XX, Subtitle A, of the Social Security Act (SSA). The 111th Congress amended Title XX of the SSA in the health care reform legislation signed into law by President Obama on March 23, 2010, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148). This law inserted a new subtitle on elder justice into Title XX, which was itself re-titled as Block Grants to States for Social Services and Elder Justice. The health reform law also amended Title XX by establishing two demonstration projects to address the workforce needs of health care professionals and a new competitive grant program to support the early detection of medical conditions related to environmental health hazards. The purpose of this report is to provide background and funding information about the SSBG; the report does not provide detailed information on other programs authorized within Title XX of the SSA. |
On January 9, 2014, officials in West Virginia discovered that an estimated 10,000 gallons of the chemical 4-methylcyclohexanemethanol (MCHM), mixed with a small amount of glycol ethers known as PPH, leaked from a 46,000-gallon aboveground storage tank at a chemical storage facility owned by Freedom Industries on a site northeast of Charleston, WV. A substantial amount of the chemical was released into the Elk River, a tributary to the Kanawha River. Moving downriver, an unknown amount of the chemical plume entered intake pipes of a water treatment facility located 1.5 miles from the chemical storage facility, causing the issuance of state and federal emergency declarations and prompting the local water utility to issue a "do not use" order that directed more than 300,000 commercial and residential customers in nine counties of West Virginia not to drink or use tap water for any purpose other than flushing toilets. Multiple responses followed. Federal, state, and local emergency response, public health, and environmental officials assembled resources to sample and test for the chemical at the treatment plant and in the water distribution system. Officials sought to obtain and evaluate information about toxicity and potential hazards in order to understand the impact of the chemical contamination. Emergency officials delivered and made water supply available to affected citizens. Recommendations of the U.S. Centers for Disease Control and Prevention (CDC) were used to determine a "safe level" of the chemicals and when the ban on the use of tap water could be lifted. It was fully and finally lifted on January 18, 2014. The U.S. Chemical Safety Board began an investigation of the incident to determine what happened and how to prevent a similar incident in the future. Public and congressional interest in the incident has been significant. Oversight hearings by House and Senate committees began within a month to review the event and to identify policy issues regarding the federal and state roles in regulating chemical facilities and whether legislative remedies may be warranted. Several concerns emerged from these discussions: Many have called for more robust inspections and controls at bulk chemical storage and manufacturing facilities and efforts to enhance inspection, spill containment, leak detection, and training requirements for personnel who manage activities at such facilities. Although underground storage tanks (USTs) are extensively regulated, relatively few federal regulations apply to aboveground storage tanks. For example, federal requirements for prevention and preparedness for releases from aboveground tanks apply to tanks containing oil, but do not apply to tanks storing hazardous substances or tanks containing non-hazardous substances or chemicals such as those at the Freedom Industries facility. There has been dispute over whether the tanks in question were subject to federal or state regulatory requirements that they be structurally sound and have adequate secondary containment, and whether existing requirements were effectively enforced. Little was known about the toxicity of the chemicals that leaked, which complicated efforts by the water utility, emergency responders, and other officials to assess risks to the affected public. Questions were raised about the adequacy of requirements for chemical testing of MCHM and PPH, as well as thousands of other chemicals used in commerce throughout the country. Facilities that store hazardous chemicals in excess of threshold quantities or experience a release in excess of established quantities are required by federal law to report and notify state and local emergency response personnel. However, there are no requirements that nearby or downstream water suppliers be notified. Rather, it is assumed that state and local emergency responders would notify affected entities and individuals. Many have called for more effective accident prevention, encompassing siting and design of chemical storage tanks, as well as inspections to safeguard against structural failure. Similarly, some now recommend that federal environmental laws should give greater attention to protecting sources of water against pollution and contamination. Some of these concerns are reflected in two bills that have been introduced in response to the chemical spill: S. 1961 , the Chemical Safety and Preparedness Act, introduced by Senator Manchin on January 27, and H.R. 4024 , the Ensuring Access to Clean Water Act of 2014, introduced by Representative Capito on February 10. This report describes and analyzes S. 1961 , as reported, and H.R. 4024 . The bills have a number of core elements and provisions in common—both would seek to create a new chemical release prevention and response program to address gaps highlighted by the West Virginia spill—but they take different approaches to doing so. S. 1961 would make programmatic changes by amending the Safe Drinking Water Act (SDWA), while H.R. 4024 would amend the Clean Water Act (CWA). Table A-1 in the Appendix to this report provides a comparison of the two bills. On July 31, 2014, the Senate Committee on Environment and Public Works reported S. 1961 ( S.Rept. 113-238 ), with an amendment in the nature of a substitute. While basic program elements remain similar to the bill as introduced, the reported bill includes new terms, definitions, and various added details and clarifications. The following discussion reviews the Senate bill, as amended. S. 1961 would amend the SDWA, adding a new "Part G" to require states or the Environmental Protection Agency (EPA) to carry out a chemical storage tank surface water protection (CSTSWP) program to protect public water systems from releases of chemicals from storage tanks. The bill would give states or EPA two years to establish a CSTSWP program that provides for oversight and inspection of chemical storage tanks, including tanks located in source water areas identified through the SDWA source water assessment program. Although S. 1961 would establish the tank program under the SDWA, a state would determine which state agency would implement the program. The chemical storage tank program would be administered by states that have primary enforcement responsibility for public water systems (i.e., primacy ), or by EPA if either (A) a state does not have primacy or (B) a state has primacy but expressly refrains from administering and implementing a program. Primacy states choosing not to establish a program would be required to notify EPA of their decision no later than two years after enactment. S. 1961 would require EPA to issue guidance and provide other technical assistance to assist states in implementing the bill's requirements. However, the bill would not authorize funding to support state administration of the CSTSWP program. The bill delineates minimum elements for chemical storage tank programs, including requirements for tanks and tank owners and operators (such as construction and leak detection, inspections, and emergency response plans that provide for immediate notification to public water systems of chemical releases) and requirements for states (including tank inspections and a comprehensive tank inventory). S. 1961 , as introduced, did not include a definition for the term "chemical." The reported bill defines "chemical" to mean a chemical substance that is identified as a hazardous substance under Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, commonly referred to as Superfund); subject to emergency planning or reporting requirements of the Emergency Planning and Community Right-To-Know Act (EPCRA); or defined as a contaminant under SDWA Section 1401(6). The introduced bill focused on chemical storage facilities; however, as reported, S. 1961 changes the focus from "facilities" to "tanks." Under the amended bill, "covered chemical storage tanks" would include onshore, fixed, aboveground bulk chemical storage containers (and related piping and appurtenances) or a combination of containers from which a chemical release would pose a risk of harm to a public water system. This change in scope from facilities to tanks, specifically, may add clarity and certainty as to what exactly would be subject to regulation under the legislation. Additionally, a focus on "tanks" may make any new requirements more compatible with existing state aboveground storage tank regulatory programs. The bill excludes from the definition a tank or container that is subject to regulations under Clean Water Act Section 311(j)(1). In addition, S. 1961 gives states or EPA broad authority to adopt additional exclusions based on substantially similar federal or state laws or based on a determination that the tank "would not pose a risk of harm to a public water system." Under the bill, CSTSWP programs must provide for oversight and inspection of tanks and contain the following minimum requirements: Covered chemical storage tank requirements including design, construction, and maintenance standards; leak detection; spill and overfill control; inventory control for promptly determining the quantity of chemicals released in the event of a spill; an emergency response and communication plan (including procedures for immediately notifying relevant water systems, and state and local emergency response officials, as required by EPCRA); training and safety plan; tank integrity inspections; corrosion protection; and financial responsibility requirements. Inspections of tanks: high hazard tanks—annually by a certified inspector for the owner or operator; tanks identified in a source water assessment area—at least once every three years for facilities; and other tanks—every five years. Comprehensive inventory of covered facilities in the state. Proposed Section 1472(d) would require CSTSWP programs to be implemented and enforced in accordance with SDWA broadly, thus making the bill's requirements subject to federal enforcement authorities (including civil penalties), any monitoring or recordkeeping requirements EPA may establish by regulation, judicial review, citizens' civil actions, EPA general regulatory authority, and other provisions. Relatedly, a tank program and associated requirements would be considered a part of the national primary drinking water regulations for purposes of state primary enforcement responsibility. The substitute amendment to S. 1961 added Section 1472(g) to clarify that state actions regarding the administration of a CSTSWP program would not affect state primacy for other SDWA programs. Among other provisions, the Senate bill would authorize EPA or a state to issue corrective action orders (proposed Section 1473), and would make facility owners or operators liable for costs incurred by EPA or a state for response actions taken under the new Part G (proposed Section 1474). Proposed Section 1745 would prohibit the transfer of a facility unless an inspection is conducted and any necessary measures are taken to address the inspection results. Under proposed Section 1476, a state or EPA would be required to provide to public water systems, on request, information maintained on emergency response plans and chemical inventories for chemical storage tanks within the same watershed as the water system. EPA or the state would also be required to provide to public water systems, on request, existing information on the potential toxicity of stored chemicals that EPA or the state deems relevant to evaluate the risk of harm to water systems, and safeguards that can be taken to detect or limit the impacts of a release of stored chemicals. Primacy states would be required to submit a copy of emergency response plans to EPA and the Department of Homeland Security (DHS). In states where EPA administered the program, EPA would be required to submit a copy of emergency response plans to the state and DHS. S. 1961 would authorize, but not require, public water system owners or operators to commence—or to petition EPA to commence—a civil action for equitable relief to address any activity or facility that may present an imminent and substantial endangerment to the health of persons supplied by the water system. The House measure, H.R. 4024 , which would establish a new Title VII in the CWA, is similar to the Senate bill in many respects. For example: Broadly similar to S. 1961 , H.R. 4024 would require EPA or states to carry out a chemical storage facility source water protection program. The purpose of the program in the House bill is to protect navigable waters that states have designated for use as domestic water sources. ( S. 1961 would require states or EPA to administer a chemical storage tank surface water protection program aimed at protecting public water systems.) Minimum requirements for state programs are very similar to those in S. 1961 , although the Senate bill would require inspection of covered chemical storage tanks, while the House bill calls for inspection of aboveground storage tanks at covered facilities. S. 1961 would require annual inspections for "high hazard" storage tanks (the term is not defined); the House bill has no similar provision. EPA would be authorized to provide technical assistance to a state carrying out the program (but EPA is not required to issue guidance and provide technical assistance, as in S. 1961 ). Neither bill directs EPA to issue regulations or requires states to submit their programs to EPA for review and approval. Neither bill explicitly provides a formal sanction or consequence if a state fails to carry out a chemical storage facility source water protection program. As with S. 1961 , under H.R. 4024 , EPA or a state would be authorized to issue a "corrective action order" to require the owner or operator of a covered chemical facility to carry out requirements of the title. Likewise, the owner or operator of a public water system may commence a civil action in court to address "any activity or facility" that may present an imminent and substantial endangerment to the health of persons supplied by the water system. Or the public water system may petition EPA or the state to commence a civil action or issue an order. Procedures for EPA to respond to such a petition are specified. Paralleling S. 1961 , under H.R. 4024 the owner or operator of a covered chemical storage facility shall be liable to EPA or a state for costs of a response action under the proposed new CWA Title VII. However, neither bill explicitly authorizes a response action relating to the release of a chemical; thus it is unclear to what the cost recovery provision refers. (EPA's ability to initiate a response action would be dependent upon the availability of appropriations.) The bills include comparable provisions regarding transfer of ownership of a covered chemical storage facility or tanks. ( S. 1961 would allow one year, rather than 30 days, to address the results of a pre-transfer inspection, and specifies criteria for qualifying inspections.) The bills also include similar provisions requiring a covered chemical storage facility/tank owner or operator to prepare an emergency response and communication plan, but only S. 1961 explicitly requires procedures for giving immediate notice of a release to relevant water systems. Both bills would require EPA or a state to provide a copy of the plan to neighboring water system operators, EPA (if the plan was submitted to a state), and the Secretary of Homeland Security. (Under S. 1961 , if EPA administered the program, EPA would be required to provide the emergency response plans to the state.) Provisions are included to protect sensitive or security-related information in the plan. While both bills provide that an inventory of each chemical held at a covered chemical storage facility be shared with public water systems, neither bill requires that the inventory be updated to reflect changes in the facility's operation, or types or amounts of chemicals stored there. ( S. 1961 specifies that EPA or a state would be required only to provide response plans, chemical inventories, and other information to a public water system on request.) Both bills allow a state to adopt standards regarding chemical storage facilities or tanks that are more stringent than minimum requirements in the legislation. H.R. 4024 explicitly allows a state to adopt or enforce standards regarding chemical storage facilities that are more stringent than minimum requirements in the legislation. This provision would conform the bill to CWA Section 510, which allows states to adopt or enforce water pollution abatement requirements more stringent than those specified in the CWA. S. 1961 specifies that the bill's requirements are to be implemented in accordance with the SDWA, and makes conforming amendments to SDWA Section 1414(e), which provides that nothing in the SDWA diminishes the authority of a state to adopt or enforce any law or regulation respecting drinking water regulations or public water systems. Despite many broad similarities between the bills, H.R. 4024 does contain numerous differences from the Senate bill. Selected differences are highlighted below. First, as noted above, the purpose of the program in H.R. 4024 is to protect navigable waters that states have designated for use as domestic water sources. The use of the phrase "navigable waters" in the bill derives from the basic jurisdictional reach of the CWA, which is "navigable waters"—defined in the act to mean "the waters of the United States, including the territorial seas." H.R. 4024 applies to a release from a chemical storage facility that poses a risk to "a navigable water that is designated for use as a domestic water supply." Under the CWA, states adopt water quality standards, which include designated use or uses for water bodies in the states (such as public water supply, recreation, or industrial water supply) and criteria to support the designated uses by setting acceptable upper limits on pollutants in the waterbody. The bill is thus concerned with protecting waters designated by states for use as public water supply—typically the highest and most protective use that a state adopts—but not other waters that also could affect public health and welfare. For example, many state standards designate waters for fish consumption, or water contact recreation (swimming and fish), uses that can result in public exposure to and consumption of water that could be affected by a chemical facility release just as easily as a water designated for domestic water supply. Second, while both bills call for the new program to be carried out by EPA or by a state that exercises primary enforcement responsibility for the underlying act, that means different things under the SDWA and CWA. H.R. 4024 would require that the new chemical storage facility program be carried out by states that have been delegated primary authority to issue CWA discharge permits. Forty-six states are authorized by EPA to implement CWA responsibilities that include adopting water quality standards, issuing discharge permits, conducting water quality monitoring, and enforcing the law. In the remaining states (Idaho, Massachusetts, New Hampshire, and New Mexico), plus the District of Columbia and most U.S. Territories, EPA retains core CWA responsibilities such as issuing permits, and it would be required to carry out the program detailed in H.R. 4024 . As discussed above, S. 1961 would apply to states that have primary enforcement authority for public water systems under the SDWA: EPA would implement programs in Wyoming, the District of Columbia, and most Indian lands. Third, only S. 1961 would direct EPA to implement a program in a primacy state that refrains from establishing one. H.R. 4024 includes no similar requirement or explicit authority. Fourth, the bills use different terms and definitions for "storage tank." H.R. 4024 defines "aboveground storage tank" to mean a container at a covered chemical storage facility located on or above ground with fluid capacity in excess of 1,100 gallons, or a tank that is greater than 500 gallons capacity and is located within 500 feet of a navigable water that is designated for domestic water supply. S. 1961 includes a definition for "covered chemical storage tank," but does not exclude any tanks based on storage capacity or distance from surface water; such determinations would be left to each state or EPA. Both bills would exclude tanks ( S. 1961 ) or facilities ( H.R. 4024 ) subject to spill prevention, containment, and removal measures under CWA Section 311(j)(1), which would exclude tanks or facilities storing oil. Both bills also would authorize states or EPA to establish other exclusions. Fifth, the bills define "chemical" differently. The House bill defines "chemical" to mean "any substance or mixture of substances." The proposed definition differs from and is broader than definitions in other laws, and interpreting it could raise questions such as whether it is intended to include a substance such as oil, which is subject to separate provisions in CWA Section 311. S. 1961 includes a three-part definition of "chemical," focusing on regulated hazardous chemicals and substances, but also encompassing the SDWA definition of "contaminant." Sixth, H.R. 4024 directs EPA to survey and report on state programs and regulations developed to implement the requirements of the legislation. Seventh, the House bill provides for civil penalties, not to exceed $15,000 per day, for violation by an owner or operator of a covered chemical storage facility of a requirement or an order issued by EPA or a state pursuant to the legislation. The stated penalty amount is less than the general civil penalty provision in Section 309(d) of the CWA, which specifies not to exceed $25,000 per day for each violation of the act. S. 1961 would make the bill's requirements subject to existing SDWA enforcement provisions, including Section 1414(b), which authorizes EPA to bring a civil action in the appropriate U.S. district court to require compliance with any applicable SDWA requirement or with an administrative compliance order. These SDWA civil penalties may not exceed $25,000 for each day the violation occurs. Eighth, the requirements of S. 1961 would be implemented and enforced in accordance with the underlying statute (SDWA). The House bill contains no similar provision. The spill from chemical storage tanks in West Virginia has generated considerable debate over the current state of regulation of such facilities, at both the federal and state level. As Congress considers possible legislative responses, multiple approaches may emerge. Both of the bills discussed in this report contemplate creating state-led programs to provide for oversight and inspection of covered chemical storage facilities or tanks. Neither bill would require EPA to issue regulations or limit state authority to set stricter requirements. A key difference is that S. 1961 would require the federal government to carry out a program in the event that a state with primary enforcement authority does not establish a program. Additionally, only S. 1961 would require chemical storage tank programs to be administered and enforced in accordance with the underlying statute (SDWA). Neither bill would provide additional funds to states to support development or administration of the program called for in the legislation. Requirements, such as conducting periodic inspections of chemical storage facilities, may be a challenge for resource-limited states without supplemental funding or shifting of funds from other activities to support program needs. Options for funding state-administered programs in the past have included authorizing appropriations for state grants, and providing explicit authority to support program costs through fees. Likewise, S. 1961 does not consider the resources that EPA might need if a large number of primacy states refrain from implementing the program contemplated in the legislation. It is unclear how many facilities might be covered under either bill, as there is no existing inventory—a gap that both bills propose to close by requiring each state to develop its own inventory (a national inventory is not called for in either bill). Although the number of chemical storage facilities and tanks is expected to be large, the bills give states and EPA considerable flexibility to determine which of those might be "covered" facilities or tanks or might be excluded from inclusion in the new program. Whether a state or EPA might choose to exclude some facilities or tanks—for example, those that are large, based on a determination that they already meet appropriate standards, or those that are small, based on a determination that they pose relatively little risk of harm to public water supplies—is unknown for now. At congressional hearings and in other fora, some—including some state regulatory agencies—have expressed the view that federal legislative response to the Elk River chemical spill would be premature until more complete information about the incident is available and an assessment has been done of gaps in environmental laws and regulations and how best to address them—whether through amendment of laws and/or programs or enhancement of existing authorities. Further, regardless of the role of states in the pending bills, some stakeholders prefer allowing states to take the lead in determining the need for and details of programs to address chemical storage facilities within their borders. The Administration's views on the need for legislation to address spills from chemical storage facilities generally or on the specific bills discussed here are unknown for now. | In January 2014, an estimated 10,000 gallons of 4-methylcyclohexanemethanol (MCHM) and other chemicals leaked from a bulk aboveground storage tank at a chemical storage facility located upstream from the intake pipes of the water treatment plant serving Charleston, WV, and nearby counties. In the wake of the resulting contamination of this large public water supply, Congress has undertaken oversight and is considering legislative options. The chemical storage tank at the center of the West Virginia incident appears to not have been subject to regulation under various federal or state laws aimed at protecting water resources from chemical releases. Oversight hearings by House and Senate committees began within a month to review the event, and to identify policy issues regarding the federal and state roles in regulating chemical facilities and whether legislation might be warranted. In further response to the spill, S. 1961, the Chemical Safety and Preparedness Act, was introduced on January 27, 2014, and H.R. 4024, the Ensuring Access to Clean Water Act of 2014, was introduced on February 10, 2014. This report describes and analyzes H.R. 4024 and S. 1961, as reported. The bills share a number of broadly similar provisions—both would direct states or the Environmental Protection Agency (EPA) to establish programs to prevent and respond to releases from chemical storage facilities (H.R. 4024) or tanks (S. 1961) located near drinking water sources—but they take different approaches to doing so: S. 1961 would make programmatic changes by amending the Safe Drinking Water Act (SDWA), while H.R. 4024 would amend the Clean Water Act (CWA). The bills would require states with primary enforcement responsibility for public water systems (S. 1961), or states with primary authority to issue CWA discharge permits (H.R. 4024), to establish a regulatory program for chemical storage tanks or facilities, and would have EPA establish programs in other states. Only S. 1961 would require EPA to establish and administer the program in primacy states that refrain from doing so. H.R. 4024 would require EPA or states to carry out a "chemical storage facility source water protection program" within one year of enactment, while S. 1961 would give EPA or states two years to establish a "chemical storage tank surface water protection program." Both bills include similar program requirements: (1) a state inventory of chemical storage facilities (H.R. 4024) or tanks (S. 1961); (2) regular inspections; and (3) requirements for facilities or tanks (including construction standards, leak detection, emergency response and communication plans, employee training, etc.). Both bills would authorize EPA or a state to issue corrective action orders to enforce the requirements of the legislation, and to recover response costs from facility or tank owners or operators. The bills would require pre-transfer inspections of facilities or tanks, and require information about stored chemicals and response plans to be shared with local water systems. The bills define "chemical" and "storage tank" differently, but would give states or EPA broad discretion in determining the scope of covered facilities or tanks. Both bills contemplate creating state programs to provide for oversight and inspection of covered chemical storage facilities or tanks, but neither would provide financial resources to assist states in establishing or administering the programs. The pending bills broadly present one approach among an array of possible approaches that have received some discussion. Some Members of Congress and stakeholders have suggested that a federal legislative response to the West Virginia spill is premature, saying that they favor allowing states to take the lead in determining the need for and details of programs to address chemical storage tanks and facilities within their borders. |
Introduction The Deepwater Horizon oil spill has caused significant socioeconomic injuries to the Gulf of Mexico fishing industry. Immediate economic injuries occurred because large areas of federal and state waters in or adjacent to the spill area were closed to fishing as a precautionary measure to ensure the safety of seafood. Perhaps of greater concern are intermediate and long-term harm to Gulf of Mexico ecosystems. Seafood production is dependent on Gulf ecosystems for spawning areas, nurseries, and growth. Over 84 days beginning on April 20, 2010, the Deepwater Horizon oil well released over 200 million gallons (4.9 million barrels). During the spill, oil was dispersed through the application of 1.8 million gallons of surface and subsurface chemical dispersants. By June 2, 2010, the area of federal waters closed to fishing had grown to its maximum of 88,522 square miles or nearly 37% of federal waters in the Gulf of Mexico. The maximum portions of state waters closed to fishing during the spill were Alabama (40%), Florida (2%), Louisiana (55%), and Mississippi (95%). Survey teams also have documented 1,053 total linear miles of oiled shoreline. At issue for Congress is whether current efforts will be sufficient to restore the fishery to pre-spill conditions. Congress may continue to conduct oversight of efforts to promote fishing industry recovery and Gulf restoration. Immediate issues are likely to focus on providing financial compensation to fishermen, ensuring seafood safety, and maintaining Gulf seafood markets. Congress also may consider long-term efforts to restore the Gulf environment and related fishery productivity. In addition to restoration requirements defined in statute by the Oil Pollution Act (OPA, P.L. 101-380 ) and National Oceanic and Atmospheric Administration (NOAA) Natural Resource Damage Assessment (NRDA) regulations under OPA, the Administration has proposed a long-term plan to restore the Gulf region. The plan would redirect Clean Water Act penalty revenues for this purpose and establish a Gulf Restoration Council to coordinate restoration efforts. Congress may consider the Administration's proposal and related issues such as the allocation and use of restoration funds. The primary objective of this report is to summarize information related to damages caused by the oil spill to Gulf fisheries and efforts to mitigate these damages. Many uncertainties exist because of the complexity and scale of Gulf fisheries and ecosystems that have been affected by the oil spill. Direct and indirect damages to fisheries and the Gulf environment are still being assessed and these efforts are likely to continue for years to come. Commercial and Recreational Fisheries Other than Alaska, historically, the Gulf region has produced the greatest amount of seafood by volume and value in the United States. In 2008, Gulf commercial fishery landings totaled 1,273 million pounds with a dock-side value of $697 million. When related processor, wholesale, and retail businesses are included, the seafood industry of the Gulf states supported over 213,000 full- and part-time jobs with related income impacts of $5.5 billion. The top commercial species by value were shrimp ($366 million), menhaden ($64 million), oysters ($60 million), and blue crab ($39 million). Table 1 provides commercial landings and revenue for major species by state in the Gulf of Mexico region. Recreational fisheries also make significant contributions to the region's economy by supporting businesses such as charters, bait and tackle shops, restaurants, and hotels. In 2008, 5.7 million Gulf recreational fishermen, both visitors and residents, took 24 million fishing trips. In 2008, recreational fishermen spent over $12.5 billion on durable equipment and trips in the Gulf region. Some of the main species targeted by recreational fishermen include snappers, several types of drum, sheepshead, and Spanish mackerel. Although recreational expenditures cannot be directly compared to commercial revenues, these figures provide an indication of the magnitude of economic activity related to these fisheries. Commercial and recreational fisheries are among the main activities supporting the economy and social well-being of many Gulf coastal communities. The Deepwater Horizon oil spill has directly harmed the fishing industry through closures and changes in seafood demand. Large areas of federal and state waters were closed to fishing as a precautionary measure to ensure the safety of seafood. During the closures fisheries landings and associated revenues decreased significantly in central Gulf fishing ports. It is likely that demand for Gulf seafood has decreased because of changes in consumer perceptions related to the spill. The spill also has harmed the Gulf environment, resulting in mortality of organisms, eggs, and early life stages and harm to habitat and other elements of the Gulf ecosystem. The scale and nature of the spill make it difficult for the public or government to quantify these effects. The closing and opening of areas has involved a tradeoff between ensuring public safety and providing fishing opportunities to recreational and commercial fishermen. In addition to public health concerns, marketing of oil-tainted products would further compromise the reputation of Gulf seafood. On the other hand, closures directly constrain recreational and commercial fishermen and delays in reopening areas are costly to the fishing industry. On May 2, 2010, 12 days following the explosion and fire of the Deepwater Horizon, NOAA closed 6,817 square miles of the Gulf of Mexico to commercial and recreational fishing. The closure was implemented to ensure potentially contaminated seafood would not enter markets and pose a risk to human health. The closure grew to include portions of Louisiana, Mississippi, Alabama, and Florida state waters. At the peak of the closure, 88,522 square miles, or nearly 37%, of all federal waters in the Gulf of Mexico were off-limits to fishing. The maximum proportions of state waters closed to fishing during the spill were Alabama (40%), Florida (2%), Louisiana (55%), and Mississippi (95%). Since the flow of oil from the well-head was stopped in July, most of Louisiana state waters and all of Mississippi, Alabama, and Florida state waters have been re-opened to fishing. As of January 24, 2011, only 1,041 square miles of federal waters immediately surrounding the well-head remain closed to commercial and recreational fishing. FDA, NOAA, and coastal states established a protocol to determine when areas may be re-opened to fishing. Once areas have been determined to be free of oil from the spill, re-opening has been considered on a species-by-species basis. Seafood samples of the species in question must pass both sensory and chemical analyses to ensure there are no harmful oil residues. For sensory testing, edible portions of the species are tested by a panel of experts who check samples for oil and dispersant odor and taste. If all tested samples for a given site pass the sensory test, additional samples undergo chemical analysis to test for polycyclic aromatic hydrocarbons (PAHs) and dispersants. All seafood samples from an area must pass both tests for the area to be reopened to fishing. Some have criticized the testing protocols because they believe seafood sampling coverage has been insufficient, the setting of PAH levels of concern should have incorporated additional factors, and the list of toxic substances being tested is too narrow. NOAA has collected samples from federal waters while state personnel have collected samples from state waters. On August 19, 2010, FDA officials stated the following in congressional testimony: To date all samples have passed sensory testing for oil or dispersants and, as with the surveillance sampling, the results of all chemical analyses have shown PAH levels well below the levels of concern, usually by a factor of 100 to 1,000 below those levels, essentially at the same level as were seen before the spill. For federal waters reopened through November 15, 2010, sensory analyses have found no detectable oil or dispersant odors or flavors, and results of chemical analyses have been well below levels of concern. Further, NOAA and FDA sampling from commercial landing sites and markets have not found seafood contaminated by oil or dispersant. According to the FDA, "fish and shellfish harvested from areas re-opened or unaffected by the oil spill are considered to be safe to eat." The areas affected by the closures are some of the richest fishing grounds in the Gulf for commercial species such as shrimp, menhaden, and oysters. Although many factors influence commercial landings, when compared to the same period in 2009 (January through December), total Gulf landings for all shrimp species in 2010 decreased by 35.6 million pounds (27%). On the state level, shrimp landings decreased by 32% in Louisiana, 60% in Mississippi, 56% in Alabama and nearly 15% in Texas, while increasing by nearly 15% for the Florida west coast. Menhaden landings in Louisiana also decreased by 171 million pounds (17%). The decreases in landings resulted in lower revenues in the harvesting sector. Immediate losses were dependent on target species, location, and alternative fishing opportunities. Landings information for other species and associated revenue information are not available at this time. In addition to impacts resulting directly from oil, the oyster industry has been harmed by efforts to protect Louisiana estuaries from oil intrusion. Following the oil spill, the state of Louisiana released freshwater from the Mississippi River into estuaries in greater amounts than usual in an attempt to keep oil from reaching Louisiana's estuaries. The strategy may have had limited success in keeping oil offshore, but with unintended consequences. The freshwater releases decreased salinity on the oyster grounds below the level that oysters can tolerate and resulted in significant mortality of oysters, by some estimates 50% of Louisiana's annual oyster crop. Some of the oyster industry's immediate concerns are related to documenting damage caused by the spill and freshwater diversion and effects of the spill on consumer perceptions and oyster markets. Prior to the oil spill, long-term restoration proposals to divert the Mississippi River for wetlands restoration raised concerns because of likely impacts on the productivity of oyster grounds. Some in the oyster industry have questioned whether current restoration efforts may need to consider retiring oyster grounds and developing new areas that are less likely to be affected by river diversions associated with restoration activities. The Gulf oil spill has affected both the supply of Gulf seafood and the demand for Gulf seafood. Fishery closures constrained harvesters and disrupted seafood supplies for the region's processors, distributors, and buyers. The disruption of seafood supplies resulted in the loss of some of the region's seafood markets. Impacts on specific markets vary depending on the magnitude of changes in supply from the harvest sector, whether the market is local, regional, or national, and the availability of alternative supplies. The disruption in Gulf supplies is likely to have induced buyers to use substitutes such as products from other regions or imports. Many in the Gulf seafood industry are concerned that once seafood buyers switch seafood suppliers, it may be difficult to regain markets. Many in the Gulf seafood industry fear it also will be difficult to regain consumer trust in their products. A study conducted by MRops, a marketing research company commissioned by the Louisiana Seafood Promotion Board, reported that 70% of consumers polled expressed some level of concern about seafood safety following the Gulf oil spill and 23% have reduced their consumption of seafood. This study implies that consumer concerns with safety have caused a decrease in demand for Gulf seafood and seafood in general. Supply effects on prices depend on the scale of the reduction in supply relative to the total market supply. The decrease in supply and related price increases are likely to have been greater for fresh markets near the area of the spill and for local specialties such as oysters. With regard to demand, concerns with seafood safety are likely to put negative pressure on prices. Initially, prices of some Gulf seafood products increased because supplies were constrained by fishery closures. On average, reported Gulf shrimp prices have remained higher in 2010 than during 2009. Oysters have also increased in price, likely in part because of the decrease in Louisiana production which is over 37% of national production and 62% of production in the Gulf region. As areas have been reopened and supply has rebounded, there have been some reports that prices of some products have decreased relative to previous years. In addition to the effects related to the oil spill, prices also depend on additional factors such as the availability of substitutes, consumer income, and consumer tastes and preferences. The length of time it will take to regain markets and consumer trust remains an open question. The Deepwater Horizon oil spill has harmed living organisms that inhabit ocean and coastal areas of the Gulf of Mexico, although the magnitude of damages are subject to considerable uncertainty. Coastal areas are especially vulnerable because oil can be stranded in wetlands and other coastal ecosystems after being washed in by waves and tides. The uptake of dissolved components of oil is toxic for fish, shellfish, other invertebrates, and plankton. Oil also may coat small animals and plants that inhabit shoreline areas and suffocate them. Many scientists are concerned that oil suspended in the water column may have caused mortality of plankton, including eggs and larvae of many fish such as bluefin tuna. Oil also may have remained on or near the bottom of the Gulf and affected deep corals and other bottom-dwelling organisms. Sublethal effects reduce the overall health of organisms, resulting in decreased growth and reproduction. Initial harm to marine organisms, such as direct mortality and reduced health, decrease the reproductive capacity of marine populations and may reduce future abundance. Early life stages of many species develop in coastal areas such as estuaries and wetlands and move offshore as they grow to their adult stage. As a result, the health of coastal areas can have long-term implications for the fishery industry. Ninety-seven percent of commercial fish and shellfish landings by volume are composed of species that depend on estuaries and wetlands at some point in the life cycle, and landings from the Louisiana coastal zone account for nearly one-third of the fish volume harvested in the continental United States. The presence of oil in the environment may alter migration patterns, decrease food availability, and disrupt life cycles. According to a study of oil impacts on Louisiana fisheries, populations of shrimp, crab, and menhaden are most likely to be harmed by the effects of oil on their eggs and larvae. The impacts of oil in coastal areas affects more than individual fish species. The Gulf is composed of inter-related ecosystems that stretch from estuaries and coastal wetlands to the pelagic zone (open ocean). Species directly affected by the spill could affect other species because of ecological interactions. For example, oil in coastal areas has affected structure-forming organisms, such as marsh grasses and oysters. These organisms provide shelter and a surface for attachment by other marine organisms. Survey teams have documented 1,053 total linear miles of oiled shoreline in the Gulf. Robert Barham, Louisiana Wildlife and Fisheries Secretary, has reportedly voiced concerns over long-term implications of the oil spill on Gulf wildlife, such as effects on the food web. Fisheries surveys from Dauphin Island Sea Lab, conducted after the oil spill off the coasts of Mississippi and Alabama, have found that the abundance of some fish species appear to have increased in 2010. Some scientists have speculated that these populations have increased because of the oil spill-related fisheries closures and reduced harvest. Some scientists expressed concern that the effects of the fishing closures may make it difficult to determine the direct impact of the oil spill on marine populations. The complexity of coastal ecosystems and scale of the Gulf oil spill are likely to contribute to considerable uncertainty regarding the magnitude and duration of spill-related damages to living resources. Several mechanisms exist to provide short- and long-term assistance to the fishing industry. Financial assistance to compensate for economic injuries to individuals and businesses affected by an oil spill are defined in statute by the Oil Pollution Act. Another source of assistance can be provided in cases where a fishery failure is declared by the Secretary of Commerce under the Magnuson-Stevens Fishery Conservation and Management Act (MSFCMA, P.L. 109-479 ). Additional sources of assistance have been provided through BP grants, the Vessels of Opportunity Program, and the Small Business Administration. Following the Exxon Valdez oil spill in 1989, a compensation and claims process was established under OPA for costs/damages resulting from oil spills, including lost profits and earnings resulting from property loss or natural resource injury. In general, claims for damages must be presented first to the responsible party (e.g., BP). If the party to whom the claim is presented denies all liability, or if the claim is not settled by payment within 90 days after the claim was presented, the claimant may elect either to initiate an action in court against the responsible party or to present the claim directly to the Oil Spill Liability Trust Fund. In response to economic harm caused by the oil spill and to fulfill obligations as a responsible party, BP established a claims process and multiple claims centers. On May 3, 2010, BP began paying emergency compensation to individuals and businesses. BP stated that emergency payments would continue as long as individuals and businesses could show they were unable to earn a living because of injury to natural resources caused by the oil spill. Payments were based on one month of income and would be adjusted with additional documentation. On June 16, 2010, President Obama announced that BP had agreed to set aside $20 billion to pay economic damage claims caused by the oil spill. Some members of the fishing industry criticized BP's administration of the claims process because they maintained that the claims process was slow, some individual payments were inadequate, and required proof of past earnings might not reflect potential earnings (if the spill had not occurred) for 2010. On August 23, 2010, the Gulf Coast Claims Facility (GCCF) took over the administration of claims from BP to address the issues with BP's claims process. Up until the change, BP had paid out $395.6 million, of which approximately $111 million went to the fisheries industry. Although still funded by BP, GCCF was established by the Administration and BP to provide an independent claims process. Some have argued that the process is not independent because the GCCF is directly financed by BP. GCCF provides information on how to file a claim, how to check the current status of a claim, and other general information concerning the process. GCCF offered emergency payments equivalent to six months of lost income to claimants until November 23, 2010. As of February 12, 2011, the GCCF had made emergency payments of approximately $751 million to individuals and businesses in the fishing industry. Some claimants have voiced concerns with the transparency of the claims process, the lack of information in GCCF responses to claims, and the adequacy of payments, but the actual proportion of unsatisfied fishing industry claimants is not known at this time. Under GCCF procedures, claimants will have three years to estimate damages and submit claims for final payment. Acceptance of a final claim would resolve all claims by that party against BP including past and future alleged damages. Individuals and businesses that have received emergency payments from the GCCF are eligible for a quick payment final claim, which offers a fixed amount of $5,000 for individuals and $25,000 for businesses. Those who do not choose or are not eligible for the quick payment may submit a full review final payment claim for all documented losses and damages. The alternative to a final payment is to make an interim payment claim for past damages that have not been compensated. Individuals and businesses receiving interim payments are not required to sign a release of liability and may file a final claim at a later date. For many in the fishing industry, their dilemma is related to uncertainty in determining the extent and duration of damages to fisheries resources. Some have questioned whether three years is a sufficient period to fully determine the damages of the oil spill. Many individuals and businesses are faced with the decision on whether to take a final settlement or, as many have already done, to file a lawsuit, which may present uncertainty as to payment size and timing. On February 2, 2011, the GCCF released a draft proposal, Payment Options, Eligibility and Substantiation Criteria, and Final Payment Methodology , for public comment. The proposal establishes principles for governing final and interim claims for individuals and businesses. GCCF also released a report, An expert opinion of when the Gulf of Mexico will return to pre-spill harvest status following the BP Deepwater Horizon HC 252 oil spill , to provide supplemental information for the GCCF final payment methodology. The report predicts that regional catches for major Gulf fisheries will likely continue along the same harvest trends of recent years by 2011. However, the report recognized there may be exceptions for specific areas and fisheries, especially for some oyster beds that may not recover for 6 to 10 years. Furthermore, the report acknowledges that a definitive assessment of recovery time is impossible, and the true loss to ecosystems and fisheries may not be known for years or even decades. Some have criticized the report because it assesses recovery of Gulf fisheries without allegedly understanding the ecological and long-term affects of the oil spill. The BP Vessels of Opportunity Program was designed to provide local boat operators with the opportunity to assist with response activities such as transporting supplies, assisting with wildlife rescue, and deploying containment booms. Only captains and employees who completed training and met other conditions were allowed to participate in the program. Approximately 3,500 commercial and charter fishing boats were employed over the life of the program. As of January 20, 2011, the program had made payments of $594 million for vessels and crew in Louisiana, Mississippi, Alabama, and Florida. In September 2010, the program was concluded in Florida, Alabama, and Mississippi, but as of January 2011, a small number of vessels remained active in Louisiana. The GCCF has decided that the earnings from the Vessels of Opportunity Program would not be deducted from payments made to claimants. On November 1, 2010, BP agreed to provide Louisiana with $48 million for seafood safety (testing programs) and marketing. Testing for oil and dispersants in seafood will be funded at $6 million per year for three years and Louisiana seafood marketing will be funded at $10 million per year for three years. The three-year commitment would reset for both programs if oil triggers the closure of new fishing areas. Louisiana had proposed funding of $173 million for a long-term seafood testing and marketing campaign, but BP refused to fund the program. Previously, BP agreed to provide $20 million over three years to fund seafood inspections and marketing efforts in Florida. BP also has agreed to provide $13 million to Louisiana to fund a three year study to monitor effects of the oil spill on Gulf fisheries. On May 24, 2010, Secretary of Commerce Locke determined that the ongoing oil spill had caused a fishery failure in the states of Louisiana, Mississippi, and Alabama. On June 2, 2010, the Secretary added Florida to the earlier determination. Both determinations were made under Section 312(a) of the Magnuson-Stevens Fishery Conservation and Management Act (MSFCMA). Under this section of the act, states must provide a 25% match to federal funds. The Administration requested $15 million to address the fishery failure and $5 million in economic development assistance through the Economic Development Administration. The Supplemental Appropriations Act of 2010 ( P.L. 111-212 ) included a total of $28 million for fishery disaster assistance and $5 million for economic development assistance. NOAA is expected to allocate $15 million of the fishery disaster assistance for a strategic marketing plan and health and safety assurance program for Gulf coast seafood. The remaining $13 million of fishery disaster assistance is intended to address economic impacts on fishermen and fishery-dependent businesses only if resources provided under other authorities are insufficient. The Supplemental Appropriations Act of 2010 also included $10 million for expanded stock assessments for Gulf fish species and $1 million for a National Academy of Sciences study of the long-term effects of the oil spill. In addition, the Small Business Administration has offered economic injury disaster loans and has deferred required payments for some existing loans. Gulf fisheries production is dependent on healthy Gulf ecosystems, including the quantity and quality of fisheries habitat. Restoration of Gulf ecosystems would likely maintain and enhance current fisheries production. The two main restoration efforts focusing on oil spill damages are the Natural Resource Damage Assessment (NRDA) and the Administration's Gulf Coast Restoration Plan. The federal government's role in restoration is defined in statute by OPA and in NOAA regulations for developing a NRDA. NRDA addresses natural resource damages, restoration of resources that are injured, and lost services that result from an oil spill. The parties responsible for causing the oil spill are responsible for NRDA damages. In contrast to financial compensation for individuals and businesses, NRDA focuses on restoration and compensation for harm to public natural resources. Designated federal, state, tribal, and sometimes foreign trust agencies are responsible to act on behalf of the public. OPA directs trustees to undertake two main actions: (1) return injured natural resources to their baseline condition (the condition that existed prior to the spill), and (2) compensate for interim losses. Restoration actions focus on returning natural resources to the baseline level with as much certainty and as quickly as possible. Compensation covers actions to address interim losses of natural resources and services until resources have recovered. Compensatory actions provide services of the same type and quality and of comparable value as those lost or injured. Damage assessment is required to quantify the extent of injuries to natural resources and to determine the type and amount of restoration and compensatory actions needed. The process of recovery is broken down by the regulations into three main phases: Pre-assessment phase —determines whether natural resource injuries have occurred or are expected and whether to continue to the next phase. Restoration planning phase —evaluates potential injuries to natural resources. This phase includes an assessment of the nature and extent of natural resource injuries and development of plans for restoring resources and compensating the public for interim losses. Restoration phase —the final restoration plan is presented to responsible parties to implement or fund the plan. This provides the opportunity for settlement of damage claims without litigation. However, OPA authorizes trustees to bring civil action for damages. As of January 2011, trustees were continuing with the restoration planning phase of the process that was begun in August of 2010. Efforts required during this phase include defining the baseline condition of the ecosystem and damages caused by the oil spill. Quantifying these conditions and damages are often hindered by limited scientific understanding of physical and biological processes in coastal and marine areas, natural variability of marine systems, and a paucity of related scientific data. These factors are coupled with uncertainties about acute and chronic effects of oil on marine organisms. In the face of these uncertainties, it is possible that questions related to restoration and compensation will arise, including basic questions about what constitutes ecosystem recovery and how to determine when it has occurred. On June 15, 2010, the Administration committed to developing a long-term Gulf of Mexico restoration plan for post-spill recovery needs as well as long-term restoration. In contrast to the environmental damages addressed by NRDA, the Administration's plan would address a broader array of restoration needs, many of which pre-date the oil spill. In September 2010, the Administration released America's Gulf Coast ; A Long Term Recovery Plan A fter the Deepwater Horizon Oil Spill . The report put forward a plan to restore the environment, economy, and public health of residents. It stressed the need for inclusive engagement and collaboration among governmental, private, and non-profit organizations and for a significant sustained commitment of resources over many years. The report recommends that Congress dedicate a significant, amount of any civil penalties recovered from responsible parties under the Clean Water Act to restore the Gulf coast. Further, it recommends that Congress create a Gulf Coast Recovery Council to coordinate efforts taken by concerned parties. The report recommended that the Administration immediately establish a Gulf Coast Ecosystem Task Force to coordinate Gulf restoration efforts until the Council is established. In January 2011, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling released its report to the President. Two of the Commission's recommendations for restoration focus on these points. Congress should dedicate 80 percent of the Clean Water Act penalties to long-term restoration of the Gulf of Mexico. Congress and federal and state agencies should build the organizational, financial, scientific, and public outreach capacities needed to put the restoration effort on a strong footing. On October 5, 2010, President Obama signed Executive Order 13554 to establish the Gulf Coast Ecosystem Restoration Task Force. The task force is chaired by the Administrator or representative of the Environmental Protection Agency and composed of representatives of the Departments of Defense, Justice, Interior, Agriculture, Commerce, and Transportation; and the Office of Management and Budget; the Council on Environmental Quality; the Office of Science and Technology Policy; the Domestic Policy Council; representatives appointed by the Governors of the Gulf states of Texas, Louisiana, Mississippi, Alabama, and Florida; and may include representatives of affected tribes. The task force's main goal is to develop a "Gulf of Mexico Regional Ecosystem Strategy." The strategy will set goals, develop performance indicators, and set up a process to coordinate intergovernmental restoration efforts. The Task Force first met on November 8, 2010. The 111 th Congress held 62 hearings related to the Gulf oil spill and at least 14 were directly related to natural resources and impacts on small businesses. The 112 th Congress may continue to conduct oversight of efforts on fishing industry recovery, adequate compensation, and Gulf restoration. Ongoing efforts by federal agencies and states to ensure seafood safety and to regain and maintain the reputation of Gulf seafood are the most immediate challenges. As the NRDA process moves from the planning to restoration phase, questions may arise regarding the level of the potential settlement and the types of restoration activities identified by the trustees. In contrast to restoration efforts developed under NRDA that are based on existing law, funding and governance of the Administration's comprehensive and long-term Gulf of Mexico restoration plan would require congressional action. To fully implement and fund the Administration's plan, Congress may consider whether to commit Clean Water Act civil penalties for this purpose as was recommended by the Administration's Gulf recovery plan and the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Congress also may consider how the fund should be allocated and whether to establish a Gulf Restoration Council to coordinate restoration efforts. Several bills were introduced during the 111 th Congress that included these elements of the Administration's plan, but no action was taken on any of them. An ongoing issue, especially for Gulf states, is the allocation and permitted uses of funding under the Administration's restoration plan. Three bills have been introduced in the 112 th Congress that address elements of the Administration's restoration plan, including the Gulf Coast Restoration Act ( H.R. 56 ) and Title IV of Recommendations of the BP Oil Spill Commission Act of 2011 ( H.R. 501 ), which are identical, and the Gulf of Mexico Economic and Environmental Restoration Act of 2011 ( H.R. 480 ). All three bills would establish a Gulf Coast Ecosystem Restoration Fund and require 80% of any amounts collected by the United States as penalties, settlements, or fines under the Federal Water Pollution Control Act (33 U.S.C. § 1319, § 1321) to be deposited into the fund. They would also establish a governing body to distribute funding and coordinate restoration efforts such as a Gulf Coast Ecosystem Restoration Task Force ( H.R. 56 and H.R. 501 ) or a Gulf of Mexico Recovery Council ( H.R. 480 ). In contrast to H.R. 56 and H.R. 501 , H.R. 480 would provide a formula for allocating funding among Gulf states, and establish and fund four Gulf of Mexico programs, including an observation system, a grant program for Sea Grant colleges, a seafood marketing program, and a clean energy program. | On April 20, 2010, the Deepwater Horizon oil drilling rig was destroyed by an explosion and fire, and the oil well began releasing oil into the Gulf of Mexico. The oil spill caused significant economic harm to the Gulf fishing industry because of fishery closures and consumer concerns related to the safety of Gulf seafood. Intermediate and long-term concerns are related to impacts on marine populations and degradation of fisheries habitat necessary for spawning, development of early life stages, and growth. The closing and opening of fishing grounds has involved a tradeoff between ensuring public safety and providing fishing opportunities to recreational and commercial fishermen. In addition to public health concerns, uncertainties related to Gulf seafood safety could further compromise the reputation of Gulf seafood. Most areas have been reopened and landings of commercial and recreational species are recovering. For Gulf waters re-opened through November 15, 2010, sensory analyses of seafood samples have found no detectable oil or dispersant odors or flavors, and results of chemical analyses have been well below levels of concern. However, some scientists and the public remain skeptical of claims that Gulf seafood is safe. This may inhibit the recovery of Gulf recreational and commercial fisheries. Under the Oil Pollution Act (OPA), harmed individuals and businesses may make claims for economic injuries to the responsible party, in this case BP. Although many in the fishing industry have benefited from their damage claims and associated payments, ongoing issues include the legitimacy of some claims, lack of transparency in the claims review process, eligibility to make a claim, and level of payments. Other assistance to the fishing industry includes BP grants to states, National Oceanic and Atmospheric Administration (NOAA) fishery disaster assistance, the BP Vessels of Opportunity Program, and Small Business Administration efforts. Environmental restoration of fisheries habitat and Gulf ecosystems would support the long-term recovery and productivity of Gulf fisheries. The federal government's role in restoration is defined in statute by OPA and in NOAA regulations, which require development of a Natural Resource Damage Assessment (NRDA). NRDA restoration plans are currently being developed by state and federal trustees. The Obama Administration also has committed to developing a separate long-term Gulf of Mexico plan to restore the environment, economy, and public health of residents. Implementation of the plan will require sustained funding and a governance structure to oversee and coordinate restoration efforts. The 112th Congress may continue to conduct oversight of efforts to promote fishing industry recovery, adequate compensation to fishermen and businesses, and Gulf restoration. Ongoing efforts by federal agencies and states to ensure seafood safety and to regain and maintain the reputation of Gulf seafood are the most immediate challenges currently faced by the fishing industry. As the NRDA process moves from the planning to restoration phase, questions may arise regarding the level of the potential settlement and the types of restoration activities identified by the trustees. In contrast to NRDA, three bills have been introduced in the 112th Congress to address elements of the Administration's restoration plan. All three bills would establish a Gulf Coast Ecosystem Restoration Fund and require 80% of any amounts collected by the United States as penalties, settlements, or fines under the Federal Water Pollution Control Act to be deposited into the fund. They would also establish a governing body to distribute funding and coordinate restoration efforts. Potential issues involve the allocation of funds, focus of restoration projects, and coordination with other restoration efforts. |
Intelligence officials and Members of Congress are addressing ways to reduce intelligence spending while protecting core capabilities. Director of National Intelligence (DNI) James R. Clapper Jr. recently stated that sequestration would require a 7% cut, or roughly $4 billion, to the National Intelligence Program (NIP) budget and warned of reduced global coverage and decreased human and technical intelligence collection. Mr. Clapper also warned of repercussions similar to those that occurred in the 1990s when the intelligence community saw a 23% cut in its budget, resulting in a "damaging downward spiral." Those cuts allegedly distorted the intelligence workforce, resulting in what is sometimes referred to as a "bathtub" shaped employment curve, with large numbers of older employees and new hires but few mid-level professionals capable of steering the community through post-9/11 changes. Congress completed action on the FY2013 intelligence authorization legislation ( S. 3454 ) in December 2012. The Senate passed its version of the bill by voice vote on December 28. The House approved the Senate version by a 373-29-29 vote on December 31. The final bill was signed into law by the President on January 14, 2013 ( P.L. 112-277 ). The bill reflected funding above the President's request but below the $53.9 billion appropriated for FY2012. The attacks on the World Trade Center and the Pentagon on September 11, 2001, dramatically demonstrated the intelligence threats facing the United States in the new century. In response, Congress approved significantly larger intelligence budgets and, in December 2004, passed the most extensive reorganization of the intelligence community since the National Security Act of 1947. The Intelligence Reform and Terrorism Prevention Act of 2004 (hereinafter, the "Intelligence Reform Act") ( P.L. 108 - 458 ) created a Director of National Intelligence (separate from a Director of the Central Intelligence Agency) who heads the intelligence community, serves as the principal intelligence adviser to the President, and oversees and directs the acquisition of major collections systems. As long urged by some outside observers, one individual is now charged with concentrating on the intelligence community as a whole and possesses statutory authorities for establishing priorities for budgets, for directing collection by the whole range of technical systems and human agents, and for the preparation of community-wide analytical products. P.L. 108-458 was designed to address the findings of the National Commission on Terrorist Attacks Upon the United States, known as the 9/11 Commission, that there has been inadequate coordination of the national intelligence effort and that the intelligence community, as then organized, could not serve as an agile information gathering network in the struggle against international terrorists. The commission released its report in late July 2004, and Congress debated its recommendations through the following months. A key issue was the extent of the authorities of the DNI, especially with regard to management and budgeting for technical collection systems managed by Defense Department agencies. In the end, many of the recommendations of the 9/11 Commission regarding intelligence organization were adopted after a compromise provision was included that called for implementing the act "in a manner that respects and does not abrogate" the statutory authorities of department heads. For additional information about intelligence community reform, background on intelligence collection disciplines, and intelligence budgeting, please see Appendix A to this report. The text below provides a brief overview of the intelligence community and of enduring intelligence oversight issues and then discusses specific topics that may be addressed by the 113 th Congress. The intelligence community (defined at 50 U.S.C. 401a(4)) consists of the following: The Office of the Director of National Intelligence Central Intelligence Agency (CIA) Bureau of Intelligence and Research, Department of State (INR) Defense Intelligence Agency (DIA) National Security Agency (NSA) National Reconnaissance Office (NRO) National Geospatial-Intelligence Agency (NGA) The National Security Branch, Federal Bureau of Investigation (FBI) Army Intelligence Navy Intelligence Air Force Intelligence Marine Corps Intelligence Coast Guard Intelligence The Office of Intelligence and Analysis, Department of the Treasury The Office of Intelligence, Department of Energy The Office of National Security Intelligence, Drug Enforcement Administration (DEA) The Office of Intelligence and Analysis, Department of Homeland Security Except for the CIA, intelligence offices or agencies are components of Cabinet departments with other roles and missions. The intelligence offices/agencies, however, participate in intelligence community activities while supporting the other efforts of their departments. The CIA remains the keystone of the analytic efforts of the intelligence community. It has all-source analytical capabilities that cover the whole world outside U.S. borders. It produces a range of studies that address virtually any topic of interest to national security policymakers. The CIA also collects intelligence with human sources and, on occasion, undertakes covert actions at the direction of the President. (A covert action is an activity or activities of the U.S. government to influence political, economic, or military conditions abroad, where it is intended that the U.S. role will not be apparent or acknowledged publicly.) Three major national-level intelligence agencies in the Department of Defense (DOD)—the National Security Agency (NSA), the National Reconnaissance Office (NRO), and the National Geospatial-Intelligence Agency (NGA)—absorb the larger part of the national intelligence budget. NSA is responsible for signals intelligence and has collection sites throughout the world. The NRO develops and operates reconnaissance satellites. The NGA prepares the geospatial data—ranging from maps and charts to sophisticated computerized databases—necessary for humanitarian operations and for targeting in an era in which military operations are dependent upon precision-guided weapons. In addition to these three agencies, the Defense Intelligence Agency (DIA) is responsible for defense attachés and for providing DOD with a variety of analytical products. It serves as the premier all-source analytic unit within DOD. Although the Intelligence Reform Act provides extensive budgetary and management authorities over these agencies to the DNI, it does not revoke the responsibilities of the Secretary of Defense for these agencies. The State Department's Bureau of Intelligence and Research (INR) is one of the smaller components of the intelligence community but is widely recognized for the high quality of its analysis. INR is strictly an analytical agency; diplomatic reporting from embassies, though highly useful to intelligence analysts, is not considered an intelligence function (nor is it budgeted as one). The key intelligence functions of the FBI relate to counterterrorism and counterintelligence. The former mission has grown enormously in importance since September 2001, many new analysts have been hired, and the FBI has been reorganized in an attempt to ensure that intelligence functions are not subordinated to traditional law enforcement efforts. Most importantly, law enforcement information, including counterterrorism and counterintelligence information, is now expected to be forwarded to other intelligence agencies for use in all-source products. The intelligence organizations of the four military services concentrate largely on concerns related to their specific missions. Their analytical products, along with those of DIA, supplement the work of CIA analysts and provide greater depth on key military and technical issues. The Homeland Security Act ( P.L. 107 - 296 ) provided the new Department of Homeland Security (DHS) responsibilities for fusing law enforcement and intelligence information relating to terrorist threats to the homeland. The Office of Intelligence and Analysis in DHS participates in the inter-agency counterterrorism efforts and, along with the FBI, has focused on ensuring that state and local law enforcement officials receive information on terrorist threats from national-level intelligence agencies. The Coast Guard, now part of the DHS, deals with information relating to maritime security and homeland defense. The Energy Department analyzes foreign nuclear weapons programs as well as nuclear nonproliferation and energy-security issues. It also has a robust counterintelligence effort. The Treasury Department collects and processes information that may affect U.S. fiscal and monetary policies. Treasury also covers the terrorist financing issue. Annual intelligence authorization bills were enacted from FY1979 through FY2005, providing congressional authorization for intelligence programs and guidance to the several intelligence agencies in specific provisions and report language. No intelligence authorization legislation was enacted between December 2004 and October 2010. Annual intelligence authorization acts were first passed in 1978 after the establishment of the two congressional intelligence committees. These acts provided specific authorizations of intelligence activities and were accompanied by reports that provided detailed guidance to the nation's intelligence agencies. The absence of intelligence authorization acts meant that key intelligence issues were addressed in defense authorization acts and defense appropriations acts that focused primarily on the activities of the Department of Defense. Several Members have maintained that this procedure resulted in misplaced priorities and wasteful spending estimates that could run into billions. However, over the last two years, Congress has met its statutory requirement by passing three Intelligence Authorization bills (for FY2011, FY2012, and FY2013) that included classified schedules of authorizations and that were signed into law. Most recently, in December 2012, both the House and Senate passed S. 3454 , the Intelligence Authorization for FY2013, which was signed into law by the President on January 14, 2013 ( P.L. 112-277 ). Key issues debated during the passage of these bills included the adequacy of Director of National Intelligence (DNI) authorities, Government Accountability Office (GAO) audit authority over the Intelligence Community, and measures to combat national security leaks. These three bills appear to reflect a determination to underscore the continuing need for specific annual intelligence authorization legislation. For a complete treatment of intelligence authorization issues, see CRS Report R40240, Intelligence Authorization Legislation: Status and Challenges , by Marshall Curtis Erwin. The Intelligence Reform and Terrorism Prevention Act of 2004 tasks the DNI with ensuring the elimination of waste and unnecessary duplication within the intelligence community. Some observers believe the DNI has focused more on other statutory requirements—specifically its mandate to facilitate information sharing—while neglecting this responsibility to eliminate waste, resulting in the proliferation of intelligence organizations, particularly in the areas of counterterrorism and analysis, that fulfill many of the same functions. Redundancy can serve important functions in intelligence. In the more tactical venues like counterterrorism, having multiple foreign and domestic intelligence organizations working to identify and disrupt terror plots ensures due diligence on the large amount of threat reporting flowing into the intelligence community each day. For example, in the wake of the 2009 Christmas day attack, a White House review noted that, "As with intentional analytic redundancy, the counterterrorism community also has multiple and overlapping warning systems to ensure that departments and agencies are kept fully aware of ongoing threat streams." In the area of strategic analysis, redundancy might more effectively check the biases of individual organizations. The DNI commented on this issue in July 2010, noting, "'Competitive analysis' avoids single points of failure and unchallenged analytic judgments. The lack of competing analytic judgments was a criticism by several post-9/11 commissions." Notionally, such competition might have improved the pre-war analysis of Iraq's weapons of mass destruction capacity. Striking a balance that eliminates unnecessary redundancy while maintaining the competitive environment that has proven effective over the last decade at preventing at least large-scale, 9/11-type attacks will likely be the greatest challenge facing the 113 th Congress in the area of intelligence. Investigations of the 9/11 attacks concluded that both technical and policy barriers had limited sharing of information collected by different agencies that, if viewed together, could have provided forewarning into the unfolding plot. This insight led to a series of reforms. The USA Patriot Act eliminated statutory barriers to information sharing, primarily in the domestic intelligence arena, and the Intelligence Reform and Terrorism Prevention Act of 2004 created the broader institutional framework for sharing across the intelligence community. That 2004 act gave the DNI the authority to "ensure maximum availability of and access to intelligence information within the intelligence community." Intelligence successes and failures in recent years suggest significant improvement has been made in the area of information sharing. A White House review of the 2009 Christmas day bombing attempt, for example, found that "Information sharing does not appear to have contributed to this intelligence failure," and that information about a pending attack had been shared with those in a position to disrupt the plot. A Senate investigation into the 2012 attack on the diplomatic mission in Benghazi, Libya, similarly concluded that intelligence was effectively shared between the Department of State and other intelligence agencies prior to the incident. John Brennan, in a prehearing question for his confirmation hearing as CIA Director, stated his view that sharing between the intelligence community, DOD, and other intelligence and law enforcement partners was at an all-time high. While the intelligence community is not entirely without its legacy "stovepipes," the challenge more than a decade after 9/11 is largely one of information overload, not information sharing. Analysts now face the task of connecting disparate, minute data points buried within large volumes of intelligence traffic shared between different intelligence agencies. According to a DNI statement from July 2010, "Terabytes of foreign intelligence information come in each day, vastly exceeding the entire text holdings of the Library of Congress, which is estimated at 10 terabytes." In the additional views section of the Senate report on the Christmas day bombing attempt, Senators Saxby Chambliss and Richard Burr noted that analysts who could have connected the dots prior to the incident struggled to search the large volume of terrorism-related intelligence available to them. The same problem was identified at the FBI in the aftermath of the 2009 Foot Hood shooting. While not a new problem for the intelligence community, the challenge of "separating the wheat from the chaff" may have been exacerbated over the last decade by a number of factors, including the fusion of domestic and foreign intelligence and the use of new information technologies that generate large amounts of data accessible to the federal government. Congress may wish to revisit the technical and institutional changes implemented by the intelligence community since this problem came into focus in 2009. In 1997, the House Intelligence Committee noted that "intelligence is now incorporated into the very fiber of tactical military operational activities, whether forces are being utilized to conduct humanitarian missions or are engaged in full-scale combat." The Persian Gulf War demonstrated the importance of intelligence from both tactical and national systems, including satellites that had been previously directed almost entirely at Soviet facilities. There were, nonetheless, numerous technical difficulties, especially in transmitting data in usable formats and in a timely manner. Many of these issues have since been addressed with congressional support and in Operation Iraqi Freedom intelligence was an integral part of the operational campaign and remained so in both Iraq and Afghanistan. A classified report prepared by the President's Intelligence Advisory Board (PIAB) in 2012 allegedly found that, after a decade of counterterrorism and intelligence support to the wars in Iraq and Afghanistan, the CIA specifically and the intelligence community more generally has now become too focused on tactical operation and military. Some observers believe the community has neglected its traditional functions of gathering and analyzing intelligence on more strategic topics. Members expressed similar concerns during recent confirmation hearings for CIA Director Brennan, who signaled his intent to examine allocation of mission within the CIA. The DNI is responsible for establishing intelligence community priorities and has a staff dedicated to ensuring collection and analytic resources are properly allocated to meet those priorities. In light of these mechanisms, the findings of the PIAB might be overstated. Some argue that an alleged focus on counterterrorism and operational support may reflect public perception of intelligence community activity rather than an actual allocation of intelligence resources. Intelligence agencies collect vast quantities of information on a daily, even an hourly, basis. The ability to locate fixed installations and moving targets has become an integral component of U.S. military capabilities. On almost any subject, the intelligence community can provide a wealth of knowledge within short time frames. Inevitably, there are "mysteries" that remain unknowable—the effects of unforeseeable developments and the intentions of foreign leaders. The emergence of the international terrorist threat has posed major challenges to intelligence agencies largely designed to gather information about nation states and their armed forces. Sophisticated terrorist groups in some cases relay information only via agents in order to avoid having their communications intercepted. Human collection has been widely perceived as inadequate, especially in regard to terrorism; the Intelligence Reform Act stated the sense of Congress that, while human intelligence (humint) officers have performed admirably and honorably, there must be an increased emphasis on and greater resources applied to enhancing the depth and breadth of human intelligence capabilities. In October 2005 the National Clandestine Service was established at CIA to manage humint operations by CIA and coordinate humint efforts by other intelligence agencies. There are also congressional concerns regarding major technical systems—especially reconnaissance satellites. These programs have substantial budgetary implications. Whereas the intelligence community was a major technological innovator during the Cold War, today both intelligence agencies and their potential targets make extensive use of commercial technologies, including sophisticated encryption systems. Consensus has yet to be reached on acquisition programs for a new generation of satellites. The ultimate goal of intelligence is to provide accurate analysis in a timely manner. Analysis is not, however, an exact science and there have been, and undoubtedly will continue to be, failures by analysts to prepare accurate and timely assessments and estimates. The performance of the intelligence community's analytical offices during the past decade is a matter of debate; some argue that overall the quality of analysis has been high while others point to the failure to provide advance warning of the 9/11 attacks and a flawed estimate of Iraqi weapons of mass destruction as reflecting systemic problems. Congressional intelligence committees have for some time noted weaknesses in analysis, a lack of language skills, and a predominant focus on current intelligence at the expense of strategic analysis. Analytical shortcomings are not readily addressed by legislation, but Congress has increased funding for analytical offices since 9/11 and the Intelligence Reform Act of 2004 contains a number of provisions designed to improve analysis—an institutionalized mechanism for alternate or "red team" analyses to be undertaken (§1017), the designation of an individual or entity to ensure that intelligence products are timely, objective, and independent of political considerations (§1019), and the designation of an official in the office of the DNI to whom analysts can turn for counsel, arbitration on "real or perceived problems of analytical tradecraft or politicization, biased reporting, or lack of objectivity" (§1020). These efforts, however, are affected by the long lead times needed to prepare and train analysts, especially in such fields as counterterrorism and counterproliferation. Initiatives undertaken after the passage of the 2004 act should now have produced a mature cadre of analysts. At the same time, sensitivity to intelligence tradecraft and to the pitfalls of groupthink may have dulled in the years since the intelligence failure associated with Iraq's WMD program. The quality of intelligence community analysis may be tested by emerging national security challenges, such as those associated with Iran's nuclear program. In addition to government-wide budgetary issues that have the potential for significant effects on intelligence activities, observers expect that oversight of the implementation of the Intelligence Reform Act will continue to be a concern for the 113 th Congress. Congress continues to monitor the evolving relationship between the DNI and the CIA Director. The role and effectiveness of new or reformed post-9/11 intelligence elements—for example, the FBI, DHS Intelligence & Analysis, and the Under Secretary of Defense for Intelligence—will likely continue to be areas of congressional interest. Future satellite procurement programs likely continue to be an important issue given the multi-billion dollar costs involved, though many of the details remain classified. Unauthorized disclosures of classified information will likely continue to be a concern, despite recent executive branch efforts to address this problem. The committee comments in S.Rept. 112-192 state their "grave concern" with "both the quantity and substance" of the disclosures, influencing the introduction of new provisions to prevent and detect future unauthorized disclosures. While no one agency or branch of government was believed to be more responsible than others, the committee called upon the executive branch to be vigilant and aggressively investigate and prosecute those found to be responsible. The CIA's role in targeted killings may come under closer scrutiny, as the Administration and Members seek to balance a desire for increased transparency and accountability with the need to safeguard what many argue is an effective tool against al-Qaeda. The attack in Benghazi on September 11, 2012, that claimed the lives of four Americans, including U.S. Ambassador to Libya John C. Stevens, raised a number of intelligence issues. As it pertained to Administration and intelligence community actions after the attack, public debate focused on two related but separate questions regarding whether the incident was a terrorist attack and whether there was a protest prior to the incident. The second question is more directly related to the analytic judgments of the intelligence community. According to public accounts provided by the news media, the intelligence community assessed incorrectly on September 12 that a protest had occurred. The community changed its assessment, based on new information, around September 20. The DNI more than a week later publically acknowledged this change, stating, "As we learned more about the attack, we revised our initial assessment to reflect new information indicating that it was a deliberate and organized terrorist attack carried out by extremists." Defenders of the IC performance point out that analysts are often called on soon after an incident such as the one that occurred in Benghazi to make difficult judgments based on incomplete information. Those judgments can and should change as information becomes available that provides a more complete picture. This is the nature of intelligence work. They also argue that the possible presence of a protest in Benghazi was just one of many challenging questions presented to analysts about the responsibility and implications of the attack. As noted above, the performance of the intelligence community's analytical offices came into focus after the failure to provide advance warning of the 9/11 attacks and a flawed estimate of Iraqi weapons of mass destruction. Assessments of Benghazi offer an oversight opportunity for Congress to determine to what extent the intelligence community has improved its analytic tradecraft. Congressional oversight thus far has focused primarily on the Department of State's actions prior to the attack and on the Administration's public statements. Britt Snider, in his book about intelligence oversight, argues that looking behind intelligence analysis has historically proven difficult for the intelligence committees. He notes, however, that "This is not to say the select committees cannot do independent evaluations of intelligence analysis or do them well. The HPSCI's 1979 report on the fall of the Shah in Iran and the SSCI's 2004 evaluation of the prewar assessments on Iraq are cases in point." With respect to Benghazi, oversight questions that could be addressed include: Was the initial judgment that a protest had occurred valid given the information that was available as of September 12? Why was information about a protest considered credible at the time? Based on new information, should analysts have corrected their assessment earlier than September 20? Did analysts display "anchoring bias"—the tendency to give greater weight to early information and assessments? U.S. counterterrorism efforts in Iraq, Afghanistan, Pakistan, and in other areas have been heavily dependent upon the use of unmanned aerial vehicles (UAVs) or unmanned aerial systems (UAS), referred to as "drones" in the media, for intelligence collection, often in real time. They provide important substitutes for, or supplements to, other intelligence platforms such as satellites and manned aircraft. In addition, some UAVs have been modified to launch weapons at designated targets. Operated remotely from ground stations in the region or even from the United States, armed UAVs can avoid the need to introduce U.S. personnel into direct combat, a significant advantage. Their use can also avoid the diplomatic complications of a ground-based U.S. military presence. UAVs are operated both by the military services and intelligence agencies depending on a number of operational and statutory considerations. Use by the military forces would be undertaken consistent with Title 10 authorities. 50 U.S.C. 413b provides statutory authorities for the DNI to undertake covert actions at presidential direction. Many have expressed concern about reports of expanded use of UAVs in targeted attacks. Some observers suggest that some individuals may not be legitimate targets as envisioned by the 2001 Authorization for the Use of Force ( P.L. 107-40 ), or believe that targeted attacks in countries where the United States is not otherwise engaged in armed conflict might violate international law. Since the September 2011 targeted killing of Anwar al-Awlaki, an American who fled to Yemen and became a senior leader within al-Qaeda in the Arabian Peninsula, many have questioned the legal basis of such a strike against a U.S. citizen. Still others question the effectiveness of the program over the long term and warn that drone attacks inside foreign countries such as Pakistan will encourage opposition to overall U.S. policy goals by engendering negative perceptions that ultimately bolster al-Qaeda's ranks. Former DNI Blair has stated: "in Pakistan, news media accounts of heavy civilian casualties are widely believed. Our reliance on high-tech strikes that pose no risk to our soldiers is bitterly resented in a country that cannot duplicate such feats of warfare without cost to its own troops." Congress is expected to maintain close oversight of the use of UAVs in the counterterrorism effort. In the wake of the September 2001 attacks, the FBI was strongly criticized for failing to focus on the terrorist threat, for failing to collect and strategically analyze intelligence, and for failing to share intelligence with other intelligence agencies (as well as among various FBI components). Subsequently, FBI Director Robert S. Mueller III introduced a number of reforms to create a better and more professional intelligence effort in an agency that has always emphasized law enforcement. Congress has expressed concern about the overall effectiveness of these reforms and with the FBI's widely criticized information technology acquisition efforts. These issues came into focus after the November 2009 Fort Hood shooting that claimed the lives of 13 Department of Defense employees. It was determined that the FBI had information about the shooter prior to the attack that it did not fully disseminate to DOD or the other members of the intelligence community. A Senate investigation into the shooting found that "the Fort Hood attack is an indicator that the current status of the FBI's transformation to become intelligence-driven is incomplete and that the FBI faces internal challenges - which may include cultural barriers - that can frustrate the on-going institutional reforms." The Homeland Security Act of 2002 established within the Department of Homeland Security a Directorate for Information Analysis and Infrastructure Protection with the responsiblity to, among other things, "identify and assess the nature and scope of terrorist threats to the homeland" and "detect and identify threats of terrorism against the United States." The Directorate has since been broken into two components, with intelligence collection and analysis functions falling to the Office of Intelligence and Analysis (I&A). In addition, the Bush Administration announced the establishment of the Terrorist Threat Integration Center (TTIC) in January 2003 under the DCI. In accordance with Executive Order 13354 of August 27, 2004, and the Intelligence Reform Act, TTIC was transferred to the National Counterterrorism Center (NCTC), which constitutes the focal point for assessing information on potential terrorist threats from all sources. Some argue that the missions of these organizations are distinct. NCTC sits at the nexus between for foreign and domestic intelligence agencies, whereas I&A serves more as a liaison between federal, state and local partners and has a mandate beyond counterterrorism. Nonetheless, in light of the establishment of NCTC and the FBI's efforts to become an intelligence driven organization, Members have sometimes questioned the role and mission of DHS I&A. The position of Under Secretary of Defense for Intelligence (USD(I)) was established by the Defense Authorization Act for FY2003 ( P.L. 107 - 314 , §901). The statute and DOD directives give the incumbent significant authorities for the direction and control of intelligence agencies within DOD especially in regard to systems acquisition. There are reports that DOD special forces have also been involved in human intelligence collection efforts that are not effectively coordinated with CIA. Some media commentators have pointed to potential conflicts between the office of the USD(I) and the DNI's office. The first USD(I), Stephen Cambone, resigned at the end of 2006; his successor was retired Air Force Lieutenant General James Clapper, who previously served as director of both NGA and DIA and who became DNI in August 2010. Michael Vickers, who had previously served in the CIA, was nominated to serve as USD(I) in January 2011 and was confirmed by the Senate on March 17. In May 2007 the USD(I) was also designated Director of Defense Intelligence and also serves on the DNI's executive committee. The USD(I) has considerable intelligence budgetary and hiring authority that sometimes rivals or exceeds that of the DNI. Some observers argue that the current working relationship between the DNI and the USD(I) is as much a result of personal relationships and temperament as it is a reflection of sound institutional arrangements between the two positions. Thus, the mission and responsibilities of the USD(I), and the institutional and statutory relationship with the DNI, may be areas of continued congressional interest. Some observers have expressed concern that expanded efforts by DOD intelligence personnel to collect humint overseas and undertake "preparation of the battlefield" operations may interfere with ongoing efforts of CIA humint collectors. Intelligence officials have maintained in congressional testimony that there is no unnecessary duplication of effort and that careful coordination is undertaken during the planning and implementing of such operations. The determination to ensure that such coordination is effective was further reflected in the designation of the DCIA as head of the National Clandestine Service. Members have also questioned the adequacy of DOD's administration of its intelligence personnel, citing cover problems, unproductive deployment locations, and "non-existent" career management. DOD in April 2012 announced the creation of a new Defense Clandestine Service intended to shift the defense intelligence activities away from tactical support and to focus more on humint operations against national-level priorities. A month later, the Senate Armed Services Committee, in its version of the National Defense Authorization Act of 2013, moved to constrain the growth of DOD's human intelligence personnel. The final bill froze funding for civilian personnel conducting defense human intelligence at the amount necessary to support the number of such personnel as of April 20, 2012. The Senate report language accompanying its version of the bill stated: The committee notes that President Bush authorized 50 percent growth in the CIA's case officer workforce, which followed significant growth under President Clinton. Since 9/11, DOD's case officer ranks have grown substantially as well. The committee is concerned that, despite this expansion and the winding down of two overseas conflicts that required large HUMINT resources, DOD believes that its needs are not being met. The intelligence investigations of the 1970s led to eventual enactment of statutory provisions requiring that Congress be informed of covert actions as well as current and anticipated intelligence activities other than covert actions. These provisions require the Administration to keep the two intelligence committees "fully and currently informed" of intelligence activities and significant anticipated intelligence activities. Covert actions must be approved by the President and Congress must be notified, but special provisions were subsequently established to permit in extraordinary circumstances limiting notification of covert actions to the chairmen and ranking minority Members of the intelligence committees, the Speaker of the House and the House minority leader, and the majority and minority leaders of the Senate, the so-called "Gang of Eight." Whether Gang of Eight or even more limited notification can be used for intelligence activities other than covert actions has become a source of controversy in recent years with some Members arguing that the statutes require that all committee members be notified at least in the case of intelligence activities that are not covert actions. The House Intelligence Committee included a provision (§321) in its FY2010 intelligence authorization bill ( H.R. 2701 ) that would remove the Gang of Eight provisions and require that all committee Members be briefed on all intelligence activities, including covert actions, unless the committee itself decided to limit notification. The Administration, in its Statement of Administration Policy issued July 8, 2009, stated firm opposition to Section 321, arguing that it "runs afoul of tradition by restricting an important established means by which the President protects the most sensitive intelligence activities." The Senate version of the FY2010 intelligence authorization bill, which ultimately became P.L. 111-259 , addresses notification both of covert actions and intelligence activities generally; it requires that, if the Administration does not provide information to all Members of the two committees, it will be required to notify the committees of the reasons for withholding information and a description of the "main features" of the activity that can be made available to all committee members. Members have continued to express frustration with the extent to which they are consulted or notified about intelligence activity, most recently during the Senate confirmation of John Brennan as CIA Director. That confirmation was held up while Members demanded to see Department of Justice Office of Legal Counsel opinions about the Administration's targeted killing program. Although such opinions are not governed by congressional notification procedures, some Members suggested that the initial refusal to share those opinions was indicative of distrust between the intelligence community and its oversight bodies. Unauthorized disclosures of classified information, whether from a media source, government agency or employee, or anonymously, have received significant attention over the past year. The Senate Intelligence Authorization legislation, which passed the House in December and was signed by the President in January 2013, focused on tighter restrictions to prevent disclosures and define consequences. The anti-leak proposals limit interaction between the media and cleared personnel, require the intelligence community to develop an insider threat program, and allow the government to withhold the pension of those who illegally disclose classified data. The bill also revises the definition of "intelligence agency" to include all elements of the intelligence community. Most of the provisions pertaining to unauthorized disclosure of classified information were dropped from the final bill. The White House in December 2012 released its National Strategy for Information Sharing and Safeguarding , which called for structural and policy reforms to address unauthorized disclosures of classified information. The DNI in June 2012 also announced new measures to combat those disclosures. It remains to be seen whether these actions will be effective or whether stronger action will be needed. The Government Accountability Office (GAO), a legislative branch agency, has statutory authorities to audit and investigate the receipt, disbursement, and application of public funds with a broad right of access to agency records and information. There are, however, specific exceptions that cover many intelligence activities by the CIA and other intelligence agencies. Although oversight of intelligence efforts is undertaken by the two congressional intelligence committees, some Members believe that the GAO should also have a role in intelligence efforts. In recent years, intelligence authorization bills have included provisions expanding GAO's responsibilities in regard to intelligence agencies; both the Bush and Obama Administrations have resisted these proposals. Provisions for an expanded GAO role were included in both the Senate and House FY2011 Intelligence Authorization bill ( S. 1494 , §335; H.R. 2701 , §335) despite Administration opposition. On May 27, 2010, an amendment sponsored by Representative Eshoo was added to the FY2011 Defense Authorization bill ( H.R. 5136 , §923) on a floor vote that would have required the DNI to provide the GAO with all information necessary to conduct an analysis, evaluation, or investigation requested by one of the congressional intelligence committees. In addition, a separate section would have recognized that GAO audits of intelligence agencies could be requested by any congressional committee with appropriate jurisdiction. In such cases, information relating to intelligence sources and methods or covert actions may be redacted and provided only to the congressional intelligence committees. The version of H.R. 2701 that both the Senate and House approved in late September 2010 required that the DNI issue a written directive no later than May 2011 to govern access by GAO for information held by intelligence agencies. On April 29, 2011, the DNI issued Intelligence Community Directive Number 114, Comptroller General Access to Intelligence Community Information which contains provisions designed to encourage cooperation between GAO and intelligence agencies. The Directive states, however, that information will not be provided to support a GAO audit or review of core national intelligence capabilities and activities. The Directive went into effect on June 30, 2011. GAO's response to ICD 114 stated that it was a "good start" to improving access to information in possession of the intelligence community but that some language in the directive, if interpreted broadly by intelligence agencies, "could significantly hinder GAO's ability to conduct related work that we are routinely requested by the Congress to do." Congress may wish to examine how ICD 114 has been interpreted and to what extent it has improved GAO access. Appendix A. Additional Background The intelligence community has been built around major agencies responsible for specific intelligence collection systems known as disciplines. Three major intelligence disciplines or "INTs"—signals intelligence ( sigint ), imagery intelligence ( imint ), and human intelligence ( humint )—provide the most important information for analysts and absorb the bulk of the intelligence budget. Sigint collection is the responsibility of NSA at Fort Meade, MD. Sigint operations are classified, but there is little doubt that the need for intelligence on a growing variety of nations and groups that are increasingly using sophisticated and rapidly changing encryption systems requires a far different sigint effort than the one prevailing during the Cold War. Since the late 1990s a process of change in NSA's culture and methods of operations has been initiated, a change required by the need to target terrorist groups and affected by the proliferation of communications technologies and inexpensive encryption systems. Observers credit the then-Director of NSA, Lieutenant General Michael Hayden, who later became Director of the CIA in May 2006, with launching a long-overdue reorganization of the agency, and adapting it to changed conditions. Part of his initiative has involved early retirements for some NSA personnel and greater reliance on outsourcing many functions previously done by career personnel. Some of the initiatives relating to acquisition did not, however, meet their objectives. A second major intelligence discipline, imagery or imint , is also facing profound changes. Imagery is collected in essentially three ways: by satellites, manned aircraft, and unmanned aerial vehicles (UAVs). The satellite program that covered the Soviet Union and acquired highly accurate intelligence concerning submarines, missiles, bombers, and other military targets is perhaps the greatest achievement of the U.S. intelligence community—it served as a foundation for defense planning and strategic planning that led to the end of the Cold War. In today's environment, there is a greater number of collection targets than existed during the Cold War and more satellites are required, especially those that can be maneuvered to collect information about a variety of targets. At the same time, the availability of high-quality commercial satellite imagery and its widespread use by federal agencies has raised questions about the extent to which coverage from the private sector can meet the requirements of intelligence agencies. High altitude UAVs such as the Global Hawk may also provide surveillance capabilities that overlap those of satellites. The National Imagery and Mapping Agency (NIMA) was established in 1996 to manage imagery processing and dissemination previously undertaken by a number of separate agencies. NIMA was renamed the National Geospatial-Intelligence Agency (NGA) by the FY2004 Defense Authorization Act ( P.L. 108 - 136 ). The goal of NGA is, according to the agency, to use imagery and other geospatial information "to describe, assess, and visually depict physical features and geographically referenced activities on the Earth." Intelligence from human contacts— humint —is the oldest intelligence discipline and the one that is most often written about in the media. The CIA is the primary collector of humint, but the Defense Department also has responsibilities filled by defense attachés at embassies around the world and by other agents working on behalf of theater commanders. Many observers have argued that inadequate humint has been a systemic problem and contributed to the inability to gain prior knowledge of the 9/11 plots. In part, these criticisms reflect the changing nature of the international environment. During the Cold War, principal targets of U.S. humint collection were foreign government officials and military leaders. Intelligence agency officials working under cover as diplomats could approach potential contacts at receptions or in the context of routine embassy business. Today, however, the need is to seek information from clandestine terrorist groups or narcotics traffickers who do not appear at embassy social gatherings. Humint from such sources can be especially important as there may be little evidence of activities or intentions that can be gathered from imagery, and their communications may be carefully limited. Placing U.S. intelligence officials in foreign countries under "nonofficial cover" (NOC) in businesses or other private capacities is possible, but it presents significant challenges to U.S. agencies. Administrative mechanisms are vastly more complicated than they are for officials formally attached to an embassy; special arrangements have to be made for pay, allowances, retirement, and healthcare. The responsibilities of operatives under nonofficial cover to the parent intelligence agency have to be reconciled with those to private employers, and there is an unavoidable potential for conflicts of interest or even corruption. Any involvement with terrorist groups or smugglers has a potential for major embarrassment to the U.S. government and, of course, physical danger to those immediately involved. Responding to allegations that CIA agents may have been involved too closely with narcotics smugglers and human rights violators in Central America, the then-Director of Central Intelligence (DCI), John Deutch, established guidelines in 1995 (which remain classified) to govern the recruitment of informants with unsavory backgrounds. Although CIA officials maintain that no proposal for contacts with persons having potentially valuable information was disapproved, there was a widespread belief that the guidelines served to encourage a "risk averse" atmosphere at a time when information on terrorist plans, from whatever source, was urgently sought. The FY2002 Intelligence Authorization Act ( P.L. 107 - 108 ) directed the DCI to rescind and replace the guidelines, and July 2002 press reports indicated that they had been replaced. A major constraint on humint collection is the availability of personnel trained in appropriate languages. Cold War efforts required a supply of linguists in a relatively finite set of foreign languages, but the intelligence community now needs experts in a wider range of more obscure languages and dialects. Various approaches have been considered: use of civilian contract personnel, military reservists with language qualifications, and substantial bonuses for agency personnel who maintain their proficiency. The National Security Education Program, established in 1991, provides scholarships and career training for individuals in or planning to enter careers in agencies dealing with national security issues. A fourth INT, measurement and signatures analysis— masint —has received greater emphasis in recent years. A highly technical discipline, masint involves the application of complicated analytical refinements to information collected by sigint and imint sensors. It also includes spectral imaging by which the identities and characteristics of objects can be identified on the basis of their reflection and absorption of light. Masint is undertaken by DIA and other DOD agencies. A key problem has been retaining personnel with expertise in masint systems who are offered more remunerative positions in private industry. Another category of information, open source information— osint (newspapers, periodicals, pamphlets, books, radio, television, and Internet websites)—is increasingly important given requirements for information about many regions and topics (instead of the former concentration on political and military issues affecting a few countries). At the same time, requirements for translation, dissemination, and systematic analysis have increased, given the multitude of different areas and the volume of materials. Many observers believe that intelligence agencies should be more aggressive in using osint; some believe that the availability of osint may even reduce the need for certain collection efforts. The availability of osint also raises questions regarding the need for intelligence agencies to undertake collection, analysis, and dissemination of information that could be directly obtained by user agencies. Section 1052 of the Intelligence Reform Act expressed the sense of Congress that there should be an open source intelligence center to coordinate the collection, analysis, production, and dissemination of open source intelligence to other intelligence agencies. An Open Source Center was subsequently established, although it has been managed by CIA personnel. The "INTs" have been the pillars of the intelligence community's organizational structure, but analysis of threats requires that data from all the INTs be brought together and that analysts have ready access to all sources of data on a timely basis. This has proved in the past to be a substantial challenge because of technical problems associated with transmitting data and the need to maintain the security of information acquired from highly sensitive sources. Some argue that intelligence officials have tended to err on the side of maintaining the security of information even at the cost of not sharing essential data with those having a need to know. Section 1015 of the Intelligence Reform Act mandated the establishment of an Intelligence Sharing Environment (ISE) to facilitate the sharing of terrorism-related information. A related problem has been barriers between foreign intelligence and law enforcement information. These barriers derived from the different uses of information collected by the two sets of agencies—foreign intelligence used for policymaking and military operations and law enforcement information to be used in judicial proceedings in the United States. A large part of the statutory basis for the "wall" between law enforcement and intelligence information was removed with passage of the USA PATRIOT Act of 2001 ( P.L. 107 - 56 ), which made it possible to share law enforcement information with analysts in intelligence agencies, but long-established practices have not been completely overcome. The Homeland Security Act ( P.L. 107 - 296 ) and the subsequent creation of the Terrorist Threat Integration Center (TTIC) established offices charged with combining information from both types of sources. Section 1021 of the Intelligence Reform Act made the new National Counterterrorism Center (NCTC), TTIC's successor, operating under the DNI specifically responsible for "analyzing and integrating all intelligence possessed or acquired by the United States Government pertaining to terrorism and counterterrorism [except purely domestic terrorism]." For budgetary purposes, intelligence spending is divided between the National Intelligence Program (NIP; formerly the National Foreign Intelligence Program or NFIP) and the Military Intelligence Program (MIP). The MIP was established in September 2005 and includes all programs from the former Joint Military Intelligence Program, which encompassed DOD-wide intelligence programs and most programs from the former Tactical Intelligence and Related Activities (TIARA) category, which encompassed intelligence programs supporting the operating units of the armed services. The Program Executive for the MIP is the Under Secretary of Defense for Intelligence. The bulk of the $50+ billion in national intelligence spending has been "hidden" within the DOD budget. Spending for most intelligence programs is described in classified annexes to intelligence and national defense authorization and appropriations legislation. (Members of Congress have access to these annexes, but must make special arrangements to read them.) Intelligence spending is authorized in intelligence authorization acts. When intelligence authorization legislation is not enacted (as was the case between FY2006 and FY2010), most intelligence spending is authorized by a "catch-all" provision in defense appropriations acts. For a number of years some Members sought to make public total amounts of intelligence and intelligence-related spending; floor amendments for that purpose were defeated in both chambers during the 105 th Congress. In response, however, to a lawsuit filed under the Freedom of Information Act, DCI George Tenet stated on October 15, 1997, that the aggregate amount appropriated for intelligence and intelligence-related activities for FY1997 was $26.6 billion. He added that the Administration would continue "to protect from disclosure any and all subsidiary information concerning the intelligence budget." In March 1998, DCI Tenet announced that the FY1998 figure was $26.7 billion. Figures for FY1999 and subsequent years were not released. During consideration of intelligence reform legislation in 2004, the Senate at one point approved a version of a bill which would have required publication of the amount of the NIP; the House version did not include a similar provision and, with the Senate deferring to the House, the Intelligence Reform Act did not require making intelligence spending amounts public. Section 601 of P.L. 110 - 53 , Implementing Recommendations of the 9/11 Commission Act of 2007, requires, however, that the DNI publicly disclose the aggregate amount of funds appropriated for the NIP although after FY2008 the President could waive or postpone the disclosure upon sending a explanation to congressional oversight committees. Consistent with that act, the DNI announced in October 2008 that the aggregate amount appropriated to the National Intelligence Program for FY2008 was $47.5 billion. A year later the NIP for FY2009 was announced as $49.8 billion. In September 2009, DNI Blair stated publicly that total annual intelligence spending is $75 billion, a figure that includes not only the NIP but also military intelligence activities. In October 2010, the DNI announced that the amount appropriated to the NIP for FY2010 was $53.1 billion. Subsequently, DOD announced that the MIP appropriations for FY2010 was $27 billion, including both the base budget and supplemental appropriations. The amount appropriated for MIP in FY2011 was $24 billion, a $3 billion reduction from the year earlier. The amount appropriated for the NIP in FY2011 was $54.6 billion according to an October 2011 announcement. The amount appropriated to the NIP for FY2012 was $53.9 billion, according to an October 2012 announcement from the DNI. The amount requested for the NIP for FY2013 was $52.6 billion. According to a December 2012 statement from the leaders of the congressional intelligence committees, the FY2013 intelligence authorization bill is below 2012's enacted budget but slightly above the President's 2013 request. Jurisdiction over intelligence programs is somewhat different in the House and the Senate. The Senate Intelligence Committee has jurisdiction only over the NIP but not the MIP, whereas the House Intelligence Committee has jurisdiction over both sets of programs. The preponderance of intelligence spending is accomplished by intelligence agencies within DOD and thus in both chambers the armed services committees are involved in the oversight process. Other oversight committees are responsible for intelligence agencies that are part of departments over which they have jurisdiction. Most appropriations for intelligence activities are included in national defense appropriations acts, including funds for the CIA, DIA, NSA, the NRO, and NGA. Other appropriations measures include funds for the intelligence offices of the State Department, the FBI, and DHS and other intelligence agencies. Although funds for CIA have been included in defense appropriations acts, these monies are transferred directly to the CIA Director. The Senate voted in October 2004 to establish an Appropriations Subcommittee on Intelligence, but this has not occurred nor did the House take similar action. On January 9, 2007, however, the House approved H.Res. 35 , which established a select panel within the appropriations committee that includes three members of the intelligence committee to oversee appropriations for intelligence program. The select panel was not continued in the 112 th Congress. Intelligence budgeting issues were at the center of the debate on intelligence reform legislation in 2004. On one hand, there was determination to make the new DNI responsible for developing and determining the annual National Intelligence Program budget (which is separate from the MIP budgets that are prepared by the Office of the Secretary of Defense). The goal was to ensure a unity of effort that arguably has not previously existed and that may have complicated efforts to monitor terrorist activities. On the other hand, the intelligence efforts within the National Intelligence Program include those of major components of the Defense Department, including NSA, the NRO, and NGA, that are closely related to other military activities. Some Members thus argued that even the National Intelligence Program should not be considered apart from the Defense budget. After considerable debate, the final version of P.L. 108 - 458 provides broad budgetary authorities to the DNI, but in Section 1018 requires the President to issue guidelines to ensure that the DNI exercises the authorities provided by the statute "in a manner that respects and does not abrogate the statutory responsibilities of the heads of" the Office of Management and Budget and Cabinet departments. Observers expect that implementing the complex and seemingly overlapping budgetary provisions of the Intelligence Reform Act will continue to depend on effective working relationships among the Office of the DNI, DOD, and the White House staff. In late 2011 Congress passed the FY2012 Intelligence Authorization bill ( H.R. 1892 ) and the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). The two acts contained provisions affecting intelligence budgeting. Section 433 of the former authorizes the establishment of Treasury Department accounts to receive funds from defense intelligence elements, the ODNI, and other agencies for authorized programs. The latter contains several provisions (especially Sections 8090, 8092, and 8094) that would bring intelligence budget submissions into alignment with formats established for the Defense Department. Taken together, the provisions may facilitate the DNI's management of intelligence accounts and strengthen congressional oversight even though an earlier initiative by DNI Clapper for the submission of a NIP budget request separate from the DOD budget is precluded (§8116). In the aftermath of September 11, 2001, there was extensive public discussion of whether the attacks on the Pentagon and World Trade Center represented an "intelligence failure." In response, the Senate Select Committee on Intelligence and the House Permanent Select Committee on Intelligence undertook a joint investigation of the September 11 attacks. Public hearings by the resulting "Joint Inquiry" were launched on September 18, 2002, beginning with testimony from representatives of families of those who died in the attacks. Former policymakers and senior CIA and FBI officials also testified. Eleanor Hill, the inquiry staff director, summarized the inquiry's findings: the Intelligence Community did have general indications of a possible terrorist attack against the United States or U.S. interests overseas in the spring and summer of 2001 and promulgated strategic warnings. However, it does not appear that the Intelligence Community had information prior to September 11 that identified precisely where, when and how the attacks were to be carried out. The two intelligence committees published the findings and conclusions of the Joint Inquiry on December 11, 2002. The committees found that the intelligence community had received, beginning in 1998 and continuing into the summer of 2001, "a modest, but relatively steady, stream of intelligence reporting that indicated the possibility of terrorist attacks within the United States." Further findings dealt with specific terrorists about whom some information had come to the attention of U.S. officials prior to September 11 and with reports about possible employment of civilian airliners to crash into major buildings. The inquiry also made systemic findings highlighting the intelligence community's lack of preparedness to deal with the challenges of global terrorism, inefficiencies in budgetary planning, the lack of adequate numbers of linguists, a lack of human sources, and an unwillingness to share information among agencies. Separately, the two intelligence committees submitted recommendations for strengthening intelligence capabilities. They urged the creation of a Cabinet-level position of Director of National Intelligence (DNI) separate from the position of director of the CIA. The DNI would have greater budgetary and managerial authority over intelligence agencies in the Defense Department than possessed by the DCI. The committees also expressed great concern with the reorientation of the FBI to counterterrorism and suggested consideration of the creation of a new domestic surveillance agency similar to Britain's MI5. The Joint Inquiry was focused directly on the performance of intelligence agencies, but there was widespread support among Members for a more extensive review of the roles of other government agencies. Provisions for establishing an independent commission on the 2001 terrorist attacks were included in the FY2003 Intelligence Authorization Act ( P.L. 107 - 306 ). Former New Jersey Governor Thomas H. Kean was named to serve as chairman, with former Representative Lee H. Hamilton serving as vice chairman. Widely publicized hearings were held in spring 2004 with Administration and outside witnesses providing different perspectives on the role of intelligence agencies prior to the September 11, 2001, attacks. The commission's report was published in July 2004. Although the 9/11 Commission surveyed the roles of a number of federal and local agencies, many of its principal recommendations concerned the perceived lack of authorities of the DCI. The commission recommended establishing a National Intelligence Director (NID) to manage the National Intelligence Program and oversee the agencies that contribute to it. The NID would annually submit a national intelligence program budget and, when necessary, forward the names of nominees to be heads of major intelligence agencies to the President. Lead responsibility for conducting and executing paramilitary operations would be assigned to DOD and not CIA. The commission also recommended that Congress pass a separate annual appropriations act for intelligence that would be made public. The NID would execute the expenditure of appropriated funds and make transfers of funds or personnel as appropriate. Proposing a significant change in congressional practice, the commission recommended a single intelligence committee in each house of Congress, combining authorizing and appropriating authorities. On August 27, 2004, President Bush addressed key recommendations of the 9/11 Commission in signing several executive orders to reform intelligence. In addition to establishing a National Counterterrorism Center, the orders provided new authorities for the DCI until legislation was enacted to create a National Intelligence Director. In addition, several legislative proposals were introduced to establish a National Intelligence Director, separate from a CIA Director. The Senate passed S. 2845 on October 16, 2004; the House had passed H.R. 10 on October 8, 2004. Efforts by the resulting conference committee to reach agreed-upon text focused on the issue of the authorities of the proposed Director of National Intelligence in regard to the budgets and operations of the major intelligence agencies in DOD, especially NSA, NRO, and NGA. Conferees finally reached agreement in early December, and the conference report on S. 2845 ( H.Rept. 108 - 796 ) was approved by the House on December 7 and by the Senate on December 8. The President signed the legislation on December 17, 2004, and it became P.L. 108 - 458 . The Intelligence Reform Act is wide-ranging, and its ongoing implementation will continue to receive oversight during the 113 th Congress. Some observers have suggested that modifications to the legislation may be needed; others recommend that any difficulties be addressed by executive orders or memoranda of understanding. In December 2005 media accounts of electronic surveillance by NSA authorized outside the parameters of the Foreign Intelligence Surveillance Act (FISA) led to extensive criticism of the Administration. Although the technical details of the effort remain classified, the Bush Administration maintained that communications, which involve a party reasonably considered to be a member of Al Qaeda, or affiliated with Al Qaeda, and one party in the United States, may be monitored on the basis of the President's constitutional authorities and the provisions of the Joint Resolution providing for Authority for the Use of Force ( P.L. 107 - 40 ) of September 18, 2001. The need for speed and agility required, the Administration further argued, an approach not envisioned by the drafters of FISA. Others countered that FISA should have governed such electronic surveillance. In early March 2006 agreement was reached with the leadership of the two intelligence committees to establish procedures for enhanced legislative oversight of the NSA effort, and legislative initiatives were considered to either modify FISA or establish new statutory authorities for electronic surveillance. Differing views of Members on the NSA effort were reflected in the House Intelligence Committee's 2006 report on FY2007 intelligence authorization legislation ( H.Rept. 109 - 411 ). In light of decisions issued by the Foreign Intelligence Surveillance Court (FISC) on January 10, 2007, the Bush Administration advised the chairman and ranking Member of the Senate Judiciary Committee that any electronic surveillance that had previously occurred as part of the Terrorist Surveillance Program (TSP) would thereafter be conducted subject to the approval of the FISC. Further, the Administration indicated that it would not re-authorize the TSP after the expiration of the then-current authorization. On May 1, 2007, the Senate Intelligence Committee held an open hearing on the Administration's proposal to revise FISA to take account of changes in communications technologies since the 1970s, with Members expressing differing views on the desirability of the legislation. According to media reports, a judge on the FISC at some point in 2007 ruled that a FISC order was required for surveillance of communications between foreign persons abroad if the communications passed through the United States. On August 2, 2007, the DNI issued a statement on FISA modernization in which he contended that the intelligence community "should not be required to obtain court orders to effectively collect foreign intelligence from foreign targets located overseas." Although details of the effort remain classified, there appears to have been wide agreement among Members that FISA needed to be amended to permit surveillance without a court order of such foreign to foreign communications regardless of whether they were routed through the United States. The Protect America Act (PAA) ( P.L. 110 - 55 ), signed on August 5, 2007, after extensive congressional debate, excluded from the definition of "electronic surveillance" under FISA surveillance directed at a person reasonably believed to be located outside the United States. In addition, under certain circumstances, FISA, as amended by this legislation, permitted the DNI and the Attorney General, for periods up to one year, to authorize acquisition of foreign intelligence information "concerning persons reasonably believed to be located outside of the United States," apparently including U.S. persons, and to direct a communications provider, custodian, or other person with access to the communication immediately to provide information, facilities, and assistance to accomplish the acquisition. Those receiving such directives had the right to contest them in court. The DNI and the Attorney General were required to certify, in part, that this acquisition did not constitute electronic surveillance, and the Attorney General was required to submit the procedures by which this determination is made to the FISC for review as to whether the government determination was clearly erroneous. On a semiannual basis, the Attorney General was to report to congressional oversight committees on instances of noncompliance with directives and numbers of certifications and directives issued during the reporting period. P.L. 110 - 55 expired on February 1, 2008, and efforts to extend it further failed in the House when H.R. 5349 was rejected on February 13. Acquisitions authorized while the PAA was in force may continue until the expiration of the period for which they were authorized. The Protect America Act was strongly criticized by some Members; on November 15, 2007, H.R. 3773 , the RESTORE Act (the Responsible Electronic Surveillance that is Overseen, Reviewed, and Effective Act of 2007) was passed by the House in an attempt to clarify that a court order is not required for the acquisition of the contents of communications between two persons neither of whom is known to be a U.S. person, and both of whom are reasonably believed to be located outside the United States, regardless of whether the communications passed through the United States or if the surveillance device was in the United States. If, in the course of such an acquisition, the communications of a U.S. person were incidentally intercepted, stringent minimization procedures would have applied. Court orders would, however, have been required if the communications of a non-U.S. person reasonably believed to be located outside the United States were targeted where the other parties to the target's communications are unknown and thus might include U.S. persons or persons located physically in the United States. Some Members argued that this provision would unnecessarily tie the hands of intelligence agencies and jeopardize the counterterrorism effort. The RESTORE Act would have also provided for increased judicial oversight and would have required quarterly implementation and compliance audits by the Inspector General of the Justice Department, and added related congressional reporting requirements. On October 26, 2007, the Senate Intelligence Committee reported its own version of a FISA amendment. The Senate bill ( S. 2248 ), as amended, contained provisions authorizing the Attorney General and the DNI jointly to authorize targeting of persons, other than U.S. persons, reasonably believed to be outside the United States to acquire foreign intelligence information for periods up to one year. Under the Senate bill, FISC approval would have been required for targeting a U.S. person reasonably believed to be located outside the United States to acquire foreign intelligence information, if the acquisition constitutes electronic surveillance under FISA, or the acquisition of stored electronic communications or stored electronic data that requires an order under FISA, and the acquisition is conducted in the United States. The Senate bill would have also provided some retroactive immunity to telecommunications companies from civil suits in federal and states courts related to assistance that they have provided to the government in connection with intelligence activities between September 11, 2001, and January 17, 2007. A central issue was the role of the judicial branch, and the Foreign Intelligence Surveillance Court (FISC) in particular, in approving and/or overseeing surveillance that does not target but may involve individuals who are U.S. persons. Some argued that only the independent judiciary could ensure that intelligence efforts would not become improperly or illegally directed towards Americans. At the time FISA permitted electronic surveillance to gather foreign intelligence information pursuant to a FISC order of U.S. persons where there was probable cause to believe they were foreign powers or agents of foreign powers if other statutory criteria were met. Some argued, however, that changes in technologies since FISA was enacted in 1978 made case-by-case judicial review of each international communication link that might involve a U.S. person impractical and risky to national security. Details of this issue are complex and, in many cases, classified. The Senate approved S. 2248 on February 12, 2008 (and incorporated it into H.R. 3773 ). On March 14, 2008, the House approved an amendment to the version of H.R. 3773 that had been approved by the Senate. The House amendment would have required judicial review by the FISC of procedures for targeting a non-U.S. person located outside of the United States even if the person was not reasonably believed to be communicating with a U.S. person or a person in the United States. The House amendment would have required either a prior FISC order approving the applicable certification, targeting procedures, and minimization procedures or a determination that an emergency situation exists in which case a certification would have to be filed with the FISC within seven days. The Bush Administration argued that this requirement added unprecedented requirements for targeting communications of non-U.S. persons that could result in delaying collection efforts and the loss of some intelligence forever. If the target of an acquisition were a U.S. person reasonably believed to be outside the United States, then, except in emergencies, the House-passed amendment would have required a FISC order approving an application for an acquisition for a period up to 90 days. The acquisition could have been renewed for additional 90-day periods upon submission of renewal applications. If the Attorney General authorized an emergency acquisition of such a U.S. person's communications, the Attorney General would have had to submit an application for a court order within seven days of that authorization. The House version of H.R. 3773 would also not have granted retroactive immunity to telecommunications companies but would have allowed them to present evidence in their defense to a court. In addition, the House bill would have established a commission on warrantless electronic surveillance activities conducted between September 11, 2001, and January 17, 2007. The House version of H.R. 3773 did not come to a vote in the Senate and, after considerable discussions, Representative Reyes introduced a new bill, H.R. 6304 , on June 19, 2008, that strengthened the role of the FISC in approving procedures for intelligence surveillance and provided telecommunications companies an opportunity to demonstrate to the courts that they had acted in response to a request for support from the executive branch. H.R. 6304 was passed by the House on June 20, 2008, and by the Senate on July 9, 2008; it was signed by the President on July 10, becoming P.L. 110-261 . At the end of 2009 three FISA provisions, dealing with "Lone Wolf" terrorists, roving wiretaps, and access to business records, were set to expire unless extended. They were extended until February 28, 2010, by a provision of the Defense Appropriations Act for FY2010 ( P.L. 111-118 ) and separate legislation ( P.L. 111-141 ) extended them until February 28, 2011. They were subsequently extended until May 27, 2011, by P.L. 112-3 , and until June 1, 2015, by P.L. 112-14 . Appendix B. For Additional Reading U.S. Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction, Report to the President of the United States , March 31, 2005. U.S. Congress. Committee of Conference Intelligence Authorization Act for Fiscal Year 2005: Conference Report. December 7, 2004. 108 th Congress, 2 nd session ( H.Rept. 108 - 798 ). ——. Intelligence Reform and Terrorism Prevention Act of 2004 . December 7, 2004. 108 th Congress, 2 nd session. ( H.Rept. 108 - 796 ). U.S. Congress. House of Representatives. Permanent Select Committee on Intelligence. Report of the U.S. Senate Select Committee on Intelligence and U.S. House Permanent Select Committee on Intelligence , Joint Inquiry into Intelligence Community Activities Before and After the Terrorist Attacks of September 11, 2001. December 2002. 107 th Congress, 2 nd session ( H.Rept. 107 - 792 ). [Also, S.Rept. 107 - 351 ] ——. Intelligence Authorization Act for Fiscal Year 2005 . June 21, 2004. 108 th Congress, 2 nd session ( H.Rept. 108 - 558 ). ——. Intelligence Authorization Act for Fiscal Year 2006 . June 2, 2005. 109 th Congress, 1 st session ( H.Rept. 109 - 101 ). ——. Intelligence Authorization Act for Fiscal Year 2007 . April 6, 2006. 109 th Congress, 2 nd session ( H.Rept. 109 - 411 ). ——. Intelligence Authorization Act for Fiscal Year 2008 . May 7, 2007. 110 th Congress, 1 st session ( H.Rept. 110 - 131 ). ——. Intelligence Authorization Act for Fiscal Year 2008 . Conference Report. December 6, 2007. 110 th Congress, 1 st session ( H.Rept. 110 - 478 ). ——. Intelligence Authorization Act for Fiscal Year 2009 . May 21, 2008. 110 th Congress, 2 nd session ( H.Rept. 110-665 ). ——. Intelligence Authorization Act for Fiscal Year 2010 . June 26, 2009. 111 th Congress, 1 st session ( H.Rept. 111-186 ). ——. Intelligence Authorization Act for Fiscal Year 2011 . May 3, 2011. 112 th Congress 1 st session ( H.Rept. 112-72 ). ——. Intelligence Authorization Act for Fiscal Year 2012 . September 2, 2011. 112 th Congress 1 st session ( H.Rept. 112-197 ). (Text of Managers Amendment printed in Congressional Record , December 14, 2011, pp. S8613-8617.) ——. Subcommittee on Terrorism and Homeland Security. Counterterrorism Intelligence Capabilities and Performance Prior to 9-11 . July 2002. U.S. Congress. Senate. Select Committee on Intelligence. Report of the Select Committee on Intelligence on the U.S. Intelligence Community's Prewar Intelligence Assessments on Iraq . July 9, 2004. 108 th Congress, 2 nd session ( S.Rept. 108 - 301 ). ——. Intelligence Authorization Act for Fiscal Year 2006 . September 29, 2005. 109 th Congress, 1 st session ( S.Rept. 109 - 142 ). ——. To authorize Appropriations for Fiscal Year 2005 for Intelligence and Intelligence-Related Activities of the United States Government, the Intelligence Community Management Account, and the Central Intelligence Agency Retirement and Disability System . May 5, 2004. 108 th Congress, 2 nd session ( S.Rept. 108 - 258 ). ——. Intelligence Authorization Act for Fiscal Year 2007 . January 24, 2007. 110 th Congress, 1 st session ( S.Rept. 110 - 2 ). ——. Intelligence Authorization Act for Fiscal Year 2008. May 31, 2007. 110 th Congress, 1 st session ( S.Rept. 110 - 75 ). ——. Intelligence Authorization Act for Fiscal Year 2009 . May 8, 2008, 110 th Congress, 2 nd session ( S.Rept. 110-333 ). ——. Intelligence Authorization Act for Fiscal Year 2010 . July 22, 2009 [S.1494]. 111 th Congress, 1 st session ( S.Rept. 111-55 ). ——. Intelligence Authorization Act for Fiscal Year 2010 . July 19, 2010 [S.3611]. 111 th Congress, 2 nd session ( S.Rept. 111-223 ). ——. Intelligence Authorization Act for Fiscal Year 2011 . April 4, 2011 [S.719]. 112 th Congress, 1 st session ( S.Rept. 112-12 ). ——. Intelligence Authorization Act for Fiscal Year 2012 . August 1, 2011 [S.1458]. 112 th Congress, 1 st session ( S.Rept. 112-43 ). ——. Intelligence Authorization Act for Fiscal Year 2013 . July 30, 2012 [S.3454]. 112th Congress, 2nd session ( S.Rept. 112-192 ). ——. Report of the Select Committee on Intelligence United States Senate covering the period from January 5, 2011 to January 3, 2013 . March 22, 2013. 1123th Congress, 1 st session ( S.Rept. 113-7 ). ——. Unclassified Executive Summary of the Committee Report on the Attempted Terrorist Attack on Northwest Airlines Flight 253. May 18, 2010. U.S. Department of Justice, Commission for Review of FBI Security Programs, A Review of FBI Security Programs , March 2002. U.S. National Commission on Terrorist Attacks Upon the United States. The 9/11 Commission Report , July 2004. | To address the challenges facing the U.S. intelligence community in the 21st century, congressional and executive branch initiatives have sought to improve coordination among the different agencies and to encourage better analysis. In December 2004, the Intelligence Reform and Terrorism Prevention Act (P.L. 108-458) was signed, providing for a Director of National Intelligence (DNI) with authorities to manage the national intelligence effort. The legislation also established a Director of the Central Intelligence Agency (CIA). Making cooperation effective presents substantial leadership and managerial challenges. The needs of diverse intelligence "consumers" must all be met, using many of the same systems and personnel. The DNI has substantial statutory authorities to address these issues, but the organizational relationships remain complex, especially for intelligence agencies that are part of the Defense Department. Members of Congress in their oversight role may seek to observe the extent to which effective coordination is accomplished. The intelligence community, which comprises 17 agencies, has experienced a decade of budgetary growth. That era was typified by (1) institution building with embryonic organization such as the Office of the DNI and other new or evolving intelligence components, (2) information sharing and collaboration across those institutions, and (3) a focus on counterterrorism. While those issues will remain areas of congressional interest, Members will likely confronted by a new set of intelligence challenges resulting from budgetary realities and from second-order effects stemming from post-9/11 changes. These include: Consolidation and redundancy. Intelligence collection systems are expensive and some critics suggest there have been elements of waste and unneeded duplication of effort. The Administration is considering long-term reductions with an emphasis on potentially redundant information technology systems. There is great concern, however, that any reductions be carefully made to avoid curtailing capabilities that have become integral to military operations and to policymaking in many areas. Information security and management. The WikiLeaks disclosures that began in 2010 and other recent incidents of unauthorized disclosure of classified information have drawn considerable attention to the risks that widespread information sharing entails. Investigations into the 2009 Christmas day bombing attempt and the Fort Hood shooting also suggest analysts are now challenged to synthesize the large volumes of information being shared. Intelligence support to counterterrorism and operations. The Administration's targeting killing program raises legal, jurisdictional, and efficacy issues. Broader questions have also been raised about whether intelligence agencies have become too focused on counterterrorism to the detriment of other national security priorities and whether some of those functions should be transitioned to U.S. military control, allowing intelligence agencies to focus on traditional collection and analysis. |
On February 4, 2002, President Bush submitted his budget proposal for FY2003. The proposedFY2003 budget for the Department of Transportation (DOT) is roughly $56.1 billion, a decrease of$3.5 billion (6%) from the FY2002 enacted total. This decrease was primarily due to a decline inHighway Trust Fund revenues during 2002, which triggered an automatic reduction in highwayspending for FY2003 of $4.4 billion. On March 21, 2002, President Bush submitted an emergency supplemental budget request to Congress for $27.1 billion; $6.7 billion of which was for the DOT. The largest items were $4.4billion for the Transportation Security Administration (TSA) for explosives detection equipmentand screeners and $1.8 billion for the Federal Transit Administration's Capital Grants Program forrebuilding sections of the Manhattan transit system damaged by the September 11 attack. Other itemsincluded $255 million for the Coast Guard, $167 million for the Federal Highway Administration,$100 million for the Federal Aviation Administration, $19 million for the Federal Motor CarrierSafety Administration's Border Enforcement Program, and $3.5 million for the Research and SpecialProject Administration. On June 7, 2002, President Bush submitted a proposal for a new Department of Homeland Security. It would involve transferring the Coast Guard and TSA from the DOT to the proposed newagency, along with elements of other existing federal agencies. These two agencies represent 19%of the DOT's total budget, and 40% of its discretionary budget (generally, those activities funded outof the general fund rather than trust funds), for FY2003. On July 26, 2002, the Senate Appropriations Committee reported its version of the DOT Appropriations bill, S. 2808 / S.Rept. 107-224 . The Committee recommended $64.7billion, $8.6 billion more than the Administration request. The major differences were an increasein FHWA spending to FY2002 levels, $8.6 billion above the FY2003 request, and an increase of$679 million for Amtrak, to $1.2 billion. On August 2, 2002, the President signed the second FY2002 emergency supplemental bill ( P.L. 107-206 ). This bill included an additional $6.6 billion for the DOT for FY2002. This included $3.9billion for the Transportation Security Administration, $1.8 billion for the Federal TransitAdministration (for grants to rebuild New York City's subway system in Manhattan), $728 millionfor the Coast Guard, and $205 million for Amtrak. On August 9, 2002, the President announced that he would not ask for the $5.1 billion in contingency emergency funding that was included in the supplemental bill ( P.L. 107-206 ). The actprovides that if the President requests any of the contingency emergency funding, all of it is released. This decision reduced the supplemental funding to DOT by $1.1 billion, from $6.6 billion to $5.5billion. The biggest reductions were to TSA ($480 million), the Coast Guard ($262 million), andthe FAA's Grants-in-Aid to Airports ($150 million). On September 3, 2002, the Administration submitted a budget amendment increasing the FY2003 request for TSA by $546 million. On October 7, 2002, the House Appropriations Committee reported its version of the DOT Appropriations bill, H.R. 5559 / H.Rept 107-722 . The Committee recommended $60.1billion, $4.0 billion more than the Administration request. The major difference was a $4.6 billionincrease in FHWA spending. On November 19, 2002, the Congress passed the fifth in a series of Continuing Resolutions (CR) to fund the Department of Transportation (and other government agencies) in FY2003 in theabsence of an FY2003 DOT appropriations act. This CR, P.L. 107-294 , provides funding throughJanuary 11, 2003, at the levels enacted in FY2002, prorated on a daily basis. On November 19, 2002, the Congress passed legislation creating the Department of Homeland Security ( H.R. 5005 ; P.L. 107-296 ). This legislation provides for the transfer of theCoast Guard and the Transportation Security Administration from the DOT to the new Departmentof Homeland Security during FY2003. On January 8, 2003, the House passed H.J.Res. 2 , a bill without any transportation appropriations, as a vehicle for the Senate. On January 23, 2003, the Senate passed H.J.Res. 2 , now an omnibus FY2003 appropriations bill including transportation appropriations. It provides a total of $65.1 billion toDOT and related agencies, $9 billion more than the Administration request (see Table 1); the majordifferences are $8.6 billion more in highway spending and $679 million more for Amtrak under theFederal Railroad Administration. However, in an effort to keep total spending in line with theAdministration's request, the Senate included an across-the-board cut of 2.852% in the bill. TheHouse will now go to conference with the Senate in an effort to produce a final omnibusappropriations act which will likely include transportation appropriations. On February 13, the Conference Committee passed out H.J.Res. 2 , which was agreed to by both House and Senate. It provides $64.6 billion for DOT and related agencies, butby agreement with the White House it also includes a 0.65% across-the-board rescission to holddown overall spending. On February 20, 2003, President Bush signed H.J.Res. 2 ( P.L. 108-7 ). Table 1. Status of Department of Transportation Appropriations for FY2003 Note: H.R. 5559 and S. 2808 died at the end of the 107th Congress. FY2003 transportation appropriations are included in H.J.Res. 2 , an omnibus FY2003appropriations bill. The Senate Committee on Appropriations report for H.J.Res. 2 wasprinted in the Congressional Record for January 15, 2003. The Conference Agreement (H.Rept. 108-10, P.L. 108-7). While the House and Senate Committeeson Appropriations passed out DOT appropriations bills during the second session ofthe 107th Congress, that Congress ended without passage of a DOT appropriationsbill, or any other non-defense spending bill. All pending legislation from the 107thCongress expired with the beginning of the 108th Congress in January 2003, so newappropriations legislation had to be provided. The House passed H.J.Res. 2 , a bill without substantive appropriations language, onJanuary 8, 2003 and sent it to the Senate. The Senate amended it by inserting all thenon-defense agency appropriations for FY2003, and passed it January 24, 2003. OnFebruary 13, 2003, the Committee on Conference issued their report ( H.Rept.108-10 ), and the House and Senate agreed to the report and sent the legislation toPresident Bush, who signed it on February 20, 2003. Prior to that, DOT funding hadcome from a series of 8 continuing appropriations acts, known as continuingresolutions (CRs), which provided agencies the same level of funding they receivedin FY2002 (minus extraordinary one-time appropriations) prorated on a daily basisfor the life of the CR. FY2003 Budget Overview. The Bush Administration's FY2003 budget request, released on February 4, 2002, proposed aDepartment of Transportation (DOT) budget of roughly $56.1 billion-about 6%below FY2002's enacted level of $59.6 billion. (1) TheFY2003 budget included a $4.4billion reduction in highway funding required by the provisions of theRevenue-Aligned Budget Authority mechanism created in the Transportation EquityAct for the 21st Century (TEA-21; P.L. 105-178 ). The budget request conformed tothe basic outline of both TEA-21, which authorizes spending on highways andtransit, and the aviation funding authorized in the Wendell Ford Aviation Investmentand Reform Act of the 21st Century (FAIR21 or AIR21; P.L. 106-181 ). The FY2003 budget proposal continued trends of the past couple of years, with proposed increases for the Coast Guard (18%) and Federal Transit Administration(FTA, 5%), and decreases for the Federal Railroad Administration (FRA, down11%). The big changes in the FY2003 DOT budget were the reduction in highwayfunding and the presence of the TSA. The events of September 11, 2001, have had a significant impact on the DOT's budget. The DOT received an additional $1.8 billion for FY2002 through anemergency supplemental bill passed on September 14, (2) and another $5.5 billionthrough another emergency supplemental bill passed on July 24, 2002, for a total of$7.3 billion in supplemental funding in FY2002. (3) In addition, an entirely new agencywas created within the DOT, the TSA, due to concerns about security. In FY2003,both the Coast Guard and TSA are scheduled to be transferred out of the DOT to thenewly-created Department of Homeland Security. The Senate Committee on Appropriations passed out a DOT appropriations bill on July 25, 2002 ( S.Rept. 107-224 ), which provided $64.7 billion; the HouseCommittee on Appropriations passed out a DOT Appropriations bill on October 7,2002 ( H.Rept. 107-722 ), which provided $60.1 billion. Neither the House nor theSenate passed an FY2003 DOT appropriations bill during the second session of the107th Congress; those bills passed by the Committees on Appropriations expired withthe convening of the 108th Congress. On January 8, 2003, the House passed H.J.Res. 2 , a bill without substantive appropriations language, and sentit to the Senate. The Senate inserted appropriations language for the 11 non-defensedepartments whose FY2003 appropriations bills had not been enacted and passed thebill on January 23, 2003. The Senate version of H.J.Res. 2 provided$65.1 billion for transportation for FY2003. The major difference between theSenate and House figures was $4.1 billion more for the federal-aid highway programin the Senate bill. The Senate bill also included a 2.852% across-the-board rescissionto acknowledge President's Bush's insistence on a limit for FY2003 non-defensespending. The Committee on Conference's report on H.J.Res. 2 wasagreed to on February 13, 2003 ( H.Rept. 108-10 ); it provides $64.6 billion for DOTand related agencies, but also provides an across-the-board rescission of 0.65%, byagreement with the White House, to hold down overall non-defense spending. President Bush signed the bill on February 20, 2003 (P. L. 108-7). RABA and Highway Funding. TEA-21 created a mechanism called Revenue-Aligned Budget Authority (RABA),which was intended to prevent revenues from accumulating in the Highway TrustAccount. While TEA-21 set guaranteed spending levels for the highway programthrough FY2003, based on forecast of future Highway Trust Account revenues,RABA allowed the highway spending level to increase automatically if HighwayTrust Account revenues exceeded the forecasts. It also provided that the highwayspending levels would be reduced if revenues fell below the forecasts. For several years, the RABA adjustment mechanism provided windfall gains for highway funding: increases of $1.5 billion in FY2000, $3 billion in FY2001, and$4.5 billion in FY2002 over the guaranteed funding levels. However, the recessionof 2001 slowed receipts into the Highway Trust Account, and in January 2002 itbecame clear that revenues had dropped below the forecast levels. The result was anautomatic cut in the FY2003 highway program funding level of $4.4 billion. Theimpact of this cut was magnified by the RABA boost to FY2002 highway funding of$4.5 billion over the guaranteed level. This meant that RABA, by giving a $4.5billion "bonus" in FY2002 and a $4.4 billion cut in FY2003, created an $8.4 billiondifference between FY2002 highway funding and FY2003 funding (for moreinformation, see CRS Report RS21164 , Highway Finance: RABA's Double-edgedSword , March 5, 2002). On August 2, 2002, the President signed the second FY2002 emergency supplemental legislation ( P.L. 107-206 ), which included a provision setting theRABA adjustment for FY2003 to zero (Section 1402). This had the effect ofrestoring FY2003 highway funding to the level guaranteed in TEA-21, $27.7 billion. On October 7, the House Committee on Appropriations reported its version of the FY 2003 DOT Appropriations bill ( H.R. 5559 ). It recommendedfunding the federal aid highways program at $27.7 billion, $4.4 billion over theAdministration request. On January 23, 2003, the Senate passed H.J.Res. 2 , an omnibus FY2003 appropriations bill which includestransportation appropriations. It provided $31.8 billion for FY2003, the same amountprovided in FY2002. P.L. 108-7 provides $31.8 billion. The Transportation Security Administration's (TSA) budget. TSA was created by the Aviation and TransportationSecurity Act (ATSA)( P.L. 107-71 ) in November 2002 in response to concerns aboutthe security of aviation and other transportation systems. Congress required TSA toassume responsibility for screening passengers and checked baggage at airports, andto hire screeners and purchase equipment to carry out this task, by the end of calendaryear 2002. Initial estimates were that TSA would need to hire around 25,000-30,000screeners to do this, giving it a total workforce of 35,000-40,000 people. However,this estimate was based on the existing number of screeners, and overlooked theimpact of other ATSA requirements, such as the screening of checked baggage; thisactivity was virtually non-existent before September 11, so there were no preciseestimates of the total workforce this task would require. As the scale of that taskbecame clearer, estimates of the workforce needed by the TSA increased by another25,000 or so screeners, to screen checked baggage, to a total workforce of as manyas 70,000 people. Some members of Congress expressed concern about TSAgrowing to such a size; the FY2002 emergency supplemental act capped TSA'sfull-time screener positions at 45,000, the House Appropriations Committeerecommended that cap be extended for FY2003, and P.L. 108-7 extended that cap. Currently, TSA employs nearly 62,000 screeners, of whom 28,000 are temporary. (4) TSA was appropriated $1.3 billion in FY2002; it also received an additional $3.9 billion in the second FY2002 emergency supplemental bill (5) . Its FY2003 requestwas $5.3 billion-though that request was based on 41,300 full-time employees. Some members of Congress questioned the amounts being requested, and criticizedthe lack of detail about how the money will be used. At the same time, TSA wasunder pressure to hire and train as many as 50,000-60,000 screeners, and to purchaseand install thousands of baggage-screening devices at 429 airports, by December 31,2002. The DOT Inspector General has noted resulting inefficiencies. (6) When it created the TSA, Congress gave it the power to levy two fees, one on passengers and one on airlines. The expectation, at least on the part of some inCongress, was that these fees would provide enough revenue to cover the TSA'sannual budget requirements. However, while the DOT estimates that these two feeswill bring in around $2.0 billion each year, the TSA's budget request for FY2003 is$5.3 billion. Revenue from fees will not come close to covering the TSA's annualbudget. The House Committee on Appropriations recommended $5.146 billion for TSA, $200 million less than the Administration request. The Senate provided $5.346billion in H.J.Res. 2 , the amount requested by the Administration. P.L.108-7 provides $5.180 billion. On November 19, 2002, President Bush signed legislation creating the Department of Homeland Security. TSA is scheduled to be transferred from DOTto this new department in March of 2002. The budget implications of this proposalare not clear; the TSA's FY2003 budget request represents 9% of the DOT's totalbudget request, and the portion of the TSA's budget request that exceeds theiroffsetting collections, $2.5 billion, is 12% of the discretionary portion ($20.7 billion)of the DOT's budget. Amtrak Funding. Amtrak told Congress that it needed at least $1.2 billion in FY2003 to maintain operations. TheAdministration requested $521 million for Amtrak for FY2003, noting that thisfigure was a "placeholder" while the Administration worked to finalize a plan torestructure passenger rail service. In the midst of Amtrak's quest for funds to makeit through FY2002, the Administration presented a set of principles for restructuringpassenger rail service, including the end of federal operating support and greaterfinancial support from states, and said it opposed providing Amtrak more than $521million in FY2003 unless significant reforms were made. The House Committee onAppropriations recommended $762 million, while requiring enhanced financialreporting from Amtrak; the Senate provided $1.2 billion in H.J.Res. 2 . P.L. 108-7 provides $1.05 billion, and postpones repayment of a $100 million loan. In a change of policy, Congress did not provide the money directly to Amtrak, but tothe Secretary of Transportation, who will allocate the money to Amtrak quarterlythrough the grant-making process. Also, each of Amtrak's long-distance routes willhave to make individual grant applications to receive funding. Table 2 shows DOT actual or enacted funding levels for FY1988 through FY2002. Total annual DOT funding more than doubled from FY1988 throughFY2002. Table 2. Department of Transportation Appropriations: FY1988 to FY2002 (in millions of dollars) a "Actual" amounts from FY1988 to FY2001 include funding levels initially enacted by Congress in the Department of Transportation and Related AgenciesAppropriations bill as well as any supplemental appropriations and rescissionsenacted at a later date for that fiscal year. Source: DOT Budget in Brief, BudgetaryResources Table, "Actual" year column, adjusted by subtraction of MaritimeAdministration funding and addition of Related Agencies funding from DOTappropriations acts. b Amounts include limitations on obligations, DOD transfers, and exemptobligations. c FY2002 and FY2003 enacted figures are drawn from tables provided by the HouseCommittee on Appropriations. d FY2003 enacted figure does not reflect a 0.65% across-the-board rescission. http://www.tsa.dot.gov/ The Aviation and Transportation Security Act ( P.L. 107-71 ), passed in the aftermath of the attack on September 11, 2001, created a new agency in theDOT--the Transportation Security Administration (TSA). With respect to airtransportation, the TSA assumes the civil aviation security functions of the FAA aspromulgated under 49 U.S.C. 449. TSA is responsible for screening passengers andchecked baggage at airports, and for hiring screeners and purchasing equipment tomeet these responsibilities. TSA also deploys Federal Security Managers at eachairport to oversee screening and deploys Federal Air Marshals for every flightconsidered a "high security risk." TSA is assigned the task of improving airportperimeter-access security and acquires and deploys explosive-detection machines andother equipment designed to detect chemical or biological weapons. TSA is responsible for the security of all modes of transportation, passenger and cargo. During a national emergency, TSA is to coordinate and oversee domestictransportation for air, rail, maritime (including seaports), and other surface transportmodes and to coordinate threat assessments among appropriate federal, state, andlocal agencies. The agency is to develop policies, strategies, and plans for dealingwith security threats, and to undertake R&D activities to enhance transportationsecurity. In FY2002, TSA received a total of $5.8 billion, including transfers. ForFY2003, the first full year of funding for TSA, the Administration initially requested$4.8 billion. The Administration submitted a budget amendment on September 3,2002 raising TSA's budget request by $546 million to an overall total of $5.346billion. Approximately $2.0-2.4 billion of this amount will be offset with collectionsfrom the fees authorized under the Aviation and Transportation Security Act(ATSA). ATSA imposes a fee of up to $2.50 per passenger (limited to $5 perone-way trip) to pay for civil aviation security services. If this fee proves to beinsufficient to pay for the cost of security services, TSA may impose a fee on aircarriers-as it has done. The revenue collected from this air carrier fee is limited to theamount air carriers paid in calender year 2000 for screening services. There is adispute over the amount of this fee; the federal government estimates that the airlinespaid around $700 million in 2000 for screening services, but the airlines say they paidonly around $300 million. On November 19, 2002, President Bush signed legislation creating a new federal agency, the Department of Homeland Security. Among the organizations which arescheduled to be transferred by March 2003 to this new agency is TSA. The budgetimplications of this proposal are not clear; the TSA's FY2003 budget requestrepresents 9% of the DOT's total budget request; the portion of TSA's budget requestthat exceeds their offsetting collections, approximately $3 billion, is 13% of theappropriated portion ($22.1 billion) of the DOT's budget. The Consolidated Appropriations Resolution for FY2003, H.J.Res. 2 , provides $5.2 billion for the TSA, $166 million less than the Administration'sbudget request. The Act provides $4.5 billion for civil aviation security services. This amount includes $3 billion for screening activities, of which $265 million isprovided for modifying airports to make room for checked baggage explosivedetection systems and $175 million is provided for purchasing these systems. Forairport support and enforcement presence, the Act provides $1.5 billion. The Actalso extends a cap of 45,000 full-time employees for TSA's workforce. The Act also provides $245 million for maritime and land transportation security, which includes $150 million for seaport security grants and $30 million forOperation Safe Commerce. Operation Safe Commerce is a pilot program for testingnew initiatives for ensuring the security of marine container shipments from theirpoint of origin to final destination. The Act includes $309 million for administrativeexpenses including intelligence activities. For research and development related totransportation security, the Act provides $110 million. Among the key issues discussed regarding the TSA's FY2003 budget was its rapidly growing size and the fact that user fees, as mentioned above, are not coveringthe costs. The issue of properly allocating funds among the various transportationmodes, reflecting the areas of greatest vulnerability, was also debated. Members ofCongress from coastal states, for instance, raised the issue of whether enough fundshave been allocated for seaport security. http://www.uscg.mil/ The Coast Guard is challenged by increased responsibilities for Homeland Security, search and rescue, enforcement, drug and illegal immigrant interdiction onthe high seas as well as by its aging water craft and aircraft. The Administrationrequested budget authority of $6.1 billion for Coast Guard funding in FY2003. (7) Compared to the $5.2 billion appropriated in FY2002 (8) , the FY2003 request was $862million, or 17%, more. Planned increases of $771 million for Coast Guard operatingexpenses accounted for most of the proposed increase. In the 107th Congress, theHouse Appropriations Committee recommended $6.1 billion. In the 108th Congress,Senate-passed H.J.Res. 2 provided $6.1 billion. The final FY2003appropriation was $6.1 billion, though the 0.65% across-the-board rescission willlikely reduce that to $6.0 billion. Coast Guard programs are usually authorized every2 years; authorization for FY2003 was included in the Maritime TransportationSecurity Act of 2002 ( P.L. 107-295 ). See CRS Report RS20924, Coast GuardLegislation in the 107th Congress , for discussion of authorization bills. CRS Report RS211125, Homeland Security: Coast Guard Operations-Background and Issuesfor Congress , and CRS Report RS21079, Maritime Security: Overview of Issues alsodiscuss related issues. CRS Report RS21303, Homeland Security: the Coast Guard'sFY2003 Budget , also addresses Coast Guard funding. The FY2003 budget request was intended to allow the Coast Guard to continue its activities against drug smuggling and to recapitalize aircraft and vessel fleetswhile it conducts accelerated Homeland Security activities. A requested $4.2 billion($771 million, or 23%, more than FY2002) was for operation and maintenance of awide range of ships, boats, aircraft, shore units, and aids to navigation. The Senateand House committees in the 107th Congress each recommended $4.3 billion. (9) Asenacted, P.L. 108-7 included $4.3 billion. Another major component of the requestis allocated to acquisition, construction, and improvement. The Administrationsought $725 million, $89 million, or 14%, more than current year funding. TheSenate and House Committees on Appropriations had approved this amount. P.L.108-7 provides $742 million. For complying with environmental regulations andcleaning up contaminated Coast Guard sites, the budget seeks, and both committeeshad approved $17 million, the final amount approved by Congress. No funds wererequested for altering bridges, but the House Appropriations Committeerecommended $17 million, and Senate-passed H.J.Res. 2 includes $17million as well as $22 million requested for research and development, about thesame as approved by earlier actions. Other Coast Guard requested funding includes$62.1 million for spill clean-up and initial damage assessment, available withoutfurther appropriation from the Oil Spill Liability Trust Fund. The Senate and House recommended $889 million for retired pay, a mandatory expense, which P.L. 108-7 provides. The chief issue for the Coast Guard is how it is handling its heightened security responsibilities along with its many other responsibilities, such as search and rescue,and enforcement of laws and treaties. The planned $771 million increase foroperating activities is to be allocated among Homeland Security and these traditionalactivities. Another prominent issue has been the Coast Guard's management of amajor planned replacement of aging and outmoded high seas vessels and aircraft,with a special emphasis on improving the Coast Guard's capabilities on the high seasor in deep waters. Only planning and analysis funds were included for FY1998through FY2001. For FY2003, $500 million was requested, a $179 million (56%)increase over FY2002 funding. The Senate Committee approved $480 million; P.L.108-7 provides $478 million. Actual purchases of nearly $10 billion are anticipatedover a 20-year period beginning in FY2002. CRS Report 98-830, Coast GuardIntegrated Deepwater System: Background and Issues for Congress , discusses theissues associated with the program. On November 19, 2002, President Bush signed legislation creating a new federal agency, the Department of Homeland Security. Among the organizations which arescheduled to be transferred to this proposed new agency is the Coast Guard. Thebudget implications of this proposal are not clear; the Coast Guard's FY2003 budgetrequest represents 11% of the DOT's total budget request and 27% of theappropriated portion ($22.1 billion) of the DOT's budget. http://www.faa.gov/ The Consolidated Appropriations Resolution ( P.L. 108-7 ) provides the FAA with $13.6 billion for FY2003 (this does not reflect a required 0.65% recession thatapplies to some portions of the FAA appropriation). This is essentially the sameamount provided earlier by both Senate-passed and House-recommended legislationand is essentially the amount requested by the Bush Administration. The generalfund contribution to FAA operations is set at $3.4 billion which is near theAdministration requested level and above the FY2002 level. The Act makes somechanges in existing FAA programs and consolidates various earmarks from Senateand House bills. The Bush Administration was seeking $13.6 billion in budget authority forFY2003. This compares with total budgetary resources of $13.3 billion provided inthe FY2002 Appropriations Act. The vast majority of FAA funding is provided fromthe Airport and Airway Trust Fund. In FY2002 a Treasury general fund contributionof $1.113 billion was provided. The Administration proposed a general fundcontribution of almost $3.3 billion for FY2003. Whereas the general fundcontribution for FY2002 was on the low side historically, the Administration is nowtrying to return to a higher contribution level. Historically, a significant portion ofthe agency's budget has come from general fund revenues, the rationale being thatthe public at large realizes some benefit from aviation whether it uses the system ornot. (10) The Senate Committee on Appropriations recommended $13.6 billion. The Senate Committee also accepted the Administration request for a general fundcontribution of $3.3 billion. There were a number of programmaticrecommendations in the Senate bill that differ from the Administration's request, butthese would not represent major changes to FAA programs or operations. The billalso included a significant number of earmarks in various program categories. The House Committee on Appropriations version of FY2003 appropriations also supported a total spending level of nearly $13.6 billion for the FAA. Like its Senatecounterpart, the details of the bill differed in some ways from the Administration'srequest. The bill provided for a larger general fund contribution for operationsspending, $3.5 billion. The report accompanying the House bill enumerated agrowing concern about the long term health of the aviation trust fund. The events ofSeptember 11 have reduced air travel with a concomitant reduction in trust fundrevenue collections. As a result, the bill instructed the FAA to reexamine itsspending priorities in light of what could become a significantly tighter budgetenvironment. Operations and Maintenance (O&M). The Administration proposed an FY2003 funding level of$7.1 billion for this activity, compared to $6.9 billion in FY2002. (11) P.L. 108-7 provides about $30 million less than the amount proposed by the Administration. The Senate Committee had previously proposed a funding level $4 million higherthan the Administration request, whereas the House provided for a reduction of $17million from the request. Both the House and Senate Committees contended thattheir recommendations were actually significant increases over FY2002 spendingbecause certain security functions found in the FY2002 FAA budget have since beentransferred to TSA. The majority of funding in this category is for the salaries ofFAA personnel engaged in air traffic control, certification, and safety relatedactivities. Facilities and Equipment (F&E). The Consolidated Act provides $2.96 billion for this activity, which is slightly morethan the FY2002 level. The Administration proposed raising this amount to $3billion in FY2003, a level also adopted by the Senate Committee. The House billprovided for a similar level of spending. F&E funding is used primarily for capitalinvestment in air traffic control, and safety. There were no significant new F&Espending initiatives in the Administration proposal and there are none in theConsolidated Act. Research, Engineering, and Development (RE&D). P.L. 108-7 provided $148.5 million for this activity, wellabove the Administration proposal of $124 million. This is well below the FY2002funding level and significantly below the $249 million authorized for this activity byFAIR21. Some of the difference is accounted for by a proposed transfer of $50million in appropriations to TSA budget and the fact that this activity got a $50million supplemental appropriation in FY2002. Essential Air Service (EAS). The EAS program is operated through the Office of the Secretary of Transportation(OST), and receives its funding from designated user fees collected from overflightsof United States territory by foreign aircraft. EAS has an annual authorized fundinglevel of $50 million. The EAS program received $63 million in the FY2002appropriations bill plus $50 million in emergency supplemental appropriations,available through FY2003. For FY2003, the Bush Administration predicts that overflight user fees will generate only $30 million. It therefore asked that $83 million in AirportImprovement Program (AIP) funding be provided from the airport and airway trustfund to bring EAS up to $113 million. P.L. 108-7 adopts this amount but changesthe funding sources to preclude use of trust fund monies. The Senate Committee billhad recommended slightly more funding for EAS, $115 million. The Senate believedthat all existing points receiving EAS could continue to be funded without tappinginto the AIP program. The House set the total funding level at $100 million. It toorejected the use of AIP funds for EAS. The House, however, suggestedthat F&E funds could be used to make up any shortfall in program funding, and alsosuggested that the EAS program has unused funds that will allow the FY2003program to operate at essentially the same level as it did in FY2002. The FY2002 DOT Appropriations Act also provided $20 million for the somewhat related Small Community Air Service Development Pilot Program(SCASD). The President's budget proposal requests no funds for SCASD. TheSenate bill provides $20 million for this program for FY2003, as did the HouseAppropriations Committee. The Consolidated Act, however, provides no funding forthis program. Grants-in-Aid for Airports. The Airport Improvement Program provides grants for airport development and planning.The Bush Administration FY2003 budget requested $3.4 billion for AIP. This wasa 3% increase over the FY2002 enacted level (not counting $175 million inemergency appropriations). The Senate Committee on Appropriations recommended $3.4 billion for AIP ( S. 2808 ; S.Rept. 107-224 ). On October 7, 2002, the House Committeeon Appropriations also recommended $3.4 billion for AIP ( H.R. 5559 ; H.Rept. 107-722 ). The Consolidated Appropriations Resolution( H.J.Res. 2 ; H.Rept. 108-10 ; P.L. 108-7 ), which included the DOTappropriations legislation and was signed by President Bush on February 20, 2003,provided $3.4 billion less a 0.65% across-the -board rescission (roughly $20 million)for AIP. Administrative expenses were limited to $63.6 million and $20 million wasdesignated for the small community air service development pilot program. Theconference report ( H.Rept. 108-10 ) "place names" 164 airports (significantly fewerthan listed in the House or Senate reports) as AIP high priority projects. The reportlanguage, however, requires DOT to ensure that airport sponsors of the listed projectsfirst use available AIP formula funds to finance the projects. The report also directsthat the specific funding listed in the report should not "diminish or prejudice theapplication of a specific airport or geographic region to receive other AIPdiscretionary grants or multi-year letters of intent." http://www.fhwa.dot.gov The FHWA budget provides funding for the Federal-Aid Highway Program (FAHP), which is the umbrella term for nearly all the highway programs of theagency. (12) For FY2003, the President requested$24.1 billion for FHWA. Thisrepresented a decrease of $9 billion, or 27%, from the FY2002 appropriation of $33.1billion. The obligation limitation, which supports most of the FAHP, was set at$23.2 billion and is significantly less than the $31.8 billion provided in FY2002. Funding for exempt programs (emergency relief and a portion of minimum guaranteefunding) was set at $893 million, down slightly from FY2002's $965 million. Theselevels of spending were in conformance with the Transportation Equity Act for the21st Century (TEA-21) ( P.L. 105-178 ). As detailed below, the steep decline inspending is a result of TEA-21 provisions that link federal highway programspending with the revenues that flow into the highway account of the Highway TrustFund-the revenue-aligned budget authority (RABA). The impact of a negativeRABA adjustment dominated the highway budget debate. The House Committee on Appropriations recommended a total program level of $28.7 billion for FY2003. This would have been $4.2 billion less than the FY2002enacted level but $4.6 billion more than the President's budget request. In effect, theHouse Committee recommended elimination of the $4.369 negative FY2003 RABAbut, unlike the Senate Committee recommendation, would not have compensated forthe FY2002 RABA bonus to raise the total program funding to the FY2002 level. The Senate Committee on Appropriations took a different approach and recommended a total FY2003 program level of $32.9 billion, roughly the same as theFY2002 level. The FY2003 limitation on obligations was set at $31.8 billion,virtually the same as FY2002 and $8.6 billion above the President's budget request. In effect, the Committee recommendation not only eliminated the $4.369 billionnegative FY2003 RABA, but provided amounts roughly equal to the FY2002 RABAbonus of $4.543 billion to raise the FY2003 obligation limitation to the FY2002level. The FY2003 Consolidated Appropriations Resolution ( H.J.Res. 2 ; P.L. 108-7 ), which incorporated DOT's FY2003 appropriations and was signed byPresident Bush on February 20, 2003, provides $32.9 of total budgetary resources forFHWA. The Act, however, also included rescissions of previous years' funding of$264 million, and section 601 of the Act imposes an 0.65% across-the-boardrescission which will reduce the FHWA total by roughly another $200 million toapproximately $32.4 billion. As has been the case in the past three annual DOTappropriations bills, the FHWA discretionary programs have been extensivelyearmarked in the FY2003 Conference Report ( H.Rept. 108-10 ). Revenue Aligned Budget Authority (RABA)Reduction. According to DOT estimates revenues (fuel taxes andother fees) accruing to the Highway Trust Fund decreased in FY2001 as a result ofthe then ongoing recession and the effects of September 11. Most of this decreasein activity seemed to be related to problems in the trucking industry. The RABAprocess created by TEA-21 required that federal highway obligational authority beadjusted accordingly. In simple terms this means that the RABA adjustment forFY2003 was a negative $4.37 billion. Core highway program obligational authorityfor FY2003 would, therefore, have been cut from the TEA-21 guaranteed level of$27.7 billion to approximately $23.2 billion. This $4.4 billion reduction inguaranteed spending, combined with the FY2002 RABA $4.5 billion addition to theTEA-21 guaranteed spending, resulted in a potential $8.6 billion reduction from theFY2002 level. This was an unexpected and unwelcome development for state and local governments whose long-term transportation improvement plans (TIPs) are largelypredicated on continued growth in the federal contribution to highway programfunding. The RABA situation was equally unwelcome among those interests thatbuild roads or associated transportation infrastructure and those who supportcontinued highway improvements. Hearings on this issue were held in both the House and the Senate during the 107th Congress. The FY2002 supplemental appropriations act ( H.R. 4775 ; P.L. 107-206 ) provided for a restoration of RABA funding for FY2003 to$28.9 billion. The Senate-passed bill went even further and increased funding to alevel comparable with that in FY2002, $31.8 billion (obligation limitation). TheHouse Committee had passed an appropriations bill that set spending at the $27.7billion level, but some Members of the House made it clear that they supported thehigher level contained in the Senate bill and supported adoption of the $31.8 billionfunding level in conference. P.L. 108-7 provides $31.8 billion. The TEA-21 Funding Framework. TEA-21 created the largest surface transportation program in U.S. history. For themost part, however, it did not create new programs. Rather, it continued most of thehighway and transit programs that originated in its immediate predecessor legislation,the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L.102-240 ). Programmatically, TEA-21 can be viewed as a refinement and update ofthe ISTEA process. There are a few new funding initiatives in TEA-21, such as aBorder Infrastructure Program, but the vast majority of funding is reserved forcontinuing programs. There are several groupings of highway programs within the highway firewall. Most of the funding is reserved for the major federal aid highway programs, whichcan be thought of as the core programs. These programs are: National HighwaySystem (NHS), Interstate Maintenance (IM), Surface Transportation Program (STP),Bridge Replacement and Rehabilitation (BRR), and Congestion Mitigation and AirQuality Improvement (CMAQ). All of these programs are subject to apportionmenton an annual basis by formula and are not subject to program-by-programappropriation. There is a second category of highway funding within the firewalls. This so called "exempt" category consists of two elements: an additional annualauthorization of minimum guarantee funding ($639 million per fiscal year) andemergency relief ($100 million per fiscal year). These funds are not subject to theannual limitation on obligations. A further set of programs, which are also within the firewall, are known as the "allocated" programs. These programs are under the direct control of FHWA orother governmental entities. These programs include: the Federal Lands HighwayProgram, High Priority Projects (former demonstration project category),Appalachian Development Highway System roads (formerly ineligible for trust fundcontract authority), the National Corridor Planning and Border InfrastructureProgram, and several other small programs. FHWA Research, Development, and Technology (RD&T) Programs. The Administration proposes decreased fundingfor various RD&T activities, from $417.5 million in FY2002 to $351.2 million inFY2003. The conferees provide a general limitation on transportation research of$462.5 million, as proposed by both the House and the Senate Committees andconsistent with the contract authority specified in TEA-21. RD&T funds are used primarily to advance and deploy technologies intended to improve highway pavements, structures, roadway safety, highway policies, andintelligent transportation systems (ITS). The ITS deployment program provides fundsfor states and local governments to use advanced communication and informationsystems to improve the management and safety of their surface transportationsystems, primarily highway and transit systems. An issue associated with the ITS deployment program is the earmarking of funds. During the last few years, the appropriators have earmarked a substantialportion of the incentive funds intended to accelerate ITS deployment. This practicewas continued in the FY2002 DOT Appropriations Act and the FY2003 ConsolidatedAppropriations Act. Some Members and proponents of ITS would prefer to have thedeployment funds competitively awarded. TEA-21, however, also specifies severalprojects which are to receive some of the ITS deployment funds. http://www.fmcsa.dot.gov/ The FMCSA was created by the Motor Carrier Safety Improvement Act of 1999 (MCSIA), P.L. 106-159 . (13) This agency becameoperational on January 1, 2000, andassumed the responsibilities and personnel of DOT's Office of Motor CarrierSafety. (14) FMCSA issues and enforces the FederalMotor Carrier Safety Regulations,which govern the operation and maintenance of interstate commercial truck and busoperations and specify requirements for commercial drivers. FMCSA alsoadministers several grants and programs to help states conduct truck and bus safetyactivities. Most of the funds used to conduct FMCSA activities are derived from thefederal highway trust fund. The FY2003 Administration request for the FMCSA was $367.5 million; this amount is provided for in the FY2003 Consolidated Appropriations Act, with $60million for border enforcement activities included within FHWA's limitation onadministrative expenses. The appropriation for FY2002 was $354.3 million,including funds contained in the supplemental appropriations measure. The FMCSAappropriation consists of three primary components: FMCSA operations andadministrative expenses, assistance to states for the conduct of truck and bus safetyprograms, and the border enforcement program. Administrative and Research Expenses. The DOT FY2003 budget request for FMCSAadministrative and operations expenses was $117.5 million, including funds forresearch and technology (R&T). The conference agreement provides for this sameamount-$117.5 million. The FY2003 appropriation includes $7 million for researchand technology activities, which seek to improve truck and bus safety regulations andassociated safety and compliance activities conducted by both federal and stateenforcement officers. Grants to States and Other Activities. The Administration's FY2003 request for these activitieswas $190 million. The conference agreement approved this level. A limitation onobligations of $205.9 million for the National Motor Carrier Safety Program(NMCSP) was provided in FY2002. These funds, are used primarily to pay for theMotor Carrier Safety Assistance Program (MCSAP), a grant program that helps thestates enforce truck and bus safety regulations. MCSAP grants cover, typically, upto 80% of the costs of a state's truck and bus safety program. Some 10,000 state andlocal public-utility and law-enforcement officers conduct more than 2.6 millionroadside inspections of trucks and buses annually under the program. Some fundsprovided in this sub-account of FMCSA are also used to pay for information systemsand analysis as well as other state compliance activities. Border Enforcement. The Administration's FMCSA request also includes $60 million for border enforcementintended to enhance the ability of U.S. DOT and the states to promote the safety ofMexican trucks and buses entering the United States. The conference agreementapproved funding at the $60 million level as well. http://www.nhtsa.dot.gov/ In their conference report on H.J.Res. 2 ( H.Rept. 108-10 ), the Senate and House conferees established a total budget authority for the NationalHighway Traffic Safety Administration of $435.3 million. Of this amount, $225million is designated for the Highway Traffic Safety Grants component of theagency's funding. The remainder, $210.3 million is designated for the discretionarybudget authority and obligation limitation (from the highway trust fund) componentsof Operations and Research activities. This amount appears to be a compromisebetween the amount recommended by the respective appropriations committees ofthe Senate and House in their individual reports. In S. 2808 , the Senate Committee on Appropriations recommended virtually across-the-board increases beyond the amounts requested by theAdministration for NHTSA programs. For FY2003, the Committee recommendedbudget authority for NHTSA of $440 million, approximately $15 million (3.5%) above the $425 million requested by the Administration and about four percent abovethe FY2002 enacted level of $423 million. The House Committee on Appropriationsrecommended total NHTSA funding of $430 million (comprised of approximately$205 million for Operations & Research and $225 million for Highway Traffic SafetyGrants), about $10 million less than the Senate recommendation, and approximately$5 million above the Administration's request. Table 3. National Highway Traffic Safety Administration FY2003 Budget ($ millions) NHTSA Program Responsibilities. The National Highway Traffic Safety Administration's responsibilities includeestablishing minimum safety standards for automotive equipment, serving as aclearing house and information source for drivers, identifying and studying emergingsafety problems, and encouraging state governments to enact laws and implementprograms (through safety grants) to reduce drunk driving and to encourage the useof occupant protection devices. The Bush Administration has continued along-standing DOT priority that, "Improving transportation safety is the number oneFederal Government transportation objective." NHTSA plays a key role inimplementing this objective. In its policy statements, the Department of Transportation, through NHTSA, has targeted specific program activities that have potential for reducing highway deathsand injuries. Included among these are programs to: reduce drunk and druggeddriving; reduce the incidence of aggressive driving and "road rage"; aid in thedevelopment of "smart air bags" that will continue to provide protection tooccupants, while reducing risk associated with the bags themselves; enhance infantand child safety in vehicle crashes; and explore transportation options and safetyprograms for an aging population. In addition, NHTSA, in its program highlights, has emphasized its intent to comply with the legislative requirement of the Transportation Recall Enhancement,Accountability, and Documentation (TREAD) Act ( P.L. 106-414 ). The TREAD Actrequires NHTSA to undertake more than a dozen rulemaking actions within the nexttwo years in the areas of tire safety standards, rollover propensity, and improvingchild safety. In its report, the Senate Committee on Appropriations expressed its disappointment that NHTSA had not met its mandated deadline (under Section 13(h)of the TREAD Act,) to produce a study on the use and effectiveness of automobilebooster seats for children. That report was due November 1, 2001. The Committeeurged NHTSA to issue the results of the booster seat study without delay. Moreover,the Committee expressed concern that a previously established safety goal had notbeen achieved and that the agency adjusted that goal downward; NHTSA lowered itstarget of an 87% national seat belt usage rate in 2002 to a target of 78% in 2003. In its report, the House Committee on Appropriations expressed its awarenessof "extensive dissatisfaction and a significant drop in morale following thereorganization" of NHTSA during fiscal year 2002. It indicated that temporarydissatisfaction can be expected when programs and responsibilities are altered, butthat if a resulting decline in program effectiveness continues into fiscal year 2003, theAdministrator should be prepared to address the negative results of thisreorganization during the fiscal year 2004 hearing cycle. http://www.fra.dot.gov For FY2003, the Administration requested $711 million in funding for the FRA, including $59 million in offsetting fees. This is $23 million less than the $734million provided in FY2002. The request provided $521 million for Amtrak, thesame amount provided in FY2002, but this is called a placeholder while theAdministration works on a proposal for a new structure for intercity passenger rail,involving a partnership between the Federal Government, the States, and the privatesector. Core safety and operations would receive $118 million, a $7 million increaseover the FY2002 level. The Administration's request provided no funding for the Alaska Railroad rehabilitation, which received $20 million in FY2002. Spending for next generationhigh-speed rail development was reduced to $23 million, $9 million less than wasprovided in FY2002. The Administration requested $28 million for railroad researchand development. The Consolidated Appropriations Resolution for FY2003, H.J.Res. 2 ( P.L. 108-7 ), provides $1.05 billion for Amtrak, which is lower than the $1.2billion originally approved by the Senate but more than the $763 million originallyrecommended by the House Transportation Appropriations Subcommittee. TheConsolidated Appropriations Act also provides $30 million for next generationhigh-speed rail development, which is $7 million more than the Administration'srequest. For core safety and operations and for railroad research and development,the Act provides similar amounts to the President's request, $117 million and $29million respectively. The Act provides $22 million for the Alaska Railroad versusthe President's request for no funding. Although most of the debate involving the FRA budget centers on Amtrak, agency safety activities (which receive more detailed treatment following thissection) and Next Generation High-Speed Rail, as well as how states might obtainadditional funds for high-speed rail initiatives, are also issues. Railroad Safety and Research and Development. The FRA is the primary federal agency that promotesand regulates railroad safety. The Bush Administration proposed $118.2 million inFY2003 for FRA's safety program and related administrative and operating activities.Most of the funds are used to pay for salaries as well as associated travel and trainingexpenses for field and headquarters staff and to pay for information systemsmonitoring the safety performance of the rail industry. (15) Increased railroad trafficvolume and density make equipment, employees, and operations more vulnerable toadverse safety impacts. The Administration's request for FY2003 represents a nearly6% increase above the $111 million provided in the FY2002 DOT AppropriationsAct ( P.L. 107-87 ) for rail safety and operations. The conference agreement provides$117.4 in FY2003. The railroad safety statute was last reauthorized in 1994. Funding authority forthe program expired at the end of FY1998. FRA's safety program continues using theauthorities specified in existing federal railroad safety law and funds provided byannual appropriations. Although hearings have been held since 1994, thedeliberations have not resulted in a consensus to enact a law to authorize continuedfunding for FRA's regulatory and safety compliance activities or change any of theexisting authorities used by FRA to promote railroad safety. A reauthorization statutechanging the scope and nature of FRA's safety activities would most likely affectbudgets after FY2003. The adequacy and effectiveness of FRA's grade-crossing safety activities continue to be of particular interest. Relevant safety issues include: How effectivelyis FRA helping the states deal with the grade-crossing safety challenge? Is FRA'sFY2003 budget adequate to deal with that challenge? Congressional reaction to thesequestions had a bearing on the railroad safety budget for FY2002. In its FY2003budget, FRA requests funding to strengthen its grade-crossing safety program andassociated public education activities. To improve its safety regulations and industry practices, the FRA conducts research and development (R&D) on an array of topics, including fatigue of railroademployees, technologies to control train movements, and track dynamics. In reportsaccompanying House and Senate transportation appropriation bills and in annualconference reports, the appropriations committees historically have allocated FRA'sR&D funds among various research categories pertaining to safety. The FY2002DOT appropriations act ( P.L. 107-87 ) provided $29 million for the R&D program.For FY2003, FRA requested $28.3 million for these activities. The conferenceagreement provides $29.3 million. The request for FRA's safety and research and development programs includes a proposal to impose a user fee on the industry. The collected funds would offsetcosts of safety-related activities, raising an estimated $59 million that would becredited to the general fund in the U.S. Treasury; general funds appropriated for theprograms would be reduced by similar amounts. Industry, in the past, has objectedto such proposals, maintaining the industry already pays its share of taxes and investsheavily in safety. The conference agreement provides that none of this funding is tobe offset from user fees. Next Generation High-Speed Rail R&D. In FY2002, $32.3 million was made available for the NextGeneration High-Speed Rail Program. The FRA requested $23.2 million to continuethis program in FY2003. The House Appropriations Committee recommended$30.45 billion, $7.25 billion over the Administration request; the Senate provided$30.0 million in H.J.Res. 2 . P.L. 108-7 provides $30.45 million. http://www.amtrak.com The President's FY2003 budget request for Amtrak was $521.5 million, the same as in FY2002. The President's budget noted that this was just a placeholderfigure until a new policy for passenger rail service was developed. In June 2002 theAdministration presented its principles for Amtrak reform, and announced it wouldnot support additional funding for Amtrak (over the $521.5 million) unlessaccompanied by significant reform to Amtrak. Amtrak had said as early as February2002 that it would need at least $1.2 billion in FY2003. The House AppropriationsCommittee recommended $762 million for Amtrak, while requiring better financialreporting from Amtrak and limiting the amount of operating support forlong-distance trains to $150 million, $50 million less than Amtrak says is requiredto maintain the current level of long-distance service. The Senate provided $1.2billion in H.J.Res. 2 . P.L. 108-7 provides $1.05 billion, and defersrepayment of a $100 million loan; Amtrak said that should be sufficient to keep itoperating through FY2003. In a change of policy, Amtrak's funding will not godirectly to the corporation, but to the Secretary of Transportation, who will providefunding to Amtrak quarterly through the grant-making process. Amtrak's authorization expired at the end of FY2002; Congress is likely to consider Amtrak reauthorization during the first session of the 108th Congress. SeeCRS Report RL31743, Amtrak Issues in the 108th Congress , for further information. http://www.fta.dot.gov/ President Bush's FY2003 budget request for FTA is $7.226 billion, essentially the TEA-21 guaranteed level. This is a 7% increase above FTA's FY2002appropriation of $6.747 billion. (16) The HouseAppropriations Committeerecommended $7.226 billion, the amount requested. The Senate provided $7.226 in H.J.Res. 2 . P.L. 108-7 provides $7.226 billion (figures in this sectiondo not include the 0.65% rescission). For every existing FTA program Congressagreed with the amounts requested by the Administration. The transit appropriations shown in Figure 4 illustrate the significant increase in FTA funding from FY1999 to FY2003 that occurred following the enactment ofTEA-21 in 1998. FTA Program Structure and Funding. There are two major transit programs: the Capital Investment Grants and Loans Program and the Urbanized Area Formula GrantsProgram. There are also several smaller formula and planning and research programs. In FTA's Formula Grants Program, 86% of the FY2003 funding is for the UrbanizedArea Formula Program, and 6% is for the Non-Urbanized Area Formula Program (less than 50,000 population). The remaining 8% is split between the other programs. Capital Investment Grants and Loans Program (Section 5309). This program (formerly known as Section 3) hasthree components: new transit starts, fixed guideway modernization, and bus & busfacilities. The Administration requested $3.036 billion for FY2003, up from $2.841billion in FY2002, a 7% increase. The funds are allocated among these threecomponents on a 40-40-20 basis, respectively; funds for the fixed guidewaycomponent are distributed by formula, while funds for the other components aredistributed on a discretionary basis by FTA or earmarked by Congress. The HouseAppropriations Committee recommended $3.036 billion; the Senate provided $3.036billion in H.J.Res. 2 . P.L. 108-7 provided $3.036 billion. Urbanized Area Formula Program (Section5307). The program (formerly known as Section 9) providesfor capital and, in some cases, operating needs for urbanized areas (population 50,000or more). These activities include bus and bus-related purchases and maintenancefacilities, fixed guide way modernization, new systems, planning, and operatingassistance. For FY2003, the Administration proposed $3.3 billion (the TEA-21guaranteed amount), a 1% increase over the $3.26 billion provided in FY2001. Thesefunds are apportioned on a formula based, in part, on population (areas withpopulations over 1,000,000 receive two-thirds of the funding; urbanized areas withpopulations under 1,000,000 receive the remaining one-third) and transit service data. The House Appropriations Committee recommended the requested amount; theSenate provided the requested amount, and P.L. 108-7 provides the requestedamount, $3.3 billion. With the enactment of TEA-21, operating assistance funding was eliminated for urbanized areas with populations over 200,000. However, preventive maintenance,generally considered an operating expense, is now eligible for funding as a capitalexpense. Urbanized areas under 200,000 population, and non-urbanized areas(Section 5311), can use formula funds for either capital or operating purposes. Other Transit Programs. Non-Urbanized Areas Formula Program (Section 5311), which provides capital and operating needs for non-urbanized areas (areas with populationsunder 50,000)-$235 million requested for FY2003 ($223 inFY2002); Grants for Elderly and Individuals with Disabilities (Section5310)-$90 million requested for FY2003 ($85 million inFY2002); Clean Fuels (Section 5308)-$50 million requested for FY2003;and Rural Transportation Accessibility Incentive Program (Section3038), also known as the over-the-road bus accessibility program-$7 millionrequested for FY2003. All of these proposed amounts were agreed to by the House Committee on Appropriations, provided by the Senate, and provided by P.L. 108-7 . The President's budget request proposed to create a new formula program, the New Freedom Initiative, which seeks to use alternative methods to promote accessto transportation for persons with disabilities. The President's budget requested $145million for this program in FY2003. This request was not supported. Job Access and Reverse Commute Program. TEA-21 authorized a new discretionary Job Accessand Reverse Commute grant program. This program provides funding fortransportation projects that assist welfare recipients and low-income persons to findand get to work in suburban areas. The Administration proposed $150 million inFY2003, up from $125 million in FY2002. P.L. 108-7 provides this amount. http://www.rspa.dot.gov For FY2003, RSPA requested a budget of $102.5 million (17) (of which about 70%is offset by user fees) compared to an appropriation of $96 million in FY2002. Mostof RSPA's budget is allocated to activities that promote transportation safety. Forits pipeline transportation safety program, RSPA proposed $63.8 million in FY2003,an increase of $5.6 million over FY2002. For its hazardous materials transportationsafety program, the agency requested $23.8 million in FY2003, an increase of $2.6million over FY2002. The House Committee recommendation was $99.6 million,including $58.7 million for pipeline safety and $23.0 million for hazardous materialssafety. The Senate approved $107.8 million for RSPA, including $63.9 million forpipeline safety and $23.1 million for hazardous materials safety. The conferenceagreement ( P.L. 108-7 ) provides $105 million, including $63.8 million for pipelinesafety and $23.3 million for hazardous materials transportation safety. Table 4. Budgetary Resources of Selected Agencies andSelected Programs (in millions of dollars--totals may not add) Note: Figures in Table 3 were taken from tables in House Committee on Appropriations reports. Because of differing treatment of offsets, the inclusion of the NTSB andArchitectural and Transportation Barriers Compliance Board, and the exclusion of theMaritime Administration, the totals will not always match the Administration's totals. Thefigures within this table may differ slightly from those in the text due to supplementalappropriations, rescissions, and other funding actions. Columns may not add due torounding or exclusion of smaller program line-items. a The figures for FY2002 reflect supplemental appropriations authorized under P.L. 107-38 and P.L. 107-206 . b These figures do not reflect the 2.852% across-the-board rescission included in the Senatebill. c These figures do not reflect the 0.65% across-the-board rescission included in P.L. 108-7 . d The total FY2002 funding, including supplementals, was $113 million. e TSA's total FY2002 funding, including supplementals, transfers and offsettingcollections, was $5.8 billion. The FY2003 figure includes estimated offsettingcollections of $2.65 billion. TSA's FY2003 request was increased by $546 millionand its estimate of offsetting collections was reduced by $124 million on September3, 2002. f FY2002 figures are budget authority. The figures do not include the annual $64 millionin mandatory funding for boat safety grants. g The FY2002 DOT Appropriations Act ( P.L. 107-87 ) provides for a rescission of $317million of FY2000 AIP contract authority. This rescission has no impact on thebudgetary resources available for FAA programs for FY2002 but is subtracted fromthe grand total because it is significant in relation to the overall budget cap for thetransportation function. h FY2002 total reflects rescission of $59 million. FY2003 figure reflects a negative RABAadjustment of $4.4 billion. i For Appalachian Development Highway System ($200 million). j FY2003 figure reflects rescission of $59 million. k Amtrak's total FY2002 funding was $1.1 billion, including supplemental and carryoverappropriations. l The figures do not reflect $14 million in permanent appropriations. Therefore, therequested total resources for RSPA for FY2003 may be seen as $123 million. m The DOT and related agencies appropriation does not fund the Maritime Administration(MARAD) or the Federal Maritime Commission (FMC), and their budgets aretherefore not included in this report. They receive funding from the Commerce,Justice, State appropriations bills. The Administration budgets do not include theNTSB or the Architectural and Transportation Barriers Compliance Board budgets;they are included in this total because their budgets are included in the DOTAppropriations bills. The rescission of unobligated previous years' contract authorityhave been subtracted from this total. Because the rescissions of prior years' contractauthority have no impact on the budgetary resources available for the current fiscalyear, the total resources available could be seen as $61.3 billion for FY2002 enacted,and $64.9 billion for FY2003 enacted. ARC: Amtrak Reform Council AIP: Airport Improvement Program (FAA) AIR21: the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ( P.L. 106-181 ), the current aviation authorizing legislation ARAA: the Amtrak Reform and Accountability Act of 1997 ( P.L. 105-134 ), the current Amtrak authorizing legislation ATSA: the Aviation and Transportation Security Act ( P.L. 107-71 ), legislation which created the Transportation Security Administration within the DOT BRR: Bridge Replacement and Rehabilitation program (FHWA) BTS: Bureau of Transportation Statistics CG: Coast Guard CMAQ: Congestion Mitigation and Air Quality program (FHWA) DOT: Department of Transportation EAS: Essential Air Service (FAA) F&E: Facilities and Equipment program (FAA) FAA: Federal Aviation Administration FAHP: Federal-Aid Highway Program (FHWA) FAIR21: the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century ( P.L. 106-181 ), the current aviation authorizing legislation FHWA: Federal Highway Administration FRA: Federal Railroad Administration FTA: Federal Transit Administration Hazmat: Hazardous materials (safety program in RSPA) HPP: High Priority Projects (FHWA) HTF: Highway Trust Fund IM: Interstate Maintenance program (FHWA) ITS: Intelligent Transportation Systems (FHWA) MCSAP: Motor Carrier Safety Assistance Program (FMCSA) New Starts: part of the FTA's Capital Grants and Loans Program which funds new fixed-guideway systems or extensions to existing systems NHS: National Highway System; also a program within FHWA NHTSA: National Highway Traffic Safety Administration NMCSA: National Motor Carrier Safety Administration O&M: Operations and Maintenance program (FAA) OIG: Office of the Inspector General of the DOT OST: Office of the Secretary of Transportation RABA: Revenue-Aligned Budget Authority RD&T: Research, Development and Technology program (FHWA) RE&D: Research, Engineering and Development program (FAA) RSPA: Research and Special Projects Administration SCASD: Small Community Air Service Development program (FAA) STB: Surface Transportation Board STP: Surface Transportation Program (FHWA) TCSP: Transportation and Community and System Preservation Program (FHWA) TEA-21: Transportation Equity Act for the 21st Century ( P.L. 105-178 ), the current highway and transit authorizing legislation TIFIA: Transportation Infrastructure Finance and Innovation Act program (FHWA) TSA: Transportation Security Administration CRS Report RS20177. Airport and Airway Trust Fund Issues in the 106th Congress ,by [author name scrubbed]. CRS Issue Brief IB10026. Airport Improvement Program, by [author name scrubbed]. CRS Report RL30659. Amtrak: Overview and Options , by [author name scrubbed]. CRS Issue Brief IB90122. Automobile and Light Truck Fuel Economy: Is CAFÃ Up to Standards? , by Rob Bamberger. CRS Report RS20469. Bicycle and Pedestrian Transportation Policies , by William Lipford and [author name scrubbed]. CRS Report RS20790. The Coordinated Border Infrastructure Program: Issues for Congress , by [author name scrubbed]. CRS Report RS20841. Environmental Streamlining Provisions in the Transportation Equity Act for the 21st Century: Status of Implementation , byDavid Michael Bearden. CRS Report RL30915. Federal Motor Carrier Safety Administration: Status and Challenges , by [author name scrubbed] and Hussein Hassan. CRS Issue Brief IB10030. Federal Railroad Safety Program and Reauthorization Issues , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31027(pdf) . High-Speed Rail: Development and Investment Issues in the 107th Congress , by [author name scrubbed] and [author name scrubbed]. CRS Report RS21164 . Highway Finance: RABA's Double-edged Sword , by [author name scrubbed]. CRS Report RL31028. North American Free Trade Agreement: Truck Safety Considerations , by Paul Rothberg. CRS Report RL31150(pdf) . Selected Aviation Security Legislation in the Aftermath of the September 11 Attack, by [author name scrubbed]. CRS Report 98-646 ENR. Transportation Equity Act for the 21st Century ( P.L. 105-178 ): An Overview of Environmental Protection Provisions , by David M.Bearden. CRS Issue Brief IB10032. Transportation Issues in the 107th Congress , coordinatedby [author name scrubbed]. Department of Transportation Budget in Brief FY2003 http://www.dot.gov/bib/bibindex.html Department of Transportation, Chief Financial Officer http://ostpxweb.dot.gov/budget/ House Appropriations Committee http://www.house.gov/appropriations Maritime Administration http://www.marad.dot.gov/ National Highway Traffic Safety Administration (budget & planning) http://www.nhtsa.dot.gov/nhtsa/whatis/planning/perf-plans/gpra-96.pln.html Office of Management and Budget http://www.gpo.gov/usbudget/fy1998/fy1998_srch.html Senate Appropriations Committee http://www.senate.gov/committees/committee_detail.cfm?COMMITTEE_ID=405 Transportation is function 400 in the annual unified congressional budget. It isalso considered part of the discretionary budget. Funding for the DOT budget isderived from a number of sources. The majority of funding comes from dedicatedtransportation trust funds. The remainder of DOT funding is from federal Treasurygeneral funds. The transportation trust funds include: the highway trust fund, whichcontains two accounts, the highway trust account and the transit account; the airportand airway trust fund; and the inland waterways trust fund. All of these accountsderive their respective funding from specific excise and other taxes. In FY2002 trust funds accounted for well over two-thirds of total federal transportation spending. Together, highway and transit funding constitute the largestcomponent of DOT appropriations. Most highway and transit programs are fundedwith contract authority derived by the link to the highway trust fund. This is verysignificant from a budgeting standpoint. Contract authority is tantamount to, butdoes not actually involve, entering into a contract to pay for a project at some futuredate. Under this arrangement, specified in Title 23 U.S.C., authorized funds areautomatically made available at the beginning of each fiscal year and may beobligated without appropriations legislation; although appropriations are required tomake outlays at some future date to cover these obligations. Where most federal programs require new budget authority as part of the annual appropriations process, transportation appropriators are faced with the oppositesituation. That is, the authority to spend for the largest programs under their controlalready exists, and the mechanism to obligate funds for these programs also is inplace. During the 105th and 106th Congresses, major legislation changed the relationships between the largest transportation trust funds and the federal budget.The Transportation Equity Act for the 21st Century (TEA-21) ( P.L. 105-178 ) linkedannual spending for highway programs directly to revenue collections for thehighway trust fund. In addition, core highway and mass transit program funding wasgiven special status in the discretionary portion of the federal budget by virtue of thecreation of two new budget categories. The Act thereby created a virtual "firewall"around highway and transit spending programs. The funding guarantees were set upin a way that makes it difficult for funding levels to be altered as part of the annualbudget/appropriations process. Additional highway funds can be provided annuallyby a mechanism called "Revenue Aligned Budget Authority" (RABA); RABA fundsaccrue to the trust fund as a result of increased trust fund revenues. For FY2003,however, it now appears that the RABA adjustment, if it had been left intact duringthe appropriations process, would have led to a significant and unexpected drop inthe availability of highway obligational funding. TEA-21 changed the role of the House and Senate appropriations and budget committees in determining annual spending levels for highway and transit programs.The appropriations committees are precluded from their former role of setting anannual level of obligations. These were established by TEA-21 and are adjusted byan annual RABA computation. In addition, it appears that TEA-21 precludes, atleast in part, the House and Senate appropriations committees from exercising whatsome Members view as their once traditional option of changing spending levels forspecific core programs or projects. In the FY2000 appropriations act, theappropriators took some tentative steps to regain some of their discretion overhighway spending. The FY2000 Act called for the redistribution of some fundsamong programs and added two significant spending projects. In the FY2001appropriations act, the appropriators continued in this vein by adding funds for largenumbers of earmarked projects. Further, the FY2001 Act called for redirection of alimited amount of funding between programs and includes significant additionalfunding for some TEA-21 programs. This trend continued, and even accelerated, inthe FY2002 Act as appropriators made major redistributions of RABA funds and, insome instances, transferred RABA funds to agencies that are not eligible for RABAfunding under TEA-21. The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (FAIR21 or AIR21)( P.L. 106-181 ) provides a so-called "guarantee" for FederalAviation Administration (FAA) program spending. The guarantee for aviationspending, however, is significantly different from that provided by TEA-21. Insteadof creating new budget categories, the FAIR21 guarantee rests on adoption of twopoint-of-order rules for the House and the Senate. Supporters of FAIR21 believe thenew law requires significant new spending on aviation programs; and, for at least theFY2001 and FY2002 appropriations cycles, spending grew significantly. Mostobservers view the FAIR21 guarantees, however, as being somewhat weaker thanthose provided by TEA-21. Congress can, and sometimes does, waivepoints-of-order during consideration of legislation. Enactment of TEA-21 and FAIR21 means that transportation appropriators have total control over spending only for the TSA, the Coast Guard, the Federal RailroadAdministration (including Amtrak), and a number of smaller DOT agencies. All ofthese agencies are concerned about their funding prospects in any year where it isbelieved that there is a constrained budgetary environment. Transportation budgeting uses a confusing lexicon (for those unfamiliar with theprocess) of budget authority and contract authority --the latter, a form of budgetauthority. Contract authority provides obligational authority for the funding of trustfund-financed programs, such as the federal-aid highway program. Prior to TEA-21,changes in spending in the annual transportation budget component had beenachieved in the appropriations process by combining changes in budget/contractauthority and placing limitations on obligations . The principal function of thelimitation on obligations is to control outlays in a manner that corresponds tocongressional budget agreements. Contract authority is tantamount to, but does not actually involve, entering into a contract to pay for a project at some future date. Under this arrangement, specifiedin Title 23 U.S.C., which TEA-21 amended, authorized funds are automatically madeavailable to the states at the beginning of each fiscal year and may be obligatedwithout appropriations legislation. Appropriations are required to make outlays atsome future date to cover these obligations. TEA-21 greatly limited the role of theappropriations process in core highway and transit programs because the Actenumerated the limitation on obligations level for the period FY1999 throughFY2003 in the Statute. Highway and transit grant programs work on a reimbursable basis : states pay for projects up front and federal payments are made to them only when work iscompleted and vouchers are presented, months or even years after the project hasbegun. Work in progress is represented in the trust fund as obligated funds andalthough they are considered "used" and remain as commitments against the trustfund balances , they are not subtracted from balances. Trust fund balances,therefore, appear high in part because funds sufficient to cover actual and expectedfuture commitments must remain available. Both the highway and transit accounts have substantial short- and long-term commitments. These include payments that will be made in the current fiscal yearas projects are completed and, to a much greater extent, outstanding obligations tobe made at some unspecified future date. Additionally, there are unobligatedamounts that are still dedicated to highway and transit projects, but have not beencommitted to specific projects. Two terms are associated with the distribution of contract authority funds to the states and to particular programs. The first of these, apportionments, refers to fundsdistributed to the states for formula driven programs. For example, all nationalhighway system (NHS) funds are apportioned to the states. Allocated funds, arefunds distributed on an administrative basis, typically to programs under directfederal control. For example, federal lands highway program monies are allocated;the allocation can be to another federal agency, to a state, to an Indian tribe, or tosome other governmental entity. These terms do not refer to the federal budgetprocess, but often provide a frame of reference for highway program recipients, whomay assume, albeit incorrectly, that a state apportionment is part of the federal budgetper se. | On February 20, 2003, President Bush signed the FY2003 Consolidated Appropriations Resolution ( H.J.Res. 2 : H.Rept. 108-10 , P.L. 108-7 ), providing appropriations for theDepartment of Transportation (DOT) and other departments. Congress agreed to the conferencecommittee report on February 13, 2003. It provides $64.6 billion to the DOT and related agenciesfor FY2003, minus a 0.65% across-the-board rescission which reduces the total by around $420million (figures in this report do not reflect the 0.65% rescission, as it is unclear how that cut wouldbe calculated for DOT and related agencies overall and for particular departments, agencies, andprograms in the bill). This is $9 billion more than the President requested for FY2003, the primarydifference being increased highway spending. It is $1.8 billion less than enacted in FY2002, a yearin which transportation appropriations were boosted by supplemental spending for security and forrepair of damage to transportation infrastructure in New York City. Prior to the passage of P.L.108-7 , DOT was funded through a series of 8 Continuing Resolutions (CRs) that provided fundingat FY2002 levels, prorated. The events of September 11, 2001, have had a significant impact on DOT's budget. The DOT received an extra $7.3 billion in FY2002 in emergency supplemental appropriations, much of it forsecurity-related activities, including the creation of an entirely new agency, the TransportationSecurity Administration (TSA). During FY2003 the Coast Guard and TSA are scheduled to betransferred to the newly-created Department of Homeland Security. The abrupt decrease from FY2002 to FY2003 in requested federal-aid highway funding-from $32 billion to $24 billion-caused a stir. It was mandated by the Revenue-Aligned Budget Authority(RABA) provision in the Transportation Equity Act for the 21st Century (TEA-21) that ties annualhighway funding levels to trust fund revenues; trust fund revenues dropped below predicted levelsin 2001. The second FY2002 emergency supplemental act ( P.L. 107-206 ) included a provisionsetting the RABA adjustment for FY2003 to zero, effectively restoring the federal-aid highwayprogram to $27.7 billion, the level authorized in TEA-21. The House Appropriations Committeerecommended this level; the Senate-passed version of H.J.Res. 2 maintained theFY2002 level (which was $4.5 billion over the authorized level as a result of a RABA increase thatyear) for FY2003, $31.8 billion. P.L. 108-7 provided $31.8 billion. P.L. 108-7 provides Amtrak $1.05 billion, plus deferral of repayment of a $100 million loan, which it said would be enough to keep it solvent through FY2003. The bill introduced a new policyon Amtrak oversight, providing the money not to Amtrak directly but to the Secretary ofTransportation, who will provide the money to Amtrak in quarterly installments through thegrant-making process. Each of Amtrak's long-distance routes will have to have a separate grantapplication for funding. Key Policy Staff Division abbreviations: RSI = Resources, Science, and Industry Division. |
Since the enactment of the Patient Protection and Affordable Care Act (ACA) in 2010, religious institutions have raised concerns regarding the applicability of certain statutory provisions that would require the coverage of health services to which religious organizations may object. Specifically, health plans offered by employers and health insurers must cover certain recommended preventive health services without cost sharing (e.g., charging a co-payment or deductible) to patients for such services. Following enactment of ACA, the U.S. Departments of Health and Human Services (HHS), Labor, and Treasury issued interim final regulations that required coverage for a range of preventive services. The resulting rules and related guidance included coverage of contraceptive methods. This requirement has generated controversy and debate involving religious groups who oppose contraception based on their religious beliefs. HHS, Labor, and Treasury have issued final rules to exempt certain religious employers from complying with the requirement that health plans include contraceptive services. However, the controversy has intensified over the scope of the exemption, which appears to apply to churches, but potentially not other religiously affiliated institutions such as universities, hospitals, and social service providers. This report will analyze the legal implications for the preventive services requirements and the potential penalties faced by religious organizations that do not comply with the rule. It also examines proposed legislative options and examples of religious exemptions in existing state and federal law. ACA, as amended, greatly expanded the scope of federal regulation over health insurance provided through employment based group health coverage, as well as coverage sold in the individual insurance market. Federal health insurance standards created by ACA require, among many other things: an extension of dependent coverage to age 26 if such coverage is offered; the elimination of preexisting condition exclusions; a bar on lifetime annual limits on the dollar value of certain benefits; and a prohibition on health insurance rescissions except under limited circumstances. Section 2713 of the Public Health Service Act (PHSA), as added by ACA and incorporated under section 715(a)(1) of the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) of the Internal Revenue Code (IRC), requires group health plans and health insurance issuers that offer group or individual health insurance coverage to provide coverage for certain preventive health services without imposing any cost sharing requirements. Section 2713(a)(4) indicates that such services will include "with respect to women, such additional preventive care and screenings ... as provided for in comprehensive guidelines supported by the Health Resources and Services Administration...." Following the enactment of ACA, HHS commissioned the Institute of Medicine (IOM) to recommend preventive services that should be considered in the development of comprehensive guidelines. The IOM made its recommendations in a July 19, 2011 report. Among the IOM's recommendations was coverage of "the full range of Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity." On August 1, 2011, HHS, Labor, and Treasury (the Departments) published guidelines based on the IOM's recommendations. The guidelines are supported by the Health Resources and Services Administration (HRSA). Interim final regulations that address the coverage of preventive health services were first published in the Federal Register on July 19, 2010. On August 3, 2011, in response to comments received about these regulations, an interim final rule that amended the July 19, 2010 regulations was published. Most notably, the interim final rule provides HRSA with the authority to exempt "religious employers" from the preventive health services guidelines "where contraceptive services are concerned." A definition for the term "religious employer" was added by the interim final rule: [A] "religious employer" is an organization that meets all of the following criteria: (1) The inculcation of religious values is the purpose of the organization; (2) The organization primarily employs persons who share the religious tenets of the organization; (3) The organization serves primarily persons who share the religious tenets of the organization; and (4) The organization is a nonprofit organization as described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended. This definition was criticized by some for being so narrow that many religious institutions that provide health, educational, or charitable services would likely not be considered religious employers for purposes of the exemption. The Departments received over 200,000 comments on the amended interim regulations, with some commenters urging a broader definition for the term "religious employer." On February 15, 2012, the Departments published final rules on the coverage of contraceptive services. The final rules provide for the adoption of the definition established in the August 3, 2011 interim final rule. In response to those who urged a broader exemption that would include religiously affiliated employers that may not qualify as "religious employers" under the definition, the Departments noted: A broader exemption ... would lead to more employees having to pay out of pocket for contraceptive services, thus making it less likely that they would use contraceptives, which would undermine the benefits [of requiring coverage of contraceptive services without cost sharing]. At the same time, however, the Departments provided for a temporary enforcement safe harbor for non-exempted, nonprofit organizations with religious objections to contraceptive coverage. During the safe harbor, the Departments plan to develop and propose changes to the final regulations that would accommodate these nonprofit organizations: Specifically, the Departments plan to initiate a rulemaking to require issuers to offer insurance without contraception coverage to such an employer (or plan sponsor) and simultaneously to offer contraceptive coverage directly to the employer's plan participants (and their beneficiaries) who desire it. Under this approach, the Departments will also require that, in this circumstance, there be no charge for the contraceptive coverage. In guidance issued by HHS, the agency explained that the temporary enforcement safe harbor will be in effect until the first plan year that begins on or after August 1, 2013. The guidance indicates that organizations that meet all of the following criteria will not be subject to enforcement action for failing to provide contraceptive coverage in a group health plan that it establishes or maintains: (1) The organization is organized and operates as a non-profit entity. (2) From February 10, 2012 onward, contraceptive coverage has not been provided at any point by the group health plan established or maintained by the organization, consistent with any applicable State law, because of the religious beliefs of the organization. (3) The group health plan established or maintained by the organization provides to participants notice, as prescribed in the guidance, that states that contraceptive coverage will not be provided under the plan for the first plan year beginning on or after August 1, 2012. (4) The organization self-certifies that it satisfies the aforementioned criteria and documents its self-certification in accordance with procedures prescribed in the guidance. Finally, the guidance maintains that the Department of Labor and the Department of the Treasury will also not take any enforcement action against an organization that complies with the conditions of the temporary enforcement safe harbor. One of the most controversial issues related to the final rules is whether the exemption for religious employers comports with established principles that protect the religious freedom of churches and other religiously affiliated organizations. Both constitutional and statutory rules govern whether an exemption would be required and what the scope of that exemption may be. The First Amendment's religion clauses serve as a guarantee that individuals and entities will neither be required to act under a prescribed religious belief (the Establishment Clause), nor be prohibited from acting under their chosen religious beliefs (the Free Exercise Clause). The Religious Freedom Restoration Act of 1993 (RFRA) requires that federal actions that substantially burden religious exercise must have a compelling governmental interest and be narrowly tailored to meet that interest. Courts have generally held that religious exemptions are not constitutionally required for laws and regulations that do not specifically target religious exercise. However, such exemptions may be enacted by Congress or promulgated by an agency as a matter of public policy. Thus, religious exemptions to requirements for health benefits coverage are generally regarded as permissible, but not required. Although the U.S. Supreme Court had historically applied a heightened standard of review to government actions that allegedly interfered with a person's free exercise of religion, the Court reinterpreted that standard in its 1990 decision, Employment Division, Department of Human Resources of Oregon v. Smith . Since then, the Court has held that the Free Exercise Clause never "relieve[s] an individual of the obligation to comply with a valid and neutral law of general applicability." Under this interpretation, the constitutional baseline of protection was lowered, meaning that laws that do not specifically target religion are not subject to heightened review under the Constitution. Accordingly, it is less likely that religious groups will be able to successfully argue for constitutional protection from laws of general applicability that incidentally burden their religious exercise. Even before the Court's reinterpretation of the requirements for religious exercise under the First Amendment, it indicated in multiple decisions that religious groups are not guaranteed to avoid burdens on their religious exercise when a law serves a valid and important public purpose. Since 1879, the Court has drawn an important distinction in free exercise cases—that religious exercise includes both beliefs and actions: Laws 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. The Court's decision permitted the government to regulate individuals' actions stemming from a religious belief, but not the religious belief itself. The history of the Court's free exercise jurisprudence indicates that religious beliefs cannot excuse "compliance with an otherwise valid law prohibiting conduct that the State is free to regulate." Under this rule, the Court has upheld laws proscribing behavior that may be compelled by some religious beliefs, including polygamy laws, child labor laws, Sunday-closing laws, conscription laws, tax laws, as well as controlled substances laws. The Court's landmark 1990 decision in Employment Division, Department of Human Resources of Oregon v. Smith definitively established that religious exemptions are not constitutionally required for religiously motivated actions that would violate a generally applicable law. In Smith , members of the Native American Church were fired from positions at a private organization after they ingested peyote, a substance prohibited under controlled substances laws, for sacramental purposes. They challenged their subsequent ineligibility for unemployment benefits as a violation of their free exercise rights. In other words, they sought to avoid the resulting penalty of violating the controlled substances law because their actions were motivated by their religious beliefs. The Court rejected this argument, noting that the free exercise of religion has never been held to be absolute such that individuals may avoid complying with generally applicable laws because those laws conflict with their religious beliefs. Thus, exemptions from generally applicable laws are not constitutionally guaranteed for individuals with religious objections to those laws. Prior to Smith , whether such an exemption was required would depend on whether the law was justified by a compelling interest. As noted earlier, the Court nonetheless upheld laws that imposed incidental burdens on religious exercise without religious exemptions. However, in Smith , the Court indicated that the compelling interest standard was not applicable for exemptions for generally applicable criminal laws: The government's ability to enforce generally applicable prohibitions of socially harmful conduct, like its ability to carry out other aspects of public policy, "cannot depend on measuring the effects of a governmental action on a religious objector's spiritual development." Despite not recognizing a constitutional requirement for religious exemptions, the Court emphasized that the legislature remained free to consider whether an exemption was appropriate through the political process. Although federal courts have never considered the constitutionality of requirements to cover contraceptives and related health services, at least two state courts have considered challenges to religious exemptions to similar rules at the state level. State laws in California and New York require health insurance plans that cover prescription drugs to include coverage for prescription contraceptives (see Table A-1). Each state includes an exemption for religious employers that is essentially identical to the federal exemption. Courts in both states upheld the requirements as neutral laws of general applicability under the Smith analysis. The California Supreme Court explained that a law may have references to religion, as the religious exemption to contraceptive coverage does, while remaining a law of general applicability. In addition to finding that the law was neutral toward religion on its face, the California Supreme Court also held that the law did not indicate latent hostility toward religion, rejecting the argument that the law discriminated against the Catholic Church because its beliefs oppose the use of contraceptives. The court noted that most religious employers were subject to the state coverage requirements, yet because most of those employers' religious tenets did not oppose contraceptives, they could not qualify for the exemption. By providing an exemption for the religious employers that would object, including the Catholic Church, the court explained that the law could not be understood as discrimination against that church, but rather an accommodation that benefited it: "That the exemption is not sufficiently broad to cover all organizations affiliated with the Catholic Church does not mean the exemption discriminates against the Catholic Church." Reaching the same conclusion, the New York Court of Appeals (its highest court) echoed this explanation: "To hold that any religious exemption that is not all-inclusive renders a statute non-neutral would be to discourage the enactment of any such exemptions—and thus to restrict, rather than promote, freedom of religion." Congress responded to the Court's holding in Smith by enacting RFRA in 1993, which statutorily reinstated the heightened standard of protection for government actions interfering with a person's free exercise of religion. Although the Court in 1997 struck down as unconstitutional portions of RFRA that applied to state and local governments, the heightened standard provided by RFRA still applies to federal government actions. RFRA provides that a statute or regulation of general applicability may substantially burden a person's exercise of religion only if it (1) furthers a compelling governmental interest and (2) uses the least restrictive means to further that interest. This standard is sometimes referred to as strict scrutiny analysis. Because RFRA essentially reinstated the heightened scrutiny applied prior to Smith , a case decided before Smith may provide insight into how a court might evaluate an exemption to the requirements for contraceptive coverage. In United States v. Lee , an Amish man claimed that paying FICA taxes violated his belief in an obligation to provide similar assistance for church members. Lee argued that his religion prohibited him from accepting such benefits from the state or paying taxes to fund the social security system. Similar to arguments asserted by groups opposing requirements to provide contraceptive coverage, Lee argued that because he and several employees objected to the benefits received by his payment of FICA taxes, he should be exempt from paying the employer's share of the taxes. Although the Court recognized a burden on Lee's religious belief, it noted that the burden was not sufficient to find a violation of Lee's free exercise rights, explaining that such burdens may be justified if they "accomplish an overriding governmental interest." The Court assessed the government's interest in the social security system as "very high," noting that it was a "comprehensive insurance system with a variety of benefits available to all participants" and that "mandatory participation is indispensable to the fiscal vitality of the social security system." The Court held that the burden was justified by the governmental interest in "maintaining a sound tax system." The Court then considered whether providing an accommodation for religious objectors would interfere with that interest, noting the difficulties of providing "myriad exceptions flowing from a wide variety of religious beliefs." Because various religious objections may be difficult to administer in such a large system, the Court explained that the narrow exception provided by Congress for self-employed individuals was a sufficient accommodation. That exemption allowed individuals who were self-employed and held religious beliefs that opposed the acceptance of benefits offered by the social security program to avoid paying taxes toward the program because such individuals would not be participating in the program. Self-employed individuals with religious objections could be easily and fairly distinguished from all employees of an employer with religious objections. The Court recognized Congress' ability to expand that accommodation through additional legislation, but held that the existing exemption was sufficient to avoid interfering with the government's interest in maintaining a functional tax system. Under a RFRA analysis, like that used in Lee , a court considering a legal challenge to the federal contraceptive coverage requirement must find a compelling governmental interest for the action alleged to violate religious exercise. If the court identifies a compelling interest, the government may regulate that activity. However, the regulation must be implemented in a manner that would burden religion as narrowly as possible while achieving the government's interest. Thus, the reinstatement of the compelling interest test generally means that religious groups may have more success arguing for protection from legal requirements that conflict with their religion, though courts have still indicated that the scope of such exemptions may be limited. Among the stated goals and benefits of the preventive services requirements at issue are the improvement of public health and the equitable distribution of costs for preventive services. Courts have recognized each of these interests as compelling when faced with free exercise challenges to requirements with similar goals. The Supreme Court has long upheld laws that promote public policies relating to public health as a valid exercise of protecting the welfare of the people. Courts have recognized a compelling state interest in statutes preventing the spread of disease, and the Supreme Court has explained that "the right to practice religion freely does not include liberty to expose the community or the child to communicable disease or the latter to ill health or death." Although the Court's decision to hold the interest of public health above the interest of individuals to freely exercise their religious belief was made before the Court applied strict scrutiny to religious exercise cases, it nonetheless provides an indication of the nature of the government's interest in public health regulation. In a decision that did apply heightened constitutional review, the Court has also held that the government's interest in tax programs used to fund health care programs outweighs individuals' interests in exercising their religion freely. The Court's treatment of public health as an interest paramount to individual religious practice indicates a recognition of public health as a compelling state interest. In challenges to state legislation mandating coverage of contraceptives with similar goals as the federal rules, courts have also recognized the significance of the government's interest in gender equity. The California Supreme Court recognized the state's interest in eliminating gender discrimination as compelling when faced with a legal challenge to a state requirement for coverage of contraceptives. The court explained that the purpose of the legislation at issue in the case was to eliminate the economic inequity existing between the out-of-pocket health care costs of men and women, resulting from the cost of contraceptives and unintended pregnancies. The New York Court of Appeals also noted the state's interest in gender equity and providing women better health care resulting from a requirement for contraceptive coverage. Even if the government has a compelling interest in requiring coverage of contraceptives, it must use the least restrictive means to achieve that interest in order for the requirement to be upheld consistent with RFRA. That is, the government must make the burden on religious exercise as narrow as possible. This test may be met by providing alternative means of compliance with the legislation, such as an exemption. Allowing individuals who object to the program on religious grounds and would not receive benefits from the program to opt out of coverage would satisfy both the individual's free exercise of religion and the government's interest in protecting public health at large. Determining whether an accommodation is necessary may depend on the nature of the requirement and the burden it imposes on the objecting individual or organization. For example, it may be argued that unless the insurance plan itself conflicts with the employer's religious beliefs (e.g., like the Amish employer in Lee ), the employer is not substantially burdened to trigger free exercise protections because requiring coverage of certain health services does not require that the employer or employee's seek or accept the benefits of that coverage. In other words, if the religious employer's objection is to the use of contraceptives, the requirement to offer a particular health plan that would cover contraceptives does not force the employer or its employees to acquire or use contraceptives in violation of religious beliefs. On the other hand, if the religious employer objects to facilitating access to contraceptives, a court would likely defer to the employer's understanding of its religious tenets to recognize a substantial burden and proceed with the compelling interest analysis. It is certainly possible for courts to determine that no exemption may be made to certain government mandates, and courts have upheld mandates related to public health without exemptions for conflicting religious beliefs. For example, in the context of some state vaccination requirements, religious exemptions have not been required under the Free Exercise Clause. Relying on the Supreme Court's implication that public health concerns outweigh the right to exercise one's religion without interference, some state supreme courts have held that mandatory vaccination programs are not a violation of religious freedom. Although exemptions have not been required in all instances, the Supreme Court has explained that, under RFRA, an exemption may be required if the government cannot show that uniform application of a particular requirement is necessary to avoid "seriously [compromising] its ability to administer the program." Under this standard, a court may find that an accommodation is possible without undermining the program, but that the exemption may need to be drawn narrowly. Consider, for example, the distinction the Court drew regarding religious exemptions under social security tax requirements. The Court held that a broad exemption extending to any employer with a religious objection was not required because such an exemption would undermine the government's ability to maintain the social security system by excluding all of that employer's employees, regardless of their religious beliefs. However, it recognized the viability of a narrow exemption applied only to the self-employed because those individuals could be easily identified and excluded from the system without detrimental effect because they also would not be drawing on the benefits. Although RFRA's requirements do not apply to state laws, state courts nonetheless considered the elements of strict scrutiny analysis when deciding related issues under state law. One court that considered contraceptive coverage requirements similar to the federal rules indicated that a narrowly drawn exception essentially limited to churches and church associations is adequate to accommodate religious burdens in this context. The California Supreme Court explained that "any broader exemption increases the number of women affected by discrimination in the provision of health care benefits," the avoidance of which it had recognized as a compelling interest. Noting that the organization challenging the requirement employed many individuals who did not share the religious beliefs of the organization, the New York Court of Appeals suggested that religious organizations could not expect broad accommodations from such requirements. The court stated that because legislation frequently affects employment relationships, "when a religious organization chooses to hire nonbelievers it must, at least to some degree, be prepared to accept neutral regulations imposed to protect those employee's legitimate interests in doing what their own beliefs permit." Under religious exercise protections, courts have clearly stated that even in instances where a religious exemption may not be constitutionally or statutorily required, Congress may include or broaden such an exemption at its discretion. However, it is noteworthy that a religious exemption may be challenged as a violation of the Establishment Clause if it treats individuals or organizations differently based on their religious belief. The Establishment Clause prohibits preferential treatment of one religion over another or preferential treatment of religion generally over nonreligion. Allowing an exemption based on religion may be construed as special treatment for religious adherents, particularly in cases in which the legal provisions limit the scope of the exemption to members of only specific religions or to only religious beliefs (that is, excluding philosophical beliefs). Exemptions that are specifically available only to certain religions have been construed in some cases as a violation of the Establishment Clause. The Supreme Court has held that legislation that provides protection or exemption for a specific religious group violates the Establishment Clause, which forbids preferential treatment based on religion. If a law benefits a religious group, the religious group alleged to be favored by the law must be one of many religious groups eligible for similar treatment or the special treatment must be made through a series of benefits offered separately to multiple groups. At the same time, a generally available religious exemption may be construed as a violation of the Establishment Clause because it provides preferential treatment to individuals with religious beliefs, but does not permit individuals who might object on nonreligious philosophical grounds to claim the exemption. However, the mere fact that an exemption addresses religion will not automatically make that law unconstitutional, and a number of generally available religious exemptions have been upheld. The Supreme Court has upheld religious exemptions to government programs, where the exemptions were enacted to prevent government interference with religious exercise. For example, Title VII of the Civil Rights Act prohibits discrimination based on religion in employment but also provides an exemption from that prohibition for certain religious organizations, yet the Supreme Court found that the law did not violate the Establishment Clause. In the context of a religious exemption to contraceptive coverage requirements, state courts have upheld exemptions for which some, but not all, religious entities are eligible under the Establishment Clause. One court declared that "legislative accommodation to religious believers is a long-standing practice completely consistent with First Amendment principles." Another court noted that a number of laws specifically referencing religion, for the purpose of exempting certain religious organizations from legal requirements that would infringe upon their religion, have nonetheless been upheld as constitutional. Employers that object to contraceptives coverage requirements and do not qualify for an exemption may refuse to offer the required coverage. While ACA does not expressly include enforcement tools, such as judicial review or penalties, that may be imposed for violating the preventive health services requirement, this requirement was added to the PHSA and incorporated into ERISA and the IRC, and it seems that enforcement may be carried out through mechanisms in those statutes. Furthermore, employers who do not cover contraceptives may face potential liability under Title VII of the Civil Rights Act of 1964, as some courts have indicated that denying coverage may constitute sex discrimination. The requirement to provide preventive health services, along with many other insurance market reforms in ACA, applies to group health plans, broadly defined as plans established or maintained by an employer and that provide medical care. In general, group health plans can be insured (i.e., purchased from an insurance carrier) or self-insured (funded directly by an employer). These ACA requirements also apply to "health insurance issuers," health insurers that issue a policy or contract to provide group or individual health insurance coverage. However, several of ACA's insurance market reforms, including the preventive health services requirements, do not apply to "grandfathered health plans," which are existing group health plans or health insurance coverage (including coverage from the individual health insurance market) in which a person was enrolled on the date of enactment of ACA (i.e., March 23, 2010). As discussed above, with respect to the preventive health services requirements in ACA, health plans and health insurance coverage established or maintained by a "religious employer" could be exempt from providing contraceptive services, and certain organizations with religious objections to contraceptive coverage are not to be subject to an enforcement action under a temporary enforcement safe harbor. Aside from these exceptions, if a group health plan or health insurance issuer is subject to the insurance market reforms in Title I of ACA, it appears that the penalties discussed below could be potentially applied if health coverage was not provided in line with federal requirements. Neither the preventive health services requirement itself nor several of the other insurance reforms in Title I of ACA expressly include a means for enforcing these new health insurance standards, although these new standards were added to Title XXVII of the PHSA and incorporated into Part 7 of the ERISA and Chapter 100 of the IRC. Thus, if these new health insurance standards are not followed, it appears that enforcement may be carried out through mechanisms (such as judicial review and other penalties) that existed prior to ACA in these three federal statutes. The type of penalty that may be applied to a particular health plan or health insurance issuer and the entity responsible for imposing it would depend upon whether the plan is subject to ERISA, the PHSA, or the IRC. These three laws apply federal health insurance standards to different types of private-sector health coverage. In general, Part 7 of ERISA is administered by the Department of Labor and regulates health coverage provided by employers in the private sector. ERISA applies to insured and self-insured group health plans, as well as insurance issuers providing group health coverage. However, ERISA does not generally apply to governmental or church plans. Title XXVII of the PHSA, administered by HHS, applies to self-insured governmental plans, health insurance issuers providing group health coverage, and coverage in the individual market. The IRC, as administered by the Department of the Treasury, covers employment-based group health plans, including church plans, but does not apply to health insurance issuers. While the enforcement mechanisms are different under each of the three statutes, the Secretaries of HHS, Labor, and the Treasury have shared interpretive and enforcement authority. The provisions of ACA were incorporated by reference into Part 7 of ERISA. The Secretary of Labor may take enforcement action against employers that offer group health plans which violate ERISA, but may not enforce ERISA's requirements against health insurance issuers. Section 502(a) of ERISA provides that the Secretary may bring a civil action to enjoin any act or practice that violates ERISA, or to obtain "other appropriate equitable relief" to rectify an ERISA violation or enforce the act's requirements. In addition, section 502(a) of ERISA authorizes various civil actions that may be brought by a participant or beneficiary of a plan against group health plans and health insurance issuers. This section also provides for and limits the remedies (i.e., relief) available to a successful plaintiff. Among the claims that may be brought under section 502(a) of ERISA, section 502(a)(1)(B) authorizes a plaintiff (i.e., a participant or a beneficiary in an ERISA plan) to bring an action against the plan to recover benefits under the terms of the plan, or to enforce or clarify the plaintiff's rights under the terms of the plan. Under this section, if a plaintiff's claim for benefits is improperly denied, the plaintiff may sue to recover the unpaid benefit. Since ACA did not amend section 502 of ERISA, presumably the section would authorize review of claims arising out of a violation of the incorporated ACA provisions. Accordingly, if a group health plan or health insurance issuer failed to provide contraceptive services pursuant to guidelines authorized by ACA, it seems possible, for example, that a plan participant could be able to bring a claim for that benefit. In general, the private health insurance requirements of Title XXVII of the PHSA, as amended by ACA, apply to health insurance issuers and to non-federal self-funded governmental group plans. Prior to ACA, state and local governments could elect to exempt their plans from certain requirements of the PHSA, subject to certain exceptions. However, this election is not applicable to the provisions added to the PHSA by ACA, and thus these plans are subject to ACA's federal health insurance standards. Enforcement of the PHSA requirements is different for health insurance issuers than for governmental plans. The Secretary of HHS is the primary enforcer of the PHSA requirements with respect to non-federal governmental plans. But, with respect to health insurance issuers, states are the primary enforcers of the private health insurance requirements. The PHSA provides that "[i]n the case of a determination by the Secretary [of HHS] that a State has failed to substantially enforce a provision (or provisions) in this part with respect to health insurance issuers in the State, the Secretary shall enforce such provision (or provisions) ... insofar as they relate to the issuance, sale, renewal, and offering of health insurance coverage in connection with group health plans or individual health insurance coverage in such State." It appears that failure to provide contraceptive services may be seen as a failure to comply with the requirements of the PHSA and may trigger these enforcement mechanisms. Health insurance issuers and governmental plans that fail to comply with the PHSA requirements may be subject to a maximum penalty of $100 per day for each individual with respect to which such a failure occurs. Similar to the IRC, certain minimum penalty amounts may apply to a plan or employer if the violation is not corrected within a specified period, or if a violation is considered to be more than de minimis. In determining the amount of the penalty, the Secretary must take into account the entity's previous record of compliance with the PHSA provisions. In addition, a penalty may not be imposed for a violation if it is established to the Secretary's satisfaction that none of the entities knew (or if exercising reasonable diligence would have known) that the violation existed. If the violation was due to reasonable cause and not willful neglect, a penalty would not be imposed if the violation were corrected within 30 days of discovery. Under the IRC, failure to meet the group health plan requirements is enforced through the imposition of an excise tax. For single-employer plans, employers are generally responsible for paying this excise tax. Under multiemployer plans, the tax is imposed on the plan. A group health plan that fails to comply with the pertinent requirements in the IRC may be subject to a tax of $100 for each day in the noncompliance period with respect to each individual to whom such failure relates. However, if failures are not corrected before a notice of examination for tax liability is sent to the employer, and these failures occur or continue during the period under examination, the penalty will not be less than the lesser of $2,500 or the regular tax amount described above. Where violations are considered to be more than de minimis, the amount will not be less than $15,000. Limitations on a tax may be applicable under certain circumstances (e.g., if the failure was due to reasonable cause and not to willful neglect, and is corrected within a specified timeframe). It should be noted that church plans are exempt from minimum excise tax requirements, and may have a longer time frame to correct a violation before a tax is imposed. In addition, if a failure is due to reasonable cause and not willful neglect, the Secretary has discretion to waive part or all of the tax amount to the extent that the payment of the tax would be compared to the failure at issue. Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment on the basis of race, color, religion, national origin, or sex. Certain religious employers (see discussion in section below) are exempt from the prohibition on religious discrimination. Employers qualifying for the exemption may consider religion in employment decisions, but those employers may not discriminate on any other basis forbidden by Title VII. Thus, although a religious organization may consider an employee or applicant's religion without violating Title VII, the organization may still violate Title VII if it treats employees differently based on the individual's race, color, national origin, or sex. Furthermore, the exemptions in Title VII appear to apply only with respect to employment decisions regarding hiring and firing of employees based on religion. Once an organization makes a decision to employ an individual, the organization may not discriminate on the basis of religion regarding the terms and conditions of employment, including compensation, benefits, privileges, etc. In other words, religious organizations that decide to hire individuals with other religious beliefs cannot later choose to discriminate against those individuals with regard to wages or other benefits that the organization provides to employees. In 2000, the U.S. Equal Employment Opportunity Commission (EEOC) found that an employer's decision to cover certain preventive care services, but not prescription contraceptives, violated Title VII. The EEOC explained that the employer's policy for coverage of prescription drugs and devices must be applied equally to men and women. The employer's health plan covered a variety of comparable preventive services and excluded only prescription contraceptives. Noting that prescription contraceptives are only available for women, the EEOC found that the employer's decision to omit prescription contraceptives from coverage constituted sex discrimination. The EEOC decision applies only to the facts of the case before the Commission, and courts that have considered the issue have reached different conclusions. Two federal district courts held that employers that offered prescription drug plans, but failed to provide coverage for prescription contraceptives, violated the prohibition on sex discrimination under Title VII. As one court explained, Title VII does not require employers to offer any particular type or category of benefit. However, when an employer decides to offer a prescription plan covering everything except a few specifically excluded drugs and devices, it has a legal obligation to make sure that the resulting plan does not discriminate based on sex-based characteristics and that it provides equally comprehensive coverage for both sexes. In light of the fact that prescription contraceptives are used only by women, [the employer's] choice to exclude that particular benefit from its generally applicable benefit plan is discriminatory. However, a decision by the U.S. Court of Appeals for the Eighth Circuit reached a different conclusion. The 8 th Circuit found the EEOC's decision "unpersuasive," noting that it lacked the force of law. The court appears to have distinguished its case from the EEOC decision because the employer's health plan excluded coverage for any contraceptive services—whether prescription or not—and therefore did not impact only women, contrary to the facts in the EEOC decision. Accordingly, the court held that the employer had not violated Title VII. It is important to note that Title VII's application would be unaffected by the applicability of the religious exemption to the preventive health services requirement. In other words, even if a religious employer qualifies for an exemption from the requirements for contraceptive coverage under ACA and even if the employer qualifies for Title VII's religious discrimination exemption, the employer must still comply with Title VII's ban on sex discrimination. However, it appears plausible that employers may avoid liability under Title VII if their health plans omit coverage for any contraceptives, rather than distinguishing between prescription and non-prescription contraceptives. Bills that would exempt individuals and entities with religious objections from the coverage of contraceptive and sterilization services have been introduced in the House and Senate. The proposed legislation would amend section 2713 of the Public Health Service Act to exempt individuals and entities from requirements related to contraceptive or sterilization service if those individuals and entities have a religious objection to such services. The bill states No guideline or regulation issued pursuant to subsection (a)(4), or any other provision of the Patient Protection and Affordable Health Care Act, or the amendments made by that Act ( P.L. 110-148 ), shall— (A) require any individual or entity to offer, provide, or purchase coverage for a contraceptive or sterilization service, or related education or counseling, to which that individual or entity is opposed on the basis of religious belief; or (B) require any individual or entity opposed by reason of religious belief to provide coverage of a contraceptive or sterilization service or to engage in government-mandated speech regarding such service. The proposed exemption provided in the bill is very broad. It would apply to individuals and entities, regardless of their affiliation with a religious institution, the purpose or mission for which they are organized, or the religious nature of the business or operations of the entity. Religious exemptions already existing in federal law for religious organizations generally require that organizations seeking exemption demonstrate at least some of these characteristics in order to qualify. The breadth of the exemption, as discussed earlier in this report, is a matter of congressional discretion. It seems that the groups apparently omitted from the current rule's exempted employers, that is, universities and hospitals, would be covered by this exemption. On the other hand, an exemption with few parameters may allow an unintended range of employers to avoid compliance with the coverage requirements. As courts have noted, a broad exemption may allow the religious beliefs of an employer to be imposed on employees who do not share those beliefs. It should also be noted that widely applicable exemptions may be seen to undermine the goals of the original legislation. The Respect for Rights of Conscience Act would amend ACA to exempt health plans from the mandatory preventive services coverage rule with respect to any item or service, if covering that item or service would violate the religious beliefs or moral convictions of the group health plan issuer, group health plan sponsor, or any other entity offering the plan. It does not appear that this exemption would be limited to only those religious employers that meet explicitly enumerated criteria, as is currently required. For example, if the Respect for Rights of Conscience Act were enacted, it is likely that a hospital or university affiliated with a church would be exempt from covering prescription contraceptives if such coverage conflicted with the teachings of that church, even though the hospital or university would not qualify as a religious employer under the final rules of the Departments. In the case of health plans on the individual market, plans would also be exempt if coverage of the relevant items or services would be contrary to the religious beliefs or moral convictions of the purchaser or beneficiary of the health plan. For example, if a self-employed individual who had no objection to prescription contraceptives sought an individual policy to cover herself and her family, the health plan would still not be required to cover prescription contraceptives if such coverage were contrary to the religious beliefs or moral convictions of another member of her family covered under the policy. However, this provision would only be applicable to plans offered in the individual market. Consequently, a plan offering group coverage would not appear to be exempt from covering a particular item or service solely because an individual covered by the plan had religious or moral objections to the coverage of that particular item or service; to be considered exempt, the group health plan would also need to show that the issuer, plan sponsor, or other entity offering the plan objected to covering the item or service. The Respect for Rights of Conscience Act would also affect coverage requirements imposed as part of the essential health benefits (EHB) package, designated by the Secretary of HHS. Beginning in 2014, current law requires health insurance issuers to ensure that coverage offered in the individual or small group market includes coverage of all EHBs. Additionally, plans must cover all EHBs in order to be sold through the American Health Benefit Exchanges, and to be eligible for the premium subsidies offered to households with incomes below 400% of the federal poverty level. If enacted, the Respect for Rights of Conscience Act would permit health plans to avoid any coverage requirement imposed as an EHB, if providing coverage of the item or service would be contrary to the religious beliefs or moral convictions of the health plan, the sponsor of the health plan, or another entity offering the plan. As with the final rules, health plans in the individual market would also be able to decline to cover items or services to which the purchaser or beneficiary of the plan objects. In addition to the protections for health plans described above, the Respect for Rights of Conscience Act includes conscience protections for health care providers. Specifically, it would prohibit any provision in Title I of ACA from being construed to require a health care provider to provide, participate in, or refer for any specific item or service that is contrary to the provider's religious beliefs or moral convictions. The Respect for Rights of Conscience Act would also provide an explicit private right of action to enforce the rights of refusal that would be created by the bill. The federal courts would be given jurisdiction to hear such actions, and to award all forms of legal or equitable relief, specifically including temporary or permanent injunctive relief, declaratory relief, damages, costs, and attorneys' fees. Suits may be brought by the Attorney General of the United States, or any other person having standing to complain of a violation. As discussed above, a refusing health plan would not be subject to penalties for failing to provide EHBs or required preventive services under the final rules. However, the Respect for Rights of Conscience Act does allow some financial consequences to fall on refusing health plans. Specifically, if a health plan declines to cover a required service, based on a religious or moral objection, the Secretary of HHS may issue regulations or other guidance to ensure that such plans maintain an aggregate actuarial value that is at least equivalent to health plans that do not exclude coverage of those items. Under such authority, the Secretary of HHS might require that a health plan that refused to cover prescription contraceptives reduce the deductibles or co-pays applicable to services that are covered in order to provide the same actuarial value as plans that cover prescription contraceptives. A number of religious exemptions have been enacted to legislative mandates, both in the context of state requirements for contraceptive coverage and other unrelated contexts. These may be useful in Congress' consideration of whether to grant a statutory exemption to the preventive health services requirements. Section 1402(g)(1) of the IRC provides an exemption from self-employment income tax for individuals with certain religious objections to insurance coverage. It also provides the basis for the exemption from the individual coverage requirement in the ACA. The section 1402(g)(1) exemption applies if the individual seeking exemption: is a member of a recognized religious sect or division thereof and is an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care.... Alternatively, section 702 of Title VII of the Civil Rights Act of 1964 provides an exemption from the prohibition against religious discrimination in employment decisions. It has been replicated in other nondiscrimination legislation, for example, the Americans with Disabilities Act. Section 702 applies to: A religious corporation, association, educational institution, or society with respect to the employment [i.e. hiring and retention] of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities. However, the terms religious corporation, association, educational institution, or society are not defined, and there is no definitive standard in judicial decisions to determine whether an organization qualifies for the exemption. The Supreme Court declined to review a case that would have provided an opportunity to announce a uniform standard in 2011. However, lower courts have considered several factors when deciding whether an organization qualifies for the exemption: (1) the purpose or mission of the organization; (2) the ownership, affiliation, or source of financial support of the organization; (3) requirements placed upon staff and members of the organization (faculty and students if the organization is a school); and (4) the extent of religious practices in or the religious nature of products and services offered by the organization. These examples are generally available exemptions, such that any member of any religious organization with the beliefs described in the provision would qualify, and do not state specific religious groups with which objectors must be associated. The Supreme Court has held that these models are constitutionally permissible. Twenty-eight states have enacted laws which have been interpreted to require insurers to cover contraceptives in the same way as other prescription drugs may be covered. These states have adopted varying approaches to define the scope of entities that may be exempt from the mandates based on religious or moral objections. Table 1 provides a description of the definition used in each state with a contraceptive mandate. These definitions can be separated into four general categories, although there are variations among the states within each category. First, nine of the 28 states with some form of a contraceptive mandate provide no explicit exemption based on religious or moral objections. However, in many instances, the mandate may be avoided by refraining from offering prescription drug coverage generally, or by seeking regulation under ERISA. Second, eight of the remaining 19 states that do exempt some religious entities define the scope of exempt religious entities using some variation of a multi-pronged test, requiring some or all of the following criteria to be met: 1. The entity's purpose must be the inculcation of religious values; 2. The entity primarily must employ members of the same religion; 3. The entity primarily must serve members of the same religion; and 4. The entity must be a church, an integrated auxiliary of a church, a convention or association of churches, or engaged in the exclusively religious activities of any religious order under section 6033 of the IRC. This multi-pronged definition resembles the definition adopted in the final rules, which requires all four prongs to be satisfied. Three of these eight states, California, New York, and Oregon, also require all four prongs to be met in order to qualify as exempt from the respective state contraceptive coverage mandate on the grounds of a religious objection. The remaining five states (Arizona, Arkansas, Hawaii, Michigan, and North Carolina) only require two or three of these criteria, in different combinations, to be met. For example, Arizona does not require an entity's purpose to be the inculcation of religious values in order to be exempt, while North Carolina does not require exempt entities to serve primarily members of the same religion. In the third category are six states (Connecticut, New Jersey, Maine, Massachusetts, Rhode Island, and West Virginia) which use definitions that incorporate the definition of "church" under the Federal Income Contributions Act (FICA). The FICA definition includes churches, conventions or associations of churches, or elementary or secondary schools which are controlled, operated, or principally supported by a church or by a convention or association of churches. Finally, five states (Delaware, Maryland, Missouri, Nevada, and New Mexico) provide an exemption for religious employers or entities, but do not further define what a religious entity is or provide a specific test to be used. | Since the enactment of the Patient Protection and Affordable Care Act (ACA) in 2010, controversy has surrounded the applicability of requirements for health plans and health insurers to cover certain recommended preventive health services, including a range of contraceptive services, without cost sharing. The U.S. Departments of Health and Human Services, Labor, and Treasury have issued regulations that provide an exemption from ACA for certain religious employers who have religious objections to contraceptives. The exemption appears to cover churches and church associations, but potentially does not extend to other religiously affiliated employers, such as universities and hospitals. The scope of the exemption has been the subject of intense debate and has raised questions of the legal protections for religious institutions. Both constitutional and statutory rules govern whether a religious exemption from the coverage requirement is required and what the scope of that exemption may be. Courts have generally held that exemptions to legal mandates that conflict with religious beliefs are permissible, but not required under the First Amendment. The U.S. Supreme Court has indicated in several decisions that a religious exemption is not required for neutral laws of general applicability, and state courts have applied the Court's analysis to state contraceptive requirements. The Court has explicitly noted, however, that an exemption may be included or broadened at the discretion of Congress. As a statutory protection, the Religious Freedom Restoration Act of 1993 (RFRA) requires that any federal action that substantially burdens religious exercise must (1) further a compelling interest and (2) use the least restrictive means to further that interest. Because the contraceptive coverage requirement is a federal action subject to RFRA, a court must find that the requirement serves a compelling interest and is implemented to burden as few religious objectors as possible without undermining that interest. Courts, including state courts considering challenges to similar provisions in state law, have recognized at least two of the stated purposes of the requirement—public health and gender equity—as compelling interests. State courts have also upheld exemptions that are essentially identical to the one included in the federal rule as sufficient accommodations which use the least restrictive means to avoid undermining that interest. Employers with health plans that fail to offer the required coverage of contraceptives and do not qualify for an exemption may be subject to penalties or other liability. With respect to the preventive health services requirement, ACA does not expressly include a means of enforcing the provision. However, if a health plan or health insurer does not provide contraceptive coverage, it is possible that enforcement mechanisms found in the Employer Retirement Income Security Act, the Public Health Service Act, and the Internal Revenue Code could be applied. Furthermore, employers who do not cover contraceptives may be subject to liability for sex discrimination under Title VII of the Civil Rights Act of 1964, even if the employer qualifies for the religious exemption. This report provides an overview of the preventive health services requirements and the exemption for religious employers. It analyzes the legal protections for religious organizations with objections to the requirements and examines state court decisions upholding similar requirements. The report also discusses the implications of non-compliance for organizations that do not qualify for the exemption and fail to provide the required coverage. Finally, the report analyzes several legislative proposals for statutory exemptions (H.R. 3897/S. 2043; H.R. 1179/S. 1467) and provides examples of religious exemptions in other federal laws and in state contraceptive coverage laws. |
On December 30, 2005, the Office of the U.S. Trade Representative (USTR) announced thatthe United States will implement the Dominican Republic-Central American Free Trade Agreement(DR-CAFTA) "on a rolling basis as countries make sufficient progress" in completing theircommitments under the agreement. Steps include each country's adoption of relevant new laws andregulations necessary to put DR-CAFTA into effect, and the completion of a final review ofimplementation details with the United States. To date, USTR has confirmed the completion ofthese steps for four countries. Accordingly, President Bush issued proclamations to implement U.S.commitments under DR-CAFTA with respect to El Salvador, effective March 1, 2006; Hondurasand Nicaragua, effective April 1, 2006; and Guatemala, effective July 1, 2006. Observers expect theDominican Republic to be added to this list later this year, and Costa Rica likely early in 2007 if itslegislature approves the agreement. On July 10, 2006, the U.S. Department of Agriculture (USDA) issued a report examining theeconomic feasibility of converting sugarcane, sugar beets, raw cane sugar and refined sugar intoethanol. The study concluded that while such conversion would be profitable with current highdemand for ethanol and record ethanol prices, it would be unprofitable when compared to ethanolprices projected for mid-2007. This report reflects a USDA commitment made during last summer'sDR-CAFTA debate to study alternatives for sugar imported under this and other free tradeagreements that could add to U.S. sugar supplies and depress domestic sugar prices. Exports. U.S. agricultural exports in 2004 to thesix countries covered by the DR-CAFTA (Costa Rica, the Dominican Republic, El Salvador,Guatemala, Honduras, and Nicaragua) totaled $1.7 billion, and represented almost 3% of U.S.worldwide sales (see Table 1 ). These countries combined represented the seventh-largest exportmarket for U.S. agricultural products after Canada, Japan, Mexico, China, South Korea, and Taiwan. Leading exports were corn, wheat, rice, soybean meal, and tobacco. The Dominican Republic wasthe largest market -- with $462 million in sales that accounted for 27% of all agricultural exports tothe region, followed by Guatemala ($383 million with a 23% share). U.S. farm exports accountedfor 11% of total U.S. merchandise exports to the six countries, and have increased 56% in valueterms since 1995. Imports. Agricultural imports from these sixcountries equaled almost $2.5 billion, or nearly 5% of all U.S. farm and food imports (see Table 1 ). These countries combined ranked as the fourth-largest source of U.S. agricultural imports in 2004. U.S. purchases of bananas, raw coffee, other fresh fruit, raw cane sugar, and fresh and frozenvegetables led the list. Costa Rica was the largest supplier of food products -- shipping $899 million,or 37% of all agricultural imports from the region, followed by Guatemala ($784 million, or 32%). U.S. farm imports accounted for 14% of total U.S. merchandise imports from the six countries, andhave grown by 23% in dollar terms over the last decade. Table 1. U.S. Agricultural Trade with Countries Covered by theDR-CAFTA, 2004 Source: U.S. Department of Agriculture (USDA), Foreign Agricultural Service. Notes: Exports refer to domestic exports. Imports refer to imports for U.S. consumption only. a. Of U.S. agricultural exports of almost $61.4 billion to the world. b. Of U.S. agricultural imports of $54.0 billion from the world. Trade Balance. The United States in 2004recorded an agricultural trade deficit of $761 million with the six countries covered by theDR-CAFTA. However, if shipments of bananas and coffee -- two tropical products produced in verysmall amounts domestically -- are excluded from U.S. imports from this region, bilateral trade withthese countries would have resulted in an agricultural trade surplus of $394 million in 2004. Entries under two unilateral U.S. trade preference programs (the Caribbean Basin Initiativeand the Generalized System of Preferences) accounted for almost 47% of U.S. agricultural importsfrom the six countries in 2004 -- meaning they entered duty free. Practically all other agriculturalimports (primarily tropical products such as bananas and raw coffee) entered at MFN zero dutyrates. (1) Though importsof certain commodities (sugar, beef, dairy products, peanuts, tobacco, among others) that the UnitedStates protects using tariff-rate quotas (TRQs) generally entered duty-free, amounts allowed to enterwere limited by quotas. (2) The United States and the six countries primarily use tariffs and TRQs to protect theiragricultural sectors. The five Central American countries and the Dominican Republic committedunder the multilateral Uruguay Round Agreement on Agriculture (URAA) to bind their averagetariffs on agricultural imports at relatively high levels (ranging from Honduras's 35% to Nicaragua's73%), compared to the U.S. commitment to bind its average rate at 12%. (3) However, in practice, the sixcountries generally have imposed much lower average tariffs on agricultural imports (with appliedtariffs ranging from 6.7% in Nicaragua to 23.3% in the Dominican Republic), and at times haveallowed larger amounts of commodities than spelled out in their TRQ minimum commitments toenter duty free or at a lower duty. (4) The average U.S. applied tariff on imports from these six countriesis very low (0.2%) when U.S. trade preference benefits are taken into account (see Table 2 ). Theseapplied tariff averages, though, understate the higher level of border protection the United States andthe six countries provide their most sensitive agricultural products through the use of quotas andother restrictive measures. Table 2. Average Tariffs and Tariff-Rate Quotas on AgriculturalImports: United States and the DR-CAFTA Countries Source: U.S. Trade Representative (USTR) and U.S. International Trade Commission (ITC) forbound and applied rates; World Trade Organization (WTO) for commodities subject to TRQs. Note: Reflects level of protection before DR-CAFTA was negotiated. a. 2001 for United States, 2000 for the Central American countries and the Dominican Republic. b. The U.S. applied tariff on agricultural imports from the five Central American countries and theDominican Republic is much lower -- 0.02%, reflecting duty-free treatment of imports thatentered under two trade preference programs and the commodity/product composition ofimports. Once DR-CAFTA takes effect, almost all tariffs and quotas on agricultural products importedby the six countries from the United States, and by the United States from these countries, will bephased out completely (see below for details). Each country's agricultural imports from the rest ofthe world, though, will continue to be subject to the tariff levels and quotas negotiated under theURAA or under separate bilateral FTAs each has entered into with other trading partners. U.S. objectives in negotiating DR-CAFTA's agricultural provisions were to (1) eliminateCentral American and Dominican Republic tariffs, quotas, and non-tariff barriers to trade, (2)provide adequate transition periods and relief mechanisms for the U.S. agricultural sector to adjustto increased imports of sensitive products from the region, (3) eliminate any unjustified sanitary andphytosanitary (SPS) restrictions imposed by the six countries and seek their affirmation of theirWorld Trade Organization (WTO) commitments on SPS measures, and (4) develop a mechanismwith its FTA partners to support the U.S. objective to eliminate all agricultural export subsidies inthe WTO and Free Trade Area of the Americas (FTAA) negotiations. (5) The U.S. position called forno product or sectoral exclusions from the final agreement. U.S. officials also repeatedly made clearthat the issue of U.S. farm support or subsidies, which the Central American countries sought toplace on the negotiating table, should only be addressed in WTO multilateral negotiations. Almost all of the agricultural exports to the United States from the FTA partner countriesalready enter duty free under trade preference programs or at MFN zero rates. Consequently, the sixcountries were most interested in securing unrestricted market access for those commodities nowsubject to U.S. TRQs: sugar and certain sugar-containing products, beef, dairy products, peanuts,tobacco, and cotton. However, Central American and Dominican Republic negotiators expressedfears that opening up their markets to U.S. corn and rice would undermine the region's smallsubsistence farmers unable to compete against subsidies that U.S. producers receive under currentfarm programs. Though these countries had pressed to include the subsidy issue on the negotiatingagenda, they eventually did accept the U.S. position that this issue should be addressed multilaterallyin the WTO context. In the agreement, the United States and the six countries agreed to completely phase outtariffs and quotas -- the primary means of border protection -- on all but four agriculturalcommodities and food products in seven stages either immediately or over 5, 10, 12, 15, 18, or 20years. The four most sensitive commodities -- fresh potatoes and fresh onions imported by CostaRica, white corn imported by the other four Central American countries, and sugar entering the U.S.market -- will be treated uniquely. After a specified period, the size of the quotas established forthese four commodities will increase about 2% each year in perpetuity. In other words, a caplimiting imports will always be in place. The tariff on entries above the quota level (frequentlyreferred to as the over-quota tariff) will not decline at all, but stay at current high levels to keep outabove-quota imports, in order to protect producers of the four commodities. For all other sensitive products that fall into any of the over-10-year transition periods,negotiators on all sides agreed to provide some measure of protection. While details vary bycommodity and food product, these will take the form of tariff-rate quotas effective only during thetransition to free trade, long tariff and quota phase-out periods, nonlinear tariff reductions, and theuse of an import safeguard mechanism. Nonlinear refers to a practice known as "backloading,"where most of the decline in a tariff occurs in the last few years of the transition period. Safeguardswill serve to protect agricultural producers from sudden surges in imports, triggered when quantitiesincrease above specified levels. When triggered, an additional duty -- temporary in duration -- isapplied to provide protection, according to detailed terms found in annexed schedules. Each countrynegotiated its own list of agricultural products eligible for safeguard protection. A country's rightto use safeguards will expire at the end of the transition period. All countries commit under DR-CAFTA not to introduce or maintain agricultural exportsubsidies to sell commodities or food products to each other. Such subsidies, though, are allowedto counter the trade-distorting effects of exports subsidized by third countries if an exporting countryand an importing country fail to agree on counter measures. Rules of origin specify what is required for a product to be considered to have been producedor processed in a country that is a party to a trade agreement. They are used to determine whethera product benefits from an FTA's preferential terms (e.g., duty-free and/or additional quota access). The agreement commits all countries to apply the science-based disciplines of the WTOAgreement on Sanitary and Phytosanitary (SPS) Measures to facilitate trade. (6) Should disagreements arise,a working group will serve as a forum for consultations and resolving technical issues. The textprecludes the use of DR-CAFTA's dispute settlement provisions to resolve differences when SPSproblems cannot be resolved. The DR-CAFTA will grant immediate duty-free status to more than half of the U.S. farmproducts now exported to the six countries, according to the Office of the U.S. Trade Representative(USTR). (7) Such treatmentwill apply to high-quality beef cuts, cotton, wheat, soybeans, certain fruits and vegetables, processedfood products, and wine destined for the five Central American countries. U.S. exports of corn,cotton, soybeans, and wheat to the Dominican Republic will benefit also from immediate duty-freetreatment. Central American tariffs and quotas on most other agricultural products (pork, beef,poultry, rice, other fruits and vegetables, yellow corn, and other processed products) will be phasedout over a 15-year period. Longer transition periods will apply to imports from the United States ofrough/milled rice and chicken leg quarters (18 years) and dairy products (20 years). DominicanRepublic tariffs and quotas on most other U.S. agricultural products (beef, pork, and selected dairyand poultry products) will be eliminated over 15 years. However, 20-year transitions will cushionthe impact of the entry of U.S. chicken leg quarters, rice, and certain dairy products (cheese and milkproducts). (8) An overviewof these countries' DR-CAFTA commitments with respect to imports from the United States ofselected commodities appears in the section "U.S. Agriculture and Food Sectors' Views onDR-CAFTA's Agricultural Provisions," below. With El Salvador, Guatemala, Honduras, and Nicaragua designating white corn as their mostsensitive agricultural commodity (produced by subsistence farmers and used as a staple to maketortillas), negotiators agreed to establish a quota (i.e., equal to the current import level) that increasesabout 2% annually in perpetuity. Compared to all other commodities imported from the UnitedStates, there will be no reduction in the over-quota tariff for white corn. U.S. exports of freshpotatoes and onions to Costa Rica would be subject similarly to quotas that increase slowly inperpetuity but face permanent high over-quota tariffs. USTR further states that U.S. agricultural products will have "generally better" access to theCentral American countries than is given to similar imports from Canada, Europe, and SouthAmerica. The six FTA partners also agreed to "move toward recognizing export eligibility for allU.S. plants inspected under the U.S. food safety and inspection system." Almost all agricultural imports (in value terms) from the six countries already enter the U.S.market duty free. DR-CAFTA, according to USTR, "will consolidate those benefits [immediately]and make them permanent." For the U.S. sensitive agricultural products (sugar, sugar-containingproducts, beef, peanuts, dairy products, tobacco, and cotton), U.S. negotiators granted duty-freeaccess in the form of country-specific preferential quotas. These quotas would be in addition to (i.e.,not carved out of) the existing agricultural TRQs established by the United States under its existingWTO commitments, which the six countries have taken advantage of historically to export to theU.S. market. Because of its sensitivity, the United States will similarly treat sugar imports as the fourCentral American countries protect white corn imports. The new sugar quotas would expandgradually each year, but the high and prohibitive over-quota tariff will remain unchanged, inperpetuity. Details on the U.S. provisions for sugar and other selected commodities are provided inthe section "U.S. Agriculture and Food Sectors' Views on DR-CAFTA's Agricultural Provisions,"below. In an economy-wide, quantitative analysis of the DR-CAFTA, the U.S. International TradeCommission (ITC) projects that 12% of the agreement's overall export gains would flow to U.S.agriculture. Two-thirds of the export gains would be realized by the U.S. manufacturing (36%) andtextile (30%) sectors (see Table 3 ). (9) Textile imports from the six countries would account for almost all of the growth in totalU.S. imports under full implementation of the agreement, according to the ITC. Additional U.S.agricultural imports would represent almost 2% of the import change under DR-CAFTA. The ITCanalysis shows small negative changes in imports of manufactured products, energy and other rawmaterials, and services (see Table 3 ). Increases in U.S. sugar, meat, and dairy imports (due to the expansion and/or elimination ofU.S. agricultural TRQs under DR-CAFTA) would be offset to some degree by a drop in imports ofvegetables, fruits, nuts, processed food and tobacco products, and other crops imported from the sixcountries. According to the ITC, these small declines would largely reflect the movement of laborand resources in the DR and Central American countries away from producing the latter products(which already benefit from preferential duty-free access to the U.S. market) to the more profitabletextile, apparel, leather products, and sugar sectors, which expand output to take advantage of theagreement's openings in the U.S. market. Under DR-CAFTA, U.S. agricultural imports from the sixcountries would increase 1.3% ( Table 4 ). This $52 million in net imports would equal one-tenthof 1% of total U.S. agricultural imports ($73 billion, according to the ITC). ITC's qualitative analysis examined how two agricultural commodity sectors would beaffected over time -- grains and sugar. U.S. corn and rice exports to the region would see littlechange in the short term, but would rise as the six countries' quotas expand. Once quotas are fullyphased out, U.S. grain exports are expected to increase substantially. The ITC estimates that by theend of the 15-20 year transition period, annual U.S. grain exports to the region likely would increaseby at least 20% ($120 million), based on 2003 prices -- broken out among corn ($75 million), roughrice ($35 million), and milled rice ($10 million). Though the impact of these additional sales in thelong run is small (equal to 1.2% of 2003 U.S. grain exports worldwide), the ITC views the potentialincrease as offering significant market opportunities for U.S. corn and rice producers. The ITCfurther found that the U.S. grains sector would, of all economic sectors, experience the mostnoticeable positive changes, though very small. Grain output, revenues, and employment would risebetween one-quarter to one-third of 1%. (10) The ITC expects that the DR-CAFTA's sugar provisions likely would result in a "smallincrease" in U.S. sugar and sugar-containing product (SCP) imports from the region equal to thequantities spelled out in the new preferential quotas. Prices (calculated to drop by about 1%) dueto increased imports "likely would have an adverse impact on production and employment for U.S.sugar producers." At the same time, lower prices "likely would benefit production and employmentfor U.S. producers of certain SCPs," particularly of those containing high sugar content. The ITC'sanalysis further shows that the U.S. sugar manufacturing and sugar crops sectors would bothexperience the largest percentage decrease of all sectors in domestic output and employment -- morethan 2%. (11) Table 3. Impact of DR-CAFTA on U.S. Trade, by Economic Sector Source: Adapted by CRS from Table 4.4 in ITC's U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide andSelected Sectoral Effects , p. 75. Note: "Total" may not add due to rounding. Table 4. Impact of DR-CAFTA on U.S. Agricultural Trade Source: Adapted by CRS from Table 4.4 in ITC's U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide andSelected Sectoral Effects , p. 75. NA - Not applicable Most U.S. commodity organizations, agribusiness and food firms, and theAmerican Farm Bureau Federation (a general farm organization) supported this tradeagreement, expecting their producer-members and exporters to benefit from theincreased access guaranteed to the Central American and Dominican Republicmarkets. Supporters in the spring of 2005 formed the Agricultural Coalition for DR-CAFTA to present and argue their position to Members of Congress. The U.S.cotton sector initially opposed the agreement, primarily reflecting the concerns oftextile firms, but in early May 2005 came out in favor following the decision by amajor textile trade association to support it. Other commodity groups concerned about the competitive pressures theyexpect to face under DR-CAFTA opposed the agreement. These include the sugarindustry, and one livestock/beef trade association. The U.S. sugar industry stronglyopposed the additional access given to sugar, fearing its economic impact ondomestic producers and processors. Sugar producers' and processors' greatestconcern was that DR-CAFTA sets a precedent for including sugar in the other FTAsthat the Bush Administration is negotiating, a position that the industry stronglyopposes. One trade organization representing cattlemen with concerns about freetrade agreements in general opposed DR-CAFTA's beef provisions. The NationalFarmers Union (a general farm organization) opposed the agreement. Many U.S. agricultural commodity and food organizations supportedDR-CAFTA, expecting their producer-members and exporters to benefit from themarket openings negotiated to increase sales to the six countries. On March 22,2004, a coalition of 39 groups sent a letter to President Bush "to underscore theirsupport" for this trade agreement. Their letter contended the agreement "will expandU.S. agriculture exports and put U.S. agriculture on an equal footing with itscompetitors in these markets" that already have FTAs with other countries. Theyargued that if CAFTA is not implemented, agricultural trade with these countrieswould continue on a non-reciprocal basis, with U.S. farm exports facing significantbarriers, while over 99% of U.S. agricultural imports from these countries would stillreceive duty-free treatment. Similar coalitions sent nearly identical letters onSeptember 3, 2004, and February 1, 2005, to each Member of Congress. (12) Processed Foods. Foodmanufacturers view the six countries as strong markets for U.S. processed foodproducts, pointing out that such exports already account for some 25% of their totalfood imports and are increasing faster than any other U.S. agricultural export. Withprocessed foods facing average tariffs of 15% in the Central American countries and20% in the Dominican Republic, an analysis prepared for the Grocery ManufacturersAssociation (GMA) estimated that the elimination of tariffs and quotas on key foodproducts could result in an 84% increase (from $359 million to $662 million) in U.S.exports to the region one year after DR-CAFTA is fully implemented. Growth isforeseen in particular in exports of snack foods, confectionary products, and soups. GMA expects other long-term benefits for its member companies with the adoptionof new rules that "will lead to a stronger, more predictable business climate in theregion." Examples cited are dealer protections that give manufacturers moreflexibility and efficient product distribution, enhanced intellectual property andinvestor protections that are viewed as better protecting trademarks and providing amore secure business environment for increased sales of branded products, andimpetus for further integrating the region's market that results in economies of scalefor production and distribution and increased demand for U.S. food products. (13) Rice. The USA Rice Federationsupported DR-CAFTA, noting it achieves market access gains for U.S. riceproducers, millers, and exporters. It pointed out that the agreement improves existingaccess to an already leading market for U.S. rice exports, reduces high import duties,remedies tariff discrimination against certain forms of rice, and extends preferentialduty treatment that is not available to any other rice-exporting country. In particular,DR-CAFTA preserves existing access for U.S. rough (unmilled) rice, and providesfor immediate guaranteed access for milled and brown rice. The Central Americancountries agree to establish separate TRQs for rough and milled rice (the DominicanRepublic created TRQs for brown and milled rice) totaling almost 407,000 metrictons in year 1, increasing slowly over 18 to 20 years to almost 609,000 MT. Thiscompares to U.S. rice exports to the six countries of 714,000 MT in 2004 (valued at$184 million). In-quota rice imports from the United States would no longer besubject to applied tariffs ranging from 29% to 99%. The separate TRQs, the RiceFederation notes, will allow end users in these countries to chose between rough andmilled rice, and over time, enable U.S. exporters to sell higher-value rice to thesemarkets. (14) Pork. Pork producers representedby the National Pork Producers Council (NPPC) supported DR-CAFTA, because ofthe immediate benefits created through negotiated market openings. Each countryagrees to create duty-free TRQs for pork cuts totaling 13,613 MT in year 1, whichthen annually rise slowly to equal 29,040 MT in year 15, after which quotas andtariffs disappear altogether. In 2004, U.S. pork sales to all six countries totaled 8,442MT (valued at $16 million). In-quota pork imports from the United States during thistransition will no longer face applied tariffs that now range from 15% to 47%. TheNPPC anticipates that the income growth from free trade with the region will boostdemand for pork, even though at present most consumers in the region do not eatmeat on a regular basis. The NPPC also notes that SPS discussions have led allcountries to recognize the U.S. meat inspection system and to accept pork from anyUSDA-inspected facility. (15) Corn and Corn Products. TheNational Corn Growers Association (NCGA) viewed the DR-CAFTA as creatingnew export opportunities for U.S. corn farmers and locking in the current U.S.market share in the region. It expects the agreement to stimulate U.S. exports of cornco-products like corn gluten feed and meal, distillers dried grains (DDGs), cornstarches, corn oil, and sweeteners (e.g., high fructose corn syrup (HFCS)). The sixcountries will reduce tariffs on some corn products (such as HFCS) within 15 years,with tariffs eliminated immediately on corn gluten products, starch, oils, and DDGs. The Corn Refiners Association (CRA) also supported the agreement, seeing excellentexport prospects for these value-added products that have averaged $19 million inrecent years. CRA notes that the sweetener provisions in DR-CAFTA are"unambiguous," unlike those in NAFTA, which have led to the "total loss" of amarket for U.S.-produced HFCS. (16) Tariff and quota provisions on access for U.S. corn in these marketsdistinguish between yellow and white corn. Four countries agree to establishduty-free TRQs for yellow corn (used primarily as a feed for their livestock sectors)totaling 1.15 million metric tons (MMT) in year 1, rising to 1.74 MMT at the end oftransition periods (10 years for Guatemala, and 15 years for El Salvador, Honduras,and Nicaragua). In 2004, all U.S. corn exports to these four countries totaled 1.22MMT (valued at $150 million); corn exports to Costa Rica and the DominicanRepublic were 1.24 MMT ($147 million). Current tariffs imposed by the fourcountries on yellow corn ranging from 15%-45% will disappear by the end of thetransition period. Access to Costa Rica and the Dominican Republic will beduty-free in the first year. Because of its sensitivity and symbolic status as a staple food, negotiatorsagreed to treat white corn differently. The same four Central American countries willalso create duty-free TRQs for white corn totaling 84,660 MT in year 1, growingslowly to reach 116,200 MT in year 20. Thereafter, each country's quota (exceptNicaragua's) would increase by about 1.5% each year in perpetuity, but the 10%-45%tariff on over-quota imports (depending upon the country) would remain in placeindefinitely. Costa Rica would eliminate its tariff on U.S. white corn over 15 years;the Dominican Republic will continue current duty-free treatment. Poultry. The National ChickenCouncil, National Turkey Federation, and the U.S. Poultry and Egg Councilsupported the agreement. The agreed-upon provisions largely reflect a frameworkthat the U.S. poultry sector developed with the poultry sectors in Central America,which trade negotiators on both sides adopted with minor changes. This frameworkwas based on the consensus reached between the private sectors in the U.S. and theregion that there be "restricted access to the most sensitive [poultry] products andmore generous access for those products that are less sensitive." (17) Applied tariffs on fresh and frozen poultry imports imposed by some of thesecountries can range up to 164%. According to USDA, U.S. poultry exports to the sixcountries in the 2000-2004 period averaged each year just above 73,000 MT andwere valued at $51 million. Chicken leg quarters accounted for some 55% of thevalue of all U.S. poultry sold to these countries. Under DR-CAFTA, the six countries will provide immediate duty-free accesson chicken leg quarters. Each country will create a TRQ on leg quarters that slowlyincreases as tariffs are eliminated in 17 to 20 years, depending on country. CostaRica's TRQ of 330 MT in year one would grow by 10% each year. The other CentralAmerican countries (each with its own minimum quota level) will establish aregional TRQ of 21,810 MT in the first year, which would rise slowly through year12. Beginning in year 13, the TRQ would be not less than 5% of regional chickenoutput. The Dominican Republic agreed on an initial TRQ for leg quarters of 550MT, growing by 10% annually. All countries' tariffs on other poultry products (e.g.,wings, breast meat, and mechanically de-boned chicken) will be reduced at a fasterpace, with many eliminated within 10 years. The Dominican Republic will alsoestablish separate TRQs for mechanically de-boned chicken (phased out over 10years) and for turkey products (with a 15-year phase-out). Dairy Products. The NationalMilk Producers Federation, the U.S. Dairy Export Council, and the InternationalDairy Foods Association supported DR-CAFTA. They viewed this agreement asproviding an opportunity to export more U.S. dairy products to the region on aduty-free basis while minimizing imports from these countries. The dairy industrynoted that U.S. export access to the six countries offsets the market access that U.S.negotiators granted to Australia (a major dairy exporter) under that FTA. (18) Theagreement's provisions largely reflect the outcome of discussions held betweenrepresentatives of the U.S. and Central American dairy sectors. The longesttransition period to free trade in DR-CAFTA applies to dairy products traded in bothdirections, with provisions structured to provide nearly reciprocal access in theamounts traded between the U.S. and the five Central American countries during the20-year transition period. U.S. dairy exporters, though, will receive more access tothe Dominican Republic market than the other way around. The U.S. dairy sectorpointed out that the agreement's declining tariffs and preferential quotas will improveU.S. competitiveness vis-a-vis the European Union, New Zealand, and Canada,which also sell to these countries. For each country, DR-CAFTA creates duty-free TRQs for six dairy products:cheese, milk powder, butter, ice cream, fluid milk and sour cream (U.S. only), andother products. High over-quota tariffs and safeguards (imposed when importsexceed specified volumes) are phased out over the 20-year transition period. Quotaamounts agreed upon by negotiators differ by country and by type of product. The United States will receive quota access in the six markets combined inyear 1 for almost 10,100 MT of dairy products. Quotas in the Central Americancountries will expand by 5% each year; those in the Dominican Republic willincrease by 10% annually. For non-quota products, the United States gainsimmediate duty-free access in these markets for whey and lactose. From 2000 to2004, U.S. dairy exports (some products subject to quotas, others not) to the sixcountries averaged 20,700 MT ($52 million) annually, according to USDA. In return, the six countries together would receive in year 1 duty-free quotaaccess to the U.S. market for over 6,800 MT of specified dairy products. U.S. quotaswould each year grow by 5% for the Central American countries, and by 10% for theDominican Republic. In 2000-2004, U.S. dairy imports from these six countriestotaled an annual average of 18,290 MT (valued at $7.4 million). Sugar. The new preferentialquotas offered by the United States for sugar from the six countries are in additionto the minimum level of duty-free access they already have to the U.S. market. Together, they are allowed to sell each year a minimum of 311,700 MT of raw canesugar under their respective shares of the U.S. sugar import quota. This represents28% of the 1.117 million MT market access commitment that the United States hasentered into with some 40 countries around the world. Under DR-CAFTA, CostaRica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republiceach will receive varying levels of duty-free access for a combined additional109,000 MT of sugar in year 1 -- a 35% increase over their current level. Increasingon average about 3% per year, by year 15, these countries will have access for anadditional 153,140 MT of sugar in the U.S. market above the 2004/05 current level. Thereafter, their preferential quotas combined will increase by almost 2% (2,640MT) annually in perpetuity. The U.S. over-quota tariff (calculated by the ITC to be78% in 2003) will stay at the current high level indefinitely, and not decline. Negotiators agreed upon a "compensation" mechanism that the United States canexercise at its sole discretion in order to manage U.S. sugar supplies. If activated, theUnited States commits to compensate the six countries for sugar they would not beable to ship to the U.S. market under the above market access provisions. The U.S. sugar industry (producers of sugar beets and sugarcane andprocessors of their crops) opposed DR-CAFTA, claiming that the additional sugarimports allowed under its provisions combined with those envisioned in additionalFTAs being negotiated "will destroy the domestic sugar industry ... and overwhelman already abundantly supplied market." It also viewed DR-CAFTA as setting aprecedent for including sugar in the other free trade agreements that the BushAdministration is negotiating. The industry has continually advocated that sugartrade issues be instead addressed multilaterally in the WTO trade negotiations. Itsmembership wrote to President Bush (January 14, 2004), and the lead U.S.agricultural trade negotiator (March 23, 2004), to restate its opposition and to requestthat the Bush Administration reconsider the sugar access commitments offered theCentral American countries, and withdraw the access commitment granted to theDominican Republic. (19) In response, the USTR pointed out that the additional access granted all sixcountries will equal about 1.2% of current U.S. sugar consumption in year 1, and1.7% in year 15. (20) The Trade Representative argued that the sugarsector will be protected by the sugar compensation mechanism, a prohibitive tariffon above-quota imports, and the prohibition on third-country transshipments of sugarthrough any of the six countries to the U.S. market. The Sweetener Users Association (SUA), composed of industrial users ofsugar and other caloric sweeteners and the trade associations that represent them,supported the DR-CAFTA. It argued this agreement will enhance competition in theU.S. sugar market, increase export opportunities for other U.S. food and commoditysectors in the six countries, and have a positive employment effect on the U.S.confectionery and other sugar-using industries by reducing incentives for them torelocate offshore to take advantage of lower-priced world sugar. (21) TheInternational Dairy Foods Association and the National Confectioners Associationsimilarly favored the agreement, because of the access provided for additionalimports of sugar. Imperial Sugar Company, an investor-owned sugar processor,supported DR-CAFTA. Since it relies almost completely upon foreign sugar for theraw sugar refined at its cane refinery in Savannah, Georgia, its president argued thatthe "ability to secure ... imported sugar ... is critical to maintaining ourcompetitiveness" and ability to provide buyers with a sufficient supply of refinedsugar. (22) Responding to the ITC's analysis of DR-CAFTA's impact on the U.S. sugarsector (see page 10), the American Sugar Alliance (ASA), speaking for producers andprocessors, stated it "seriously underestimates the danger of the [agreement] for ourindustry." The ITC report, according to the ASA, did not take into account the U.S.commitment under NAFTA to allow free access to sugar imports from Mexicostarting in 2008 and potential obligations to open the U.S. sugar market to importsfrom other sugar-exporting countries with which the United States is negotiating freetrade agreements. Sugar import obligations in addition to those in CAFTA, ASAargued, would cause lower prices, more bankruptcies, and lost jobs. The SweetenerUsers Association responded that the ITC's projections "appear to be overstated" -- by not considering the additional demand for sugar created by U.S. populationgrowth over time and USDA's authority to limit the amount of domestic sugar thatcan be marketed to ensure that no change in domestic prices occurs. Background on Sugar Deal. Theprospect that there might not be enough votes to approve the Administration's draftbill to implement DR-CAFTA during its "mock markup" by the Senate FinanceCommittee on June 14, 2005, prompted a commitment by Secretary of AgricultureJohanns to sit down with Members to discuss their concerns about the agreement'ssugar provisions. Members of Congress from districts and states where sugar cropsare grown subsequently met with USDA and White House officials to discussoptions. Proposals presented by some Members on behalf of the sugar producers andprocessors reportedly included (1) earmarking the additional sugar imported underDR-CAFTA and any future trade agreements for the production of ethanol by U.S.sugar processors, to be subsidized by the federal government, (2) an immediateresolution of the ongoing trade dispute about Mexican sugar access to the U.S.market, and (3) a commitment to continue the current features of the sugarprogram. (23) On June 22, USDA Secretary Johanns responded with a proposal to Membersthat would have USDA administer the domestic sugar program through FY2008(when current authority expires) so that total U.S. sugar imports would never exceed1.532 million short tons. This is the statutory level that triggers the suspension of"marketing allotments" -- a mechanism agreed to by sugar processors to limit salesof domestically-produced sugar to ensure that the total supply of sugar available tomeet domestic demand does not result in market prices falling below effectivesupport levels. Should allotments be triggered, the sugar industry argued that thestocks of sugar they would be free to release into the market, when added to theadditional imports, would depress prices low enough to result in USDA acquiringsugar as price support loans came due. This would result in program outlays andUSDA not able to meet the "no-cost" objective called for by the 2002 farm bill. (24) To keep imports below the trigger level, USDA proposed to donate surpluscommodities in its inventories or make cash payments to compensate sugar exportersin Central America or Mexico for sugar they would not ship to the U.S. market underDR-CAFTA's and NAFTA's terms. The commitment would reportedly extend onlythrough the end of current sugar program authority (the 2007 crop, or FY2008). (25) Additional discussions continued, with sugar industry representativesparticipating in the last session held June 27. The Administration at that point shiftedfocus to address the concerns of a smaller group of Members, and in discussions withSenators Chambliss and Coleman, agreed to commit in writing those steps thatUSDA would take if imports under current trade agreements (including DR-CAFTA)exceeded the trigger level. Senate Finance Committee consideration of S. 1307 (the DR-CAFTA implementation bill) was delayed one day,until the letter was finalized and accepted by the two Senators as an adequateresolution to their concerns. The Secretary's June 29th letter to the chairmen of the House and SenateAgriculture Committees pledged to "preclude" the entry of additional sugar importsif they will exceed the trigger, and place the sugar program at risk, by: (1) makingpayments using agricultural commodities to sugar exporters in other countries inreturn for their not shipping sugar to the U.S. market, and (2) purchasing or divertingexcess imported sugar for restricted non-food use, such as ethanol. He alsocommitted to completing a study to be submitted to Congress by July 1, 2006, on thefeasibility of converting sugar into ethanol. (26) The sugarindustry early in the talks had proposed a sugar-for-ethanol program based upon theavailability of a federal subsidy. Administration negotiators rejected that request,opting instead for to use surplus sugar imports for ethanol if needed, and to conducta study. Reactions by Members to the letter were mixed, with some skeptical aboutthe assurance and others remaining opposed, in part because of the possible costs thatUSDA might incur in meeting its pledges. The U.S. sugar industry rejected theAdministration's "repackaged, short-term offer," stating that it did not address theirlong term concerns about (1) sugar that could enter in future trade agreements, (2) itsobjectives for a resolution of the dispute on Mexico sugar access to the U.S. market,and (3) the continuation of the features of the current sugar program after FY2008. A spokesman for the ASA vowed to work to defeat DR-CAFTA. (27) Congressional Budget Office Estimate. In its analysis of the DR-CAFTA implementation bill ( H.R. 3045 , S. 1307 ), CBO estimated that the domestic sugar program "will likelycost an additional $500 million over the 2006-2015 period" as a result of theagreement's guaranteed access for sugar from the six countries. CBO based itsestimate on its March 2005 assumptions about sugar market conditions over thisperiod, taking into account other trade agreement commitments (particularly thosewith Mexico under NAFTA's sugar provisions). However, the CBO analysisacknowledges that current sugar market conditions indicate costs "would likely belower in 2006 and possibly lower in 2007, with no significant change in later years." A USDA official responded that this analysis was unrealistic, adding that there wouldbe "virtually no cost" in 2006 and 2007 under the agreement's sugar provisions. Aspokesman for the U.S. sugar industry stated that the CBO analysis "confirmsCAFTA would make it impossible for the United States to maintain a sugar programthat operates at no cost to federal taxpayers." (28) Cotton. The National CottonCouncil of America (NCC) on May 10, 2005, announced it will now supportDR-CAFTA. Because NCC's diverse membership includes cotton producers,ginners, cottonseed handlers, warehousers, merchants, cooperatives, and textilemanufacturers, the organization's position reflected a shift from an earlier consensusreached among all of these interests expressing concern about this trade agreement. The resolution adopted states that the agreement "should provide the United Statesthe best opportunity to supply apparel manufacturers and other end-usemanufacturing industries in the western hemisphere" with U.S. cotton fiber and U.S.produced cotton textile products. The NCC also urged the Administration to addressthe U.S. cotton industry's trade priorities, seeking in particular action on increasedtextile competition (e.g., from China). The council initially opposed DR-CAFTAand had called upon Congress to defer considering the agreement until its textileprovisions were "thoroughly reviewed and significantly improved." The NCC'sreversal followed the decision of the National Council of Textile Organizations(NCTO) on May 5, 2005, to support DR-CAFTA. (29) Two othertrade associations representing textile firms -- the National Textile Association andthe American Manufacturing Trade Action Coalition -- opposed this agreement. Though the NCC favors reciprocal liberalization in cotton fiber trade, it haspointed out that textile and apparel provisions in trade agreements can have "as muchor more of an impact" on the domestic cotton sector than simply their agriculturalprovisions. In other FTA negotiations to date, the NCC has sought NAFTA-typerules-of-origin that directly benefit U.S. textile workers and firms as well as those inFTA partner countries, but not those in third countries. For the most part, NAFTArules require that the cotton used in yarn (the fiber-forward rule) and the yarn usedin cotton textiles (the yarn-forward rule) must originate in the United States or in thepartner country for the product to qualify for preferential trade treatment. Anyrelaxation of such rules of origin, the NCC argues, opens the U.S. cotton and textilesectors "to unfair, unbridled competition" from third countries that transship textilegoods through a FTA partner country to take advantage of its duty-free access to theU.S. market. Because of its less restrictive rules of origin, the NCC initially opposedthe DR-CAFTA -- referring to its tariff preference levels (TPLs) and "cumulation"provisions for NAFTA-origin textiles that would allow third-country textile productsto qualify for preferential treatment. (30) Beef. Cattlemen were divided onDR-CAFTA. The Ranchers-Cattlemen Action Legal Fund (R-CALF) opposedDR-CAFTA, arguing the trade agreement "does not provide balanced rights for UScattle producers." The National Cattlemen's Beef Association (NCBA) supported theagreement. Under DR-CAFTA, the five Central American countries will immediatelyeliminate their tariffs on imports of U.S. prime and choice cuts of beef, an objectivesought by the U.S. beef industry. All countries will phase out tariffs on imports ofall other beef products in 5, 10, or 15 years. Certain countries' tariff reductionschedules are backloaded for the more sensitive beef products, meaning most of thetariff reduction is delayed until the last few years of the transition period. TheDominican Republic, El Salvador, and Guatemala will create duty-free TRQs forother beef cuts totaling 2,265 MT in year 1, which will expand slowly to equal 4,110MT in the year just before quotas are completely eliminated. In 2004, U.S. sales ofbeef to all six countries totaled 1,134 MT (valued at $4.2 million). USDA has notedthat all six countries are working to recognize the U.S. meat inspection andcertification systems so as to facilitate U.S. exports. The United States will create separate duty-free TRQs for beef imported fromall countries except Guatemala. Currently, the U.S. tariff on such imports is 26%. In year 1, the quotas would total almost 23,000 MT, rising slowly each year to 37,962MT before eliminated in year 15. U.S. beef imports from Nicaragua (the leadingsupplier in the region), Costa Rica, and Honduras totaled 31,258 MT (almost $82million) last year. In elaborating on its position, R-CALF pointed out there are no safeguards forU.S. beef imported from the region, while two countries are allowed to imposespecial safeguards against U.S. beef exports. It is concerned also that the rule oforigin for beef imports could allow cattle born and raised in Argentina and Brazil butslaughtered for meat in Central America to qualify for preferential tariff treatmentwhen sold to the U.S. market. Though R-CALF acknowledged that the United Statesobtains immediate duty-free access for prime and choice beef cuts, its spokesmanstated that demand in the six countries for these products is limited because theregion is a small market and many consumers cannot afford such cuts. (31) The NCBA argued that DR-CAFTA levels the playing field by eliminatingthe 15%-30% applied tariffs that U.S. beef exports now face in the region whileproviding for adequate protections. It pointed to the long transition periods,safeguards, and the stipulation that country-specific beef TRQs can be filled onlyafter the U.S. beef TRQ under its WTO commitment is filled. (32) The American Farm Bureau Federation (AFBF) backed DR-CAFTA, statingthat U.S. agriculture has much to gain. In an economic analysis of its agriculturalprovisions, the AFBF projects that the agreement will result in an estimated net gainof $1.44 billion for U.S. agricultural trade once fully implemented in 20 years. In2024, it projects U.S. agricultural exports to the six countries will be $1.52 billionhigher than under a continuation of current trade policy. Its analysis acknowledgedthe U.S. sugar industry will experience costs as a result of the increased access to thedomestic sugar market granted to these countries -- by $81 million in year 20. (33) Fourstate-level farm bureaus (Colorado, Louisiana, North Dakota, and Wyoming)opposed DR-CAFTA, largely because members in these sugar-producing states havestrong concerns on the agreement's sugar provisions. The Minnesota affiliate tooka neutral stance. The National Farmers Union (NFU) opposed the agreement, stating thatCAFTA "offers few benefits" to U.S. farmers and "will adversely impact domesticproducers of sugar, fruit, vegetable, dairy and other commodities." The NFU claimedthat CAFTA does not address exchange rate issues, and labor and environmentalstandards, and argued that the agreement's "proponents overestimate [its] potentialbenefits," ignoring the fact that the six countries "represent small populations withlow purchasing power." (34) On March 22, 2004, USTR made public the reports of the trade advisorycommittees laying out their positions and views on CAFTA. Authorized by theTrade Act of 1974, these committees provide the views of the private sector to USTRon trade and trade policy matters, and serve as a formal mechanism through whichthe U.S. Government seeks advice during trade negotiations. The Agricultural PolicyAdvisory Committee's opinion was that CAFTA "will improve opportunities for U.S.agricultural exports" by providing for "eventual duty-free, quota-free access onessentially all products." Most of the commodity-oriented agricultural technicaladvisory committees (ATACs) for trade favored the agreement, pointing out thebenefits associated with increased market access in the region. The sweeteners ATAC reported mixed views. Sugar industry representativesexpressing the majority opinion opposed the increased access to the U.S. market thefive countries receive for their sugar, pointing out its effects on U.S. sugar producersand the threat posed to the domestic sugar program. The sugar users in the minoritysupported the agreement, acknowledging the "modest but meaningful improvement"in Central American sugar access. These committees issued separate reports on theagricultural provisions in the FTA with the Dominican Republic on April 23,2004. (35) Because full implementation of the DR-CAFTA will result in a reciprocaltrading relationship, a large portion of the U.S. agricultural and food sectors willbenefit slightly from expanding exports over time as the six countries eliminate theirtariffs and quotas on practically all U.S. commodities and food products. Theprojected increase would represent a very small share (one-half of 1%, according tothe ITC) of total U.S. agricultural exports to the world. This outcome largely reflectsthe small population of the six countries (a combined 44 million in 2003) and low percapita incomes when contrasted to the much larger markets in Asia where averageincomes are higher and agricultural import demand is growing rapidly. At the sametime, the market openings granted these countries could place additional pressure onthe U.S. sugar and cotton/textile sectors. Fearing what increased competition fromadditional imports might mean for their business outlook, sugar and cotton/textileinterests lobbied Congress to defeat or to modify this agreement. Of more interest to the U.S. agribusiness sector likely will be the agreement'sinvestment provisions -- structured to give U.S. investors in the region a predictablelegal framework and equal treatment with local investors, protections for all types ofinvestment, and transparent procedures for handling disputes. Accordingly, someU.S. food manufacturers may take advantage of lower input and labor costs toestablish food processing plants to supply the regional market as well as to export(e.g., Hispanic food products) to the U.S. market. The six countries' agricultural sectors would, in the aggregate, gain little fromthis agreement, according to the ITC's analysis, since almost all exports to the U.S.market would continue to benefit from duty-free access that they already receiveunder U.S. trade preference programs. What would change is that the agreementmakes this duty-free access permanent and sets into motion a process that in 15-20years gives these countries unrestricted access to the U.S. market for all sensitivecommodities (except sugar) now subject to U.S. agricultural tariff-rate quotas. Theexpanding U.S. quotas reserved for these countries would benefit sugar processorsin the region, and, to a lesser extent, exporters of beef and dairy products, that seekto sell to the U.S. market. The congressional debate created divisions within the U.S. agricultural sectorbetween commodity groups that expect to gain from DR-CAFTA and those whichforesee losses. Whether this tension is short-lived or continues beyond the debate onthis trade agreement will depend on whether and to what extent the BushAdministration includes comparable openings affecting these same sensitiveagricultural products in other FTAs recently negotiated (e.g., Colombia and Peru) oryet to be concluded (e.g., Panama and Thailand). Recognizing this, U.S. tradenegotiators are likely to craft these other bilateral free trade agreementsacknowledging the political realities involved in securing congressional approval. This means translating potential agricultural export gains in a trade agreement intoa bloc of supportive congressional votes. It also suggests that USTR's negotiatingstrategy must incorporate limiting U.S. trade concessions on U.S. sensitiveagricultural commodities in order to minimize the number of congressional "no"votes on a concluded free trade agreement. Following Senate approval of DR-CAFTA, most observers acknowledgedthat securing a majority in the House for DR-CAFTA would be problematic, in largepart due to opposition by the sugar sector and some segments of the textile sector. Consequently, Administration officials faced a dilemma. Should they press ahead,and work to cut deals to line up the necessary votes to make a majority? Or, shouldthey consider making further changes to the sugar and textile provisions or relateddeals sufficient to yield enough "yes" votes to win approval? As precedent for thelatter course of action, the Clinton Administration negotiated last-minute changes inNovember 1993 to NAFTA's sugar and orange juice provisions in order to secureenough votes for House passage. U.S. trade officials signaled their reluctance toconsider this option, for fear of unraveling the overall DR-CAFTA package andfacing opposition from Central American negotiators to such a scenario. Though theAdministration made commitments to some Members to address certain textileissues, the President decided to forward the final implementing bill to Congresswithout seeking any changes in the agreement itself. The DR-CAFTA implementingbill ( H.R. 3045 ) did not contain any provisions, for example, detailingthe sugar compensation provision or the textile commitments, though these issuesremained under discussion between the Administration and some House Membersuntil the very close House vote occurred. A similar debate also occurred in each of the legislative chambers of fivecountries, as their commodity and related groups sought to influence whetherDR-CAFTA should be approved or not. To date, the legislatures of the DominicanRepublic, El Salvador, Guatemala, Honduras and Nicaragua have approved the tradeagreement. The debate in Guatemala was marked by street clashes, before and afterthe vote, in which small farmers with others joined in calls for a public referendumon the agreement. Because of the upcoming presidential election, the Costa Ricanlegislature may not complete debating DR-CAFTA until early 2007. Commercial farmers that produce -- and agribusiness firms that process --sugar, beef, dairy products and non-traditional products with export potential (e.g.,fruits and vegetables) generally supported DR-CAFTA. Subsistence farmers ofstaple crops and citizen groups concerned with the trade agreement's impact on rural,primarily agricultural, areas, though, feared that the gradual removal of quotas (evenwith the safeguard provisions available during the long transition to free trade) willnot sufficiently protect their livelihood and encourage families to move to urbanareas in search of employment. Representatives reflecting the views of theseconstituents in their national legislatures worked unsuccessfully to defeat theDR-CAFTA when it was submitted for consideration. (36) SomeCentral American leaders, though, viewed the textile provisions of DR-CAFTA asnecessary to keep their textile and apparel sectors viable against Chinese competitionin the U.S. retail market and to absorb the movement of labor out of the agriculturalsector. (37) Also not yet clear is the extent to which the governments of the six countrieshave, or might be willing to dedicate, financial and technical resources to assistsubsistence and small farmers, and rural areas dependent on agriculture, adjust topossible adverse consequences of increased imports of staple commodities from theUnited States. The Bush Administration, though, has signaled that it will direct someresources from the U.S. foreign aid program in the region to help producers adverselyaffected by the agreement's agricultural provisions to adjust. In an effort to securevotes in the Senate Finance Committee for S. 1307 (the Administration'sbill submitted to implement the agreement), the Administration committed in a letterto Senator Bingaman to support additional spending of up to $150 million over fiveyears for transitional rural assistance to assist farmers in Guatemala, El Salvador, andthe Dominican Republic, beginning in FY2007. This commitment would besuperseded by U.S. resources for rural development made available under aMillennium Challenge Corporation compact, if signed earlier by any of thesecountries with the United States. (38) Another approach would be to expand upongovernment efforts (with support from the World Bank and the Inter-AmericanDevelopment Bank) to assist interested producers and entrepreneurs exploreopportunities to increase food exports to neighboring country and U.S. markets. | On August 2, 2005, President Bush signed into law the bill to implement the DominicanRepublic-Central American Free Trade Agreement, or DR-CAFTA ( P.L. 109-53 , H.R. 3045 ). Drawing much attention during congressional debate were the agreement's sugar provisionsto allow additional sugar from the region to enter the U.S. market. To assuage concerns expressedby some Members, the Administration pledged prior to Senate passage to take steps to ensure thatall sugar imports, including those under DR-CAFTA, do not exceed a "trigger" that could underminethe U.S. Department of Agriculture's ability to manage the domestic sugar program. Sugar producersand processors responded that USDA's pledge did not address their long-term concerns, andcontinued last-minute efforts to defeat the agreement. In DR-CAFTA, the United States and six countries will completely phase out tariffs andquotas -- the primary means of border protection -- on all but four agricultural commodities tradedbetween them in stages up to 20 years. The four exempted products are as follows: for the UnitedStates, sugar; for Costa Rica, fresh onions and fresh potatoes; and for the four other CentralAmerican countries, white corn. The Dominican Republic, El Salvador, Guatemala, Honduras, andNicaragua have approved the agreement; Costa Rica's legislature is currently considering it. As ittakes effect on a rolling basis, the U.S. agricultural sector will over time gain free access to the sixhighly protected markets on a reciprocal basis, matching these countries' current duty-free entry fornearly all their agricultural exports to the United States. Other provisions establish safeguards forspecified agricultural products to protect U.S. and the region's producers from sudden import surges;prohibit the use of export subsidies between partners; and establish a mechanism to address sanitaryand phytosanitary barriers to agricultural trade. DR-CAFTA's provisions, once fully implemented, are expected to result in trade gains,though small, for the U.S. agricultural sector. The U.S. International Trade Commission (ITC)estimates that $328 million in additional exports (primarily grains, meat products, and processedfood products) would be offset by a $52 million increase in imports (largely reflecting additionalaccess granted for sugar and beef from the six countries). Of the $2.7 billion increase in total U.S.exports that the ITC projects under DR-CAFTA, 12% would be attributable to the U.S. agriculturalsector. Most U.S. commodity groups, agribusiness and food manufacturing firms, and the AmericanFarm Bureau Federation (a general farm organization) supported DR-CAFTA, expecting to benefitfrom the guaranteed increased access to these six markets. Cotton producers announced theirsupport only after one major textile trade association came out in favor of it. The U.S. sugar industrystrongly opposed the additional access for sugar imports from these countries, fearing its economicimpact on domestic producers and processors. Two cattlemen trade organizations held differingpositions on the agreement's beef provisions. The National Farmers Union (a general farmorganization) opposed DR-CAFTA. Congress is expected to monitor developments on DR-CAFTAimplementation during the second session of the 109th Congress. This report will be updated. |
The Chen Guangcheng affair may mark a watershed moment for the U.S.-China relationship. Despite worries in recent years that strategic mistrust between the two countries might be deepening, U.S. and Chinese officials rapidly negotiated first one and then another solution to the sensitive diplomatic problem created when the Chinese legal advocate Chen Guangcheng sought refuge in the U.S. Embassy in Beijing on April 26, 2012. They did so, moreover, while engaging on multiple other fronts, suggesting a resilience to the relationship that took some observers by surprise. Even as they were settling on the details of the understanding that ultimately led to Chen's departure for the United States, cabinet-level officials from both sides met in Beijing as planned for the annual U.S.-China Strategic & Economic Dialogue (S&ED), the flagship forum for dialogue between the two countries. At the meeting, U.S. and Chinese officials covered dozens of topics, from coordination of policy on North Korea and Iran, to access for U.S. firms to China's financial sector. Immediately following the S&ED, with Chen still in China awaiting paperwork to allow him to travel, the PRC Defense Minister, Liang Guanglie, went forward with a planned visit to the United States. The message both governments seemed to send was that the relationship between the world's first and second largest economies is now so broad, and the stakes involved so great, that U.S. and Chinese officials had to find a way to defuse the potential diplomatic crisis and move on. Several additional factors may have contributed to the relatively smooth resolution of the situation. The diplomacy between the two governments over Chen took place at a moment of domestic political uncertainty in the People's Republic of China (PRC). It also involved a highly unusual protagonist, a legal advocate who was blind, who bridged the normally separate worlds of rural farmers and urban intellectuals, who had no legal charges pending against him in China, and who had become an icon for the human rights community in China through the power of social media. All those factors may have led China's leadership to decide that a protracted stand-off with the United States over Chen's fate was not in its interest. Congress has shown a strong interest in both governments' handling of Chen's case. The House Foreign Affairs Committee's Subcommittee on Africa, Global Health, and Human Rights and the Congressional Executive Commission on China (CECC) both held hearings on Chen. Members have also issued statements and written to the Obama Administration with their concerns. Some Members suggested that the State Department may have been too trusting of Beijing's initial commitments to ensure Chen's safety in China. For their part, State Department officials said that while Chen was in the Embassy, he was consistent in indicating that he wanted to stay in China. In an interview immediately after Chen's departure from the Embassy for a Beijing hospital, Assistant Secretary of State Kurt Campbell characterized the State Department's initial negotiations with the Chinese government as creating "the parameters for him to be perhaps a little bit more effective with a little bit more safety," although Campbell added that, "There are no guarantees and China is moving into a period of enormous complexity." With Chen's travails at the hands of local officials related in part to his advocacy for the victims of forced sterilizations and abortions, others have criticized the Administration for not doing more to call attention to China's coercive family planning practices. With Chen and his immediate family now in the United States, issues of concern for Congress moving forward include the Chinese government's treatment of both Chen's extended family and supporters in China as well as the status of the official investigation that Beijing promised to undertake regarding local government abuses of Chen prior to his escape from Shandong province. Both the U.S. and PRC governments may also worry that their actions in the Chen case might encourage other activists to seek refuge in U.S. diplomatic missions in China or elsewhere. A long-term consideration for Congress is what place human rights should occupy in the overall U.S.-China relationship. The Chen affair appeared to send mixed signals about the place of human rights in U.S. policy toward China. While the case was still unfolding, critics suggested that the Obama Administration may have judged the many issues to be discussed at the U.S.-China Strategic and Economic Dialogue (S&ED) to be more important than the fate of a blind legal advocate, and thus rushed to conclude the negotiations over Chen before the opening of the S&ED, risking Chen's safety. Yet Secretary of State Hillary Rodham Clinton's unorthodox decision to authorize U.S. diplomats to bring Chen into the U.S. Embassy in the first place sent another signal: that the United States was willing to put those matters at risk for the sake of a human rights issue centered on one person. After one of Chen's associates contacted the U.S. Embassy in Beijing on April 25, 2012, asking for help for Chen, who had broken bones in his foot in his escape from extra-legal house arrest in his home province of Shandong, the U.S. government faced several choices about how to respond. It could have attempted to provide or seek medical treatment for Chen outside of the Embassy. Although Chen had endured 19 months of extra-legal home confinement, he had no criminal charges pending against him and faced no legal restrictions on his movements or associations, giving U.S. diplomats grounds to defend themselves if called on by Chinese officials to explain their actions. Alternatively, the U.S. government could have taken Chen's situation up quietly with the central government, giving Beijing room to blame local officials for Chen's travails and step in to provide him with medical care. Or the U.S. government could have used its bully pulpit to publicize Chen's situation and shame the Chinese government into allowing him to seek medical treatment at a public hospital in the capital. Instead, Secretary Clinton authorized U.S. diplomats in Beijing to take Chen into the U.S. Embassy compound, apparently persuaded by State Department Legal Advisor Harold Koh's view that Chen's blindness and his foot injury qualified him for "short-term humanitarian assistance." In media interviews, U.S. Ambassador Gary Locke described the operation to retrieve Chen as "almost a maneuver out of Mission Impossible." According to an account in the New York Times , the U.S. Embassy sent a car to rendezvous with a car driven by an associate of Chen's in which Chen was a passenger. Both cars found themselves followed by cars belonging to Chinese security forces. The Americans pulled Chen from his associate's car into theirs in an alley, "evaded the two Chinese cars," and hastily returned to the Embassy, where Chen ultimately spent six days. In giving the authorization for the operation to retrieve Chen, Clinton would have known that the move might create a major diplomatic crisis and potentially scuttle the S&ED and cooperation with China on any number of issues of importance to Washington. The only other time a U.S. diplomatic mission in China is known to have provided refuge to a Chinese activist was in 1989, following the Chinese government's Tiananmen military crackdown, when the U.S. Embassy took in astrophysicist Fang Lizhi. His case became major issue of contention in the U.S.-China relationship and negotiating his departure took over a year. Clinton's decision in the Chen case was all the more striking given the controversy she stirred in February 2009 when she stated that the newly installed Obama Administration would continue to press China on such issues as Taiwan and Tibet and human rights, "but our pressing on those issues can't interfere with the global economic crisis, the global climate change crisis, and the security crisis." When Chen was waiting to travel to the United States, an unnamed administration official observed to the New York Times , "The days of blowing up the relationship over a single guy are over." By ordering diplomats to bring Chen into the U.S. Embassy, however, Clinton appeared to suggest that even with all that is at stake in the U.S.-China relationship, Washington was willing to put the relationship at risk over "a single guy." Ultimately, China proved willing to negotiate. It did so on a rapid schedule, even though, as Assistant Secretary of State for East Asian and Pacific Affairs Kurt Campbell noted in an interview with National Public Radio, the Chinese government saw Chen's case "as a matter between the government and a citizen of China. And so they don't believe, just on a matter of state-to-state protocol, that this is an issue that should be negotiated, for instance, between the United States and China." U.S. officials and analysts outside government have offered a number of explanations for the Chinese government's willingness to negotiate. The most obvious is that for all the discussion in foreign policy circles of a stronger China's triumphalism and hubris, China may still believe in the necessity of cooperation with the United States on a wide array of issues, from managing the global economy to keeping China's wayward neighbor North Korea in line. Clinton, for her part, credited intensive interactions among high-level officials from the United States and China that "created a level of personal relationships and understanding between individuals and our government institutions that is absolutely critical for us to be able to discuss the full range of challenges we both face." Others have noted that China's ruling Communist Party is facing a major generational leadership change later this year, and is still reeling from the aftermath of the April 2012 ouster of one of its top national leaders, former Chongqing Party chief and Politburo member Bo Xilai. Beijing may have decided that a prolonged face-off with the United States over a provincial legal advocate was not in its interests. Analysts have suggested, too, that Bo's fall may have weakened China's security apparatus—Bo is believed to have had particularly close ties to the top official who oversees China's internal security system—and thus allowed more moderate leaders greater flexibility in handling Chen's case. If the security apparatus has been weakened, however, it is still possible that it will regain its strength, perhaps even by playing up charges that moderate elements of the leadership compromised China's sovereignty by agreeing to negotiate with the United States over the fate of a citizen in China. Still another factor in Beijing's willingness to negotiate may be the fact that although Chen had run afoul of local officials in his home province, the national government had not taken a public stance on his case and he faced no pending legal charges. That set of circumstances, too, may have given the central government greater flexibility. Numerous foreign officials, including Secretary of State Hillary Clinton, raised Chen's case with Chinese central government leaders over the years, without Beijing ever appearing to intervene, however, suggesting that the national government at least condoned his treatment, and may have actively supported it. Although the arrival of Chen and his family in the United States resolved the immediate diplomatic crisis, the Chen Guangcheng case is not yet over. For the United States, at least two outstanding issues remain. One is the Chinese government's treatment of Chen's family, neighbors, friends, and supporters back in China. Chinese authorities briefly detained and threatened many of the family members and associates who helped Chen escape, and could yet bring them back into custody. Security agents have restricted the movements of some of them, including Chen Guangcheng's brother, Chen Guangfu. Chen Guangfu's son, Chen Kegui, faces a charge of attempted murder for injuring security personnel with a cleaver when they stormed his home after Chen Guangcheng's escape. Chinese authorities have employed a variety of tactics to block the nephew's access to lawyers who have volunteered to defend him. (See "The Status of Chen's Family and Supporters in China," below.) The second issue is whether the Chinese government will honor its pledge to investigate the local authorities' handling of Chen over the last seven years, including his two lengthy periods of extra-legal house arrest and the judicial irregularities surrounding his four-year-long imprisonment between 2006 and 2010. U.S. officials say that Chinese officials took statements from Chen on two days during his stay at Chaoyang Hospital in Beijing. The local Shandong authorities' harassment of Chen's family and neighbors since his escape, however, raises questions about how serious Beijing is about getting to the bottom of the abuses that Chen suffered, or about the degree of control that the central government exercises over local ones. Immediately following Chen's departure from the U.S. Embassy, spokespeople for China's Foreign Ministry demanded a U.S. apology for the "abnormal means" by which Chen entered the U.S. Embassy, as well as a U.S. investigation of the incident and a promise that it would not be repeated. Since accounts in the New York Times and the Washington Post revealed Secretary Clinton's role in ordering her diplomats to bring Chen into the Embassy, however, China has not repeated those demands. According to some Western analysts, although the manner in which the U.S. diplomats brought Chen into their custody was unusual, international human rights conventions would appear to support the action, and because Chen was legally free and not a fugitive, U.S. diplomats did not violate Chinese law by harboring him. Although Chinese authorities and the Chinese media have refrained from direct criticism of Secretary Clinton, they have been less circumspect in the case of U.S. Ambassador Gary Locke, potentially complicating his mission in China. On May 4, 2012, the Beijing Daily , published by the Beijing Communist Party Committee, carried a commentary charging that Locke is "not an ambassador who is careful with his words and deeds but a regular American politician who is out to stir up the whirlpool of troubles." On the same day, the Beijing Youth Daily , published by the city's Communist Youth League, carried an article criticizing Locke for "showing off" by taking Chen to the hospital, pushing his wheelchair into the hospital, and allowing the foreign media to photograph him with Chen. The author asserted that Locke's behavior "has exceeded the U.S. ambassador's functions, duties, and role, and also violates the basic scope and ethics of diplomatic activity." A concern for both U.S. and Chinese officials going forward is likely to be that their actions in the Chen case might encourage other activists to seek refuge in U.S. diplomatic missions in China. U.S. officials have repeatedly emphasized that, in Secretary Clinton's words, "this is an extraordinary case with exceptional circumstances. And it is not something that either we or anyone anticipates occurring again." To discourage such a scenario, China has allowed only very limited coverage of the case in its domestic media and blocked related search terms on news and social media sites. However, during the first two weeks of the story, Chen's friends provided updates about his status and their own situations through Twitter and other social media, while the comment sections of some official news sites reportedly were flooded with supportive expressions for Chen and Ambassador Locke. After Chen Guangcheng entered the U.S. Embassy in Beijing, Secretary Clinton dispatched Assistant Secretary of State Kurt Campbell to Beijing to help defuse the situation. Starting on April 29, 2012, Campbell, State Department Legal Advisor Harold Koh, and U.S. Ambassador Gary Locke shuttled between Chen at the Embassy and Vice Foreign Minister Cui Tiankai at the Chinese Foreign Ministry. A representative from China's Ministry of State Security, the country's domestic and external counter-intelligence organization, reportedly sat on one side of Cui at the negotiation sessions. U.S. officials believe that the official on the other side of Cui was from another unidentified intelligence agency. Reportedly, only Cui spoke. In a series of media briefings and interviews following Chen's departure from the U.S. Embassy, U.S. officials said Chen expressed five requests or goals to them during his time in the Embassy. They were: Reunification with his wife and children, whom he had left behind in Shandong Province when he escaped to Beijing, Relocation to "a safe environment" in China outside of Shandong Province, "An honest investigation, starting at the central government level," of his allegations of mistreatment at the hands of local officials in Shandong Province, An opportunity to study law at a Chinese university, and No official retribution for those who helped him escape. According to U.S. officials, Chen at no point requested political asylum while he was in the U.S. Embassy. Campbell told National Public Radio that he had "30 or 40 hours of conversations" with Chen and "Never once did he talk about asylum or coming to the United States." Although U.S. diplomats asserted that they did not pressure Chen to stay in China, they appear to have been supportive of Chen's wishes at that time. "He wanted to play a role in one of the most exciting periods of China's history. And one can only be impressed and, frankly, motivated by that," Campbell told NPR. In that interview and others, Campbell also conveyed his sense that Chinese activists who leave China for the United States often face a future that is "sad and lonely." The Chinese government has not publicly confirmed any of the details of the initial set of understandings reached between the two governments, but as reported by U.S. officials, the first set of understandings, all made verbally, encompassed the following elements: Chen's reunification with wife and children, Relocation of Chen and his family to "a safe environment," The opportunity for Chen to study at one of seven universities, of Chen's choosing, with the Chinese government paying for tuition and for the family's room and board, The opportunity for Chen to transfer to another university, either in China or overseas, after two years, A Chinese government commitment to "listen to [Chen's] complaints of abuse and conduct a full investigation," starting as soon as Chen left the Embassy for hospital treatment, and An assurance that Chen had "no remaining legal issues directed at" him and would "be treated like any other student in China." According to U.S. officials, after PRC officials brought his wife and children to Beijing and placed them at Chaoyang Hospital to wait for him, Chen accepted the terms. On May 2, 2012, he left the Embassy for the hospital in the company of U.S. Ambassador Gary Locke and other U.S. officials. Campbell told NPR that with the deal, he felt, "We have created the parameters for [Chen] to be perhaps a little more effective with a little bit more safety." The outcome of the negotiations was particularly striking given Beijing's history of having either turned a blind eye to violations of law and procedure in the local authorities' treatment of Chen over many years, or else having actively condoned them. The deal suggested a recognition that Chen had been mistreated, which amounted to a rebuke to local authorities in Shandong, and perhaps to the internal security system at a national level. It also opened the prospect of the Chinese government countenancing a meaningful, if still constrained, role for activists within China. The internationally renowned artist Ai Weiwei pioneered such a role after his release from detention last year. Had Chen been willing to stay in China and test the sincerity of the government's commitment to follow through with the deal, he would have been a second, very prominent test case of a possible new Chinese approach to handling activists. Within hours of leaving the U.S. Embassy for Chaoyang Hospital on May 2, 2012, Chen had a change of heart about staying in China. He spoke to friends who urged him to leave the country. He spoke to his wife, who related her recent abuse at the hands of local Shandong Province officials. He read ill intention into the hospital's failure to deliver an evening meal. He said he felt abandoned when the last of the U.S. Embassy personnel at the hospital left for the night. In a series of phone calls to reporters, supporters, and a hearing of the Congressional Executive Commission China (CECC), made using three pre-programmed cell phones provided by the U.S. Embassy, Chen said he wanted to leave China. Participants at the CECC hearing raised a number of concerns which they thought had not been adequately addressed, including how to enforce the unwritten agreements between U.S. and Chinese officials on Chen; how to respond if Chen, his family, and those who helped him faced retribution; and the fate of Chen's nephew, Chen Kegui. In a meeting on May 4, 2012, with her counterpart, Dai Bingguo, Secretary Clinton proposed a return to the negotiating table. She reportedly suggested that having Chen go immediately to study in the United States would constitute only a modest revision of the original understandings, which had envisioned Chen going abroad to study after two years in China. In front of Clinton and other U.S. officials in the meeting, Vice Foreign Minister Cui Tiankai reportedly told his superior, State Councilor Dai Bingguo, that he did not want to talk any more with Assistant Secretary Campbell. Dai overruled him, and over the course of the day, a new set of understandings took shape. Specifically, the Chinese side agreed that Chen could apply "like other Chinese citizens" to study abroad, and issued a public statement to that effect. The State Department issued a statement saying it expected China to process Chen's paperwork "expeditiously." According to an account in U.S. journalist Philip Pan's 2008 book Out of Mao's Shadow, Chen Guangcheng is the youngest of five brothers from a rural family in Shandong Province, on China's east coast. He lost his sight due to a high fever in infancy and with limited educational opportunities for the blind in China, did not attend school until he was a teenager. (Pan says he began school at 17; Chen's mentor at New York University, Chinese legal scholar Jerome Cohen, says Chen began school at 13.) Chen later attended an academy for the blind in the port city of Qingdao and then enrolled at a university in Nanjing. According to Pan, he majored in traditional Chinese medicine because it was one of only two departments open to the blind, but he took law classes on the side. Chen's early activism focused on disability rights, including sometimes successful efforts to require local officials to honor a law reducing or waiving taxes on the disabled. He also organized a campaign aimed at shutting down a heavily polluting local paper mill. Chen appears to have come to the attention of U.S. officials relatively early on, traveling to the United States with his wife for a month in 2003 on a State Department exchange program. Cohen recalls meeting Chen for the first time at the premises of the Council for Foreign Relations in New York and thinking, "He has the potential to be China's equivalent of Mahatma Gandhi." After returning to China, Chen organized a successful lawsuit to force the Beijing subway system to waive fares for the disabled. In 2005, neighbors from Chen's home village of Dongshigu, in Shandong's Linyi district, began asking him for legal advice about a crackdown on "unplanned" births, part of the province's implementation of China's national family planning program. Parents with two or more children were being sterilized or, if pregnant, forced to undergo abortions. According to Pan, Chen took depositions, traveled to Beijing to try to interest journalists in writing about the abuses, and persuaded several prominent lawyers to return to Shandong with him to file lawsuits against the local authorities on behalf of victims. Local authorities responded by placing Chen under an extra-judicial form of house arrest in September 2005. When he escaped and made his way to Beijing, in a foreshadowing of his latest odyssey, local officials tracked him down and returned him to confinement in his farmhouse. The authorities ultimately charged Chen with "intentional destruction of property" and "gathering people to disturb traffic order." They prevented his lawyers from collecting evidence on his behalf, and on the eve of Chen's trial, detained the lawyer who planned to represent him in court. Chen, who was left with no legal representation at his trial, was sentenced to over four years and three months in prison. After Chen completed his prison sentence in September 2010, the authorities placed him back under the extra-judicial house arrest he had experienced before his jail time. The local authorities placed guards around a high wall they had built around his home and prevented Chen from leaving his home and any of his supporters from entering Dongshigu village. His wife's movements were restricted. The couple's son was sent to live with Chen's wife's parents and their young daughter was temporarily prevented from attending school. Cell phone communication to and from their home was blocked, and Chen and his wife, Yuan Weijing, were not permitted contact with Yuan's parents. In 2011, security agents allegedly beat Chen and his wife in their house after they smuggled out a video, later posted online, in which they described the conditions of their forced confinement. Chen, 40, is now enrolled at New York University. His wife and two children are with him. Jerome Cohen, the New York University legal scholar, says that Chen plans to study comparative law, international law, Anglo-American law, and English, and to allocate time for "political activity." Cohen says Chen also plans to write a book on "the forms of torture to which Chinese prisoners are subjected." The status of many of Chen Guangcheng's relatives, neighbors, friends, and supporters who assisted him during his escape and his time in Beijing remains uncertain. Chinese authorities have restricted the movements and communications of many of them. His nephew, Chen Kegui, has been detained and charged with the crime of intentional homicide. Several lawyers who offered to defend Chen Kegui have been barred from representing or visiting him or have been warned that their legal licenses may be revoked. The local Yinan County government, in which Dongshigu is located, has instead appointed two lawyers from a government-run legal aid center. The following list includes people reportedly connected to Chen and his escape, many of whom were detained temporarily, interrogated by Chinese authorities, and/or placed under surveillance. Many more people with ties to Chen Guangcheng and Chen Kegui in Shandong, Beijing, and elsewhere may have continued to experience harassment and human rights abuses by the government but whose identities remain unknown or unreported. Chen Guangfu (陈光福 ), brother of Chen Guangcheng. After learning from his wife, Ren Zongju, of his brother's escape, Chen Guangfu contacted his brother's activist friend, Guo Yushan, who sent one of his brother's supporters to pick up his brother from Xintai Municipality in Shandong Province and drive him to Beijing. Local security agents reportedly interrogated and beat Chen Guangfu for roughly 48 hours after learning of his brother's escape. On May 24, Chen Guangfu reportedly eluded security agents surrounding his home and village and traveled to Beijing in order to advocate for his son, Chen Kegui. Chen Kegui (陈克贵), son of Chen Guangfu and nephew of Chen Guangcheng. Chen Kegui reportedly fought with and injured three plain-clothed police officers who stormed his family home on April 27. The Yinan County government in Shandong Province's Linyi Municipality has charged Chen Kegui with intent to murder. He is the only family member known to have been apprehended who remains detained. Local authorities have prevented lawyers chosen by his wife from meeting with him. Chen Guangcun (陈光存), a Dongshigu villager and father of Chen Hua, drove Chen Guangfu to Xintai Municipality to see Chen Guangcheng, whom he had not seen in over a year. Chen Guangcun reportedly was interrogated by local police for two days. Chen Hua (陈华), a Dongshigu villager and son of Chen Guangcun, drove Chen Guangcheng out of Linyi Municipality to Xintai Municipality. Chen Hua reportedly was interrogated for two days. Liu Yuancheng (刘元成 ), a resident of Xishigu village, sheltered Chen Guangcheng on the first night of his escape and sent his wife to notify Chen Guangfu. Chen had defended Liu and his daughter against local family planning officials in 2006. Liu and his wife reportedly were interrogated for two days. Guo Yushan (郭玉闪 ) , a Beijing scholar and rights advocate, was reportedly contacted by Chen Guangfu on April 21 and told that Chen had escaped. Guo sent a supporter to bring Chen to Beijing and then helped hide him in Beijing in the days before Chen entered the U.S. Embassy. Guo reportedly was questioned for over two days by Chinese security personnel. He Peirong (何培蓉), an English teacher and rights activist from Nanjing who had campaigned online for Chen Guangcheng, drove Chen from Xintai Municipality in Shandong Province to Beijing. Ms. He was detained for several days in Nanjing, questioned, and then released. Hu Jia (胡佳), a friend of Chen Guangcheng, activist and former political prisoner, assisted Chen in Beijing. Jiang Tianyong (江天勇), a rights lawyer, defended Chen Guangcheng in 2005. When he tried to visit Chen at Chaoyang Hospital on May 3, 2010, he was reportedly apprehended by security agents, detained for nine hours, and seriously beaten. Li Jinsong (李劲松), a rights attorney, is a lawyer for Chen Guangcheng. Teng Biao (滕彪), a lawyer and friend of Chen's, advised Chen during and after his stay at the U.S. Embassy. He reportedly has been forced to temporarily leave Beijing. Zeng Jinyan (曾金燕), wife of Hu Jia, is a rights activist and was a key source of news about Chen's status during his stays at the Embassy and Chaoyang hospital. Chen Wuquan (陈武权) is a Guangzhou-based lawyer. His license was confiscated by the Guangzhou Lawyer's Association after he volunteered to represent Chen Kegui. Ding Xikui (丁锡奎) is a Beijing-based lawyer. He is one of two lawyers who was appointed by Chen Kegui's wife, Liu Fang, to represent Chen Kegui, but has been denied access to his client. Liu Weiguo (刘卫国), a lawyer based in Beijing, told reporters he was "warned off the case" by police. Si Weijiang (斯伟江) is a Shanghai-based lawyer. He is one of two lawyers appointed by Chen Kegui's wife, Liu Fang, to represent Chen Kegui, but has been denied access to his client. Liang Xiaojun (梁小军), a lawyer from Beijing, said he was pressured not to defend Chen Kegui. Song Ze (宋泽), a Beijing-based lawyer, reportedly was detained for three days in connection to the case. In the longer term, Congressional considerations related to the Chen Guangcheng case include: how to promote human rights in China in light of recent events surrounding Chen, as well as in light of trends in the bilateral relationship and political and social developments in the PRC; and how or whether to formulate a policy toward China that combines human rights and other bilateral issues, such as economic, security, and environmental matters. Other policy considerations include assessing U.S. rule of law programs in China, given Chen's experiences as a legal advocate and the fate of human rights attorneys who have attempted to help Chen and his family. Policy makers may also examine U.S. global Internet freedom efforts, given the ways in which news of Chen's escape was both disseminated through the Internet and censored by the government in China. April 20, 2012 With help from his wife, Chen escapes over the wall surrounding his home in Dongshigu Village, Yinan County, Linyi Municipality, Shandong Province, breaking three bones in his foot. April 21, 2012 Chen stumbles into neighboring Xishigu Village, Yinan County, Linyi Municipality, Shandong Province. A villager sees Chen and leads him to the home of another villager, Liu Yuancheng, who shelters him. Liu sends his wife to the home of Chen's brother, Chen Guangfu, in Dongshigu Village. Chen Guangfu is away from home, but his wife, Ren Zongju, hurries to Liu's home and then calls her husband. Chen Guangfu calls an activist friend of Chen Guangcheng's in Beijing, Guo Yushan. Guo Yushan dispatches a supporter of Chen Guangcheng's, He Peirong, in a car from Beijing to Shandong Province to meet Chen and bring him back to Beijing. Dongshigu villager Chen Hua drives Chen Guangcheng out of Linyi Municipality to nearby Xintai Municipality, also in Shandong Province. April 22, 2012 He Peirong meets Chen Guangcheng in Xintai Municipality and drives him to Beijing. In subsequent days, friends of Chen Guangcheng move him around the city, and then call the U.S. Embassy for help. April 25, 2012 One of Chen's associates contacts the U.S. Embassy in Beijing requesting help for Chen, whose leg was reportedly starting to swell. After a late-night meeting at the State Department in Washington, Secretary of State Clinton authorizes bringing him into the Embassy. April 26, 2012 The U.S. Embassy in Beijing sends a car to pick Chen up from a rendezvous point and bring him into the Embassy compound. Chen is given a bed in a U.S. Marine dormitory. April 27, 2012 In Washington, Assistant Secretary of State Kurt Campbell informs the Chinese Ambassador to the United States, Zhang Yesui, that Chen is in the U.S. Embassy in Beijing. Chen Kegui, Chen Guangcheng's nephew and Chen Guangfu's son, allegedly wields a kitchen cleaver in a struggle with security personnel who storm his father's home after learning of Chen Guangcheng's escape. Chen Guangcheng's brother, Chen Guangfu, is taken into custody, as are other villagers who aided Chen's escape. April 29, 2012 U.S. and Chinese officials meet for the first time to discuss Chen's case. Chen Guangcheng's brother Chen Guangfu is allowed to return to his home, but is put under a form of house arrest. May 2, 2012 Secretary of State Hillary Clinton arrives in Beijing for the U.S.-China Strategic and Economic Dialogue Chen leaves the U.S. Embassy for Chaoyang Hospital in the company of U.S. Ambassador Gary Locke. Locke stays with Chen at the hospital for about 90 minutes, and then leaves. The last of the U.S. Embassy personnel at the hospital leaves later that evening, reportedly in order to give Chen and his family privacy. Secretary of State Hillary Rodham Clinton issues a statement saying she is pleased that the U.S. government was able "to facilitate Chen Guangcheng's stay and departure from the U.S. Embassy in a way that reflected his choices and our values." She also references Chinese government commitments to Chen, including giving him "the opportunity to pursue higher education in a safe environment." Chinese Foreign Ministry spokesman Liu Weimin says China "expresses strong dissatisfaction" at the "abnormal means" by which the U.S. Embassy took Chen into the Embassy compound, accusing the United States of "interference in China's internal affairs." Liu demands that the U.S. apologize, carry out a "thorough" investigation of the incident, "hold relevant people accountable," and take steps to ensure that such an incident does not happen again. Two senior State Department officials brief the foreign media on the set of understandings that led to Chen's exit from the Embassy, including the Chinese government's agreement to allow Chen to relocate from Shandong Province and enroll in a Chinese law school. After talking to his wife, friends, and associates, Chen changes his mind about staying in China and requests to travel to the United States. May 3, 2012 Opening day of the U.S.-China Strategic & Economic Dialogue in Beijing. Chinese government officials interview Chen at the hospital about his allegations of mistreatment at the hands of local officials in Shandong Province. At a meeting with the Chinese Foreign Ministry's Cui Tiankai, U.S. officials suggest that Chen should travel to the United States. Referring to the Chen case, Chinese Foreign Ministry spokesman Liu Weimin accuses the United States of "confusing public opinion" and "covering up by all means its responsibility for the incident," and again calls for a U.S. apology, a U.S. investigation of the incident, and a "promise to prevent similar incidents." The Foreign Correspondents Club of China reports that some of its members have had their press credentials confiscated for entering the Chaoyang Hospital grounds to try to report on Chen's stay there. The Congressional Executive Commission on China holds a hearing entitled "Recent Developments and History of the Chen Guangcheng Case." Chen calls into the hearing from his hospital room in Beijing. Republican Presidential candidate Mitt Romney criticizes the Obama Administration's handling of the diplomacy surrounding Chen, saying that if the Administration failed to put in place measures to ensure the safety of Chen and his family, "this is a dark day for freedom and it's a day of shame for the Obama administration." May 4, 2012 Second day of the U.S.-China Strategic & Economic Dialogue in Beijing. Beijing Daily, published by the Beijing Communist Party Committee, publishes a commentary charging that Chen "has become the tool and pawn of American politicians for slinging mud at China" and that U.S. Ambassador Gary Locke is "not an ambassador who is careful with his words and deeds but a regular American politician who is out to stir up the whirlpool of troubles." Beijing Youth Daily publishes an article criticizing U.S. Ambassador Gary Locke for "showing off" by taking Chen to the hospital, pushing his wheelchair into the hospital, and allowing the foreign media to photograph him with Chen. The author asserts that Locke's behavior "has exceeded the U.S. ambassador's functions, duties, and role, and also violates the basic scope and ethics of diplomatic activity." Secretary of State Hillary Rodham Clinton meets with Chinese State Councilor Dai Bingguo and proposes that Chen travel immediately to the United States for study. Referring to Chen, China's Foreign Ministry spokesman Liu Weimin tells reporters that, "If he wants to study abroad, as a Chinese citizen, he can apply to go through relevant procedures with competent Chinese authorities through normal means according to law like other Chinese citizens." The State Department issues a statement saying that "The United States Government expects that the Chinese Government will expeditiously process" Chen's applications for travel documents and "make accommodations for his current medical condition." Chinese government officials interview Chen for a second day about his allegations of mistreatment at the hands of local officials in Shandong Province. May 7, 2012 Referring to the Chen Guangcheng case, Chinese Foreign Ministry spokesman Hong Lei tells a news briefing that "The U.S. side should draw a lesson from the relevant incident with a responsible attitude, reflect on its policies and moves, and take necessary measures to prevent similar incidents." China declines to renew the visa of American journalist Melissa Chan, the Beijing correspondent for Al Jazeera English. Some speculate that the Chinese government might be using her expulsion, the first of a foreign journalist in China since 1998, in part to express its anger over U.S. handling of the Chen Guangcheng case. May 11, 2012 Chen Guangcheng tells journalists that authorities in Shandong Province have charged his nephew, Chen Kegui, with attempted murder in connection with the nephew's altercation with security personnel who stormed his father's home. May 15, 2012 House Foreign Affairs Committee Subcommittee on Africa, Global Health, and Human Rights holds a hearing entitled "Chen Guangcheng: His Case, Cause, Family, and Those Who are Helping Him." Chen calls into the hearing from his hospital room in Beijing. May 16, 2012 Public Security officials from Chen's home province of Shandong visit him in his hospital room to take passport photographs and fingerprints and help Chen fill out passport applications for himself, his wife, and their two children. May 19, 2012 Chen, his wife, and their two children arrive in Newark, NJ, on United Airlines Flight 88 from Beijing. They take up residence at New York University, where Chen plans to study law. | The case of blind Chinese legal advocate Chen Guangcheng, who escaped from illegal house arrest in China's Shandong Province on April 20, 2012, and made his way to Beijing, the United States Embassy, and, ultimately, the United States, has generated strong congressional interest. While Chen was still in China, some Members questioned whether the U.S. State Department had done enough to ensure Chen's safety, with criticism focused on the State Department's decision to escort Chen from the Embassy to a Beijing hospital on May 2, 2012, and its willingness to accept verbal assurances from the Chinese government that it would ensure a "safe environment" for Chen in China. With Chen now in the United States, remaining issues for the Administration and Congress include the fate of the family members, supporters, and friends back in China who helped him escape. The situation of Chen's nephew, Chen Kegui, may be of particular concern. He faces attempted murder charges for injuring security personnel with a kitchen knife when they burst into his father's house late at night after Chen's escape, and he has been denied access to lawyers retained by his family on his behalf. The United States is also watching to see if China follows through on its promise to investigate Chen's treatment at the hands of local officials in Shandong over the past seven years. In the longer term, congressional considerations include how the United States should respond to other human rights cases in China, and what place promotion of human rights should have in the overall U.S.-China relationship. Chen's saga tested the bilateral relationship and showed it to have a resilience that surprised some observers. When an associate of Chen's contacted the U.S. Embassy in Beijing on April 25, 2012, to request help for him, Secretary of State Hillary Rodham Clinton reportedly personally authorized a mission to rescue Chen from the streets of Beijing and bring him into the U.S. Embassy compound for assessment by U.S. medical personnel. That move plunged the United States and China into three weeks of high-stakes diplomacy over Chen's fate. With the two countries' premier bilateral dialogue, the U.S.-China Strategic and Economic Dialogue, scheduled for May 3 and 4, 2012, in Beijing, diplomats for the two sides engaged in tense negotiations. Moving at a rapid pace, they produced a detailed and highly unusual set of understandings under which the Chinese government committed to relocate Chen to a "safe environment" away from his home province and offer him the opportunity to study law at one of seven universities, with the Chinese government paying for Chen's tuition and room and board for him and his family. Chen accepted these verbal understandings—the terms of which China never publicly confirmed—and left the Embassy after six days for a local hospital. Hours later, Chen changed his mind about staying in China, occasioning another round of negotiations. Those negotiations produced a subsequent understanding, under which the Chinese government said publicly that Chen was free to apply for documents to study abroad. Chen, his wife Yuan Weijing, and their two children arrived in the United States on May 19, 2012. Chen plans to study law at New York University. This report begins by examining implications of the Chen case for the place of human rights in U.S.-China relations. It then discusses why Beijing may have been willing to negotiate with the United States at all over the fate of a Chinese citizen inside China. The report highlights the remaining issues in the case, details the understandings reached between the two governments, and then provides background on Chen Guangcheng and a list of his family and other associates in China who may be at risk. The report includes a map showing Chen's home district and Beijing, the city to which he escaped. It also includes a timeline of developments in the case from April 20, 2012, until May 19, 2012, based upon information available at the time of publication. |
The No Child Left Behind Act of 2001 (NCLB), signed into law on January 8, 2002 ( H.R. 1 , P.L. 107-110 ), extended and amended the Elementary and Secondary Education Act (ESEA). ESEA programs are authorized through FY2008, and the 110 th Congress is considering whether to amend and extend the ESEA. This report outlines major highlights of the NCLB. Only the most basic provisions of this act are briefly described in this report; other CRS reports provide more specific and substantial analyses of the major provisions of the NCLB. Major features of the NCLB include the following: (a) states were required to implement standards-based assessments in reading and mathematics for pupils in each of grades 3-8 by the end of the 2005-2006 school year, and at three grade levels in science by the end of the 2007-2008 school year; (b) grants are provided to states for assessment development; (c) all states are required to participate in National Assessment of Educational Progress (NAEP) tests in 4 th and 8 th grade reading and mathematics every second year; (d) states must annually apply adequate yearly progress (AYP) standards, incorporating a goal of all pupils reaching a proficient or higher level of achievement by the end of the 2013-14 school year, to each public school, local education agency (LEA), and the state overall; (e) a sequence of consequences, including public school choice and supplemental services options, must be implemented for schools and LEAs that fail to meet AYP standards for two or more consecutive years; (f) ESEA Title I-A allocation formulas have been modified to increase targeting on high-poverty LEAs and to move Puerto Rico toward parity with the states; (g) by the end of the 2005-06 school year, all paraprofessionals paid with Title I-A funds were to have completed at least two years of higher education or met a "rigorous standard of quality"; (h) several new programs aimed at improving reading instruction have been initiated; (i) teacher programs have been consolidated into a state grant authorizing a wide range of activities including teacher recruitment, professional development, and hiring; (j) states and LEAs participating in Title I-A were to ensure that teachers meet the act's definition of "highly qualified" by the end of the 2005-2006 school year; (k) almost all states and LEAs are authorized to transfer a portion of the funds they receive among several programs; (l) federal support of public school choice has been expanded in several respects; (m) several previous programs have been consolidated into a state grant supporting integration of technology into K-12 education; (n) the Bilingual and Emergency Immigrant Education Acts have been consolidated into a single formula grant, with previous limits on the share of grants for specific instructional approaches eliminated; and (o) the 21 st Century Community Learning Center program has been converted into a formula grant with increased focus on after-school activities. Major provisions that were in the House- or Senate-passed versions of H.R. 1 (107 th Congress) but were not included in the final legislation include the Senate bill's provisions for mandatory funding at specified levels for Individuals with Disabilities Education Act (IDEA) Part B grants to states, discipline provisions for children with disabilities, authorization for up to seven states to eliminate a wide range of program requirements in return for increased accountability in terms of pupil outcomes, and pest management in schools; and the provisions in both the House- and Senate-passed versions for aggregate (i.e., not program-specific) performance bonuses or sanctions, especially for states. Major features of the NCLB, as well as brief references to relevant provisions of previous law, are compared in the following table. | On January 8, 2002, the No Child Left Behind Act of 2001, legislation to extend and revise the Elementary and Secondary Education Act (ESEA), was signed into law as P.L. 107-110. This legislation extensively amended and reauthorized most federal elementary and secondary education aid programs. Major features of the No Child Left Behind Act of 2001 include the following: (a) states were required to implement standards-based assessments in reading and mathematics for pupils in each of grades 3-8 by the end of the 2005-2006 school year, and at three grade levels in science by the end of the 2007-2008 school year; (b) grants are provided to states for assessment development; (c) all states are required to participate in National Assessment of Educational Progress (NAEP) tests in 4th and 8th grade reading and mathematics every second year; (d) states must annually apply adequate yearly progress (AYP) standards, incorporating a goal of all pupils reaching a proficient or higher level of achievement by the end of the 2013-14 school year, to each public school, local education agency (LEA), and the state overall; (e) a sequence of consequences, including public school choice and supplemental services options, must be implemented for schools and LEAs that fail to meet AYP standards for two or more consecutive years; (f) ESEA Title I-A allocation formulas have been modified to increase targeting on high-poverty LEAs and to move Puerto Rico toward parity with the states; (g) by the end of the 2005-06 school year, all paraprofessionals paid with Title I-A funds were to have completed at least two years of higher education or met a "rigorous standard of quality"; (h) several new programs aimed at improving reading instruction have been initiated; (i) teacher programs have been consolidated into a state grant authorizing a wide range of activities including teacher recruitment, professional development, and hiring; (j) states and LEAs participating in Title I-A were to ensure that teachers meet the act's definition of "highly qualified" by the end of the 2005-2006 school year; (k) almost all states and LEAs are authorized to transfer a portion of the funds they receive among several programs; (l) federal support of public school choice has been expanded in several respects; (m) several previous programs have been consolidated into a state grant supporting integration of technology into K-12 education; (n) the Bilingual and Emergency Immigrant Education Acts have been consolidated into a single formula grant, with previous limits on the share of grants for specific instructional approaches eliminated; and (o) the 21st Century Community Learning Center program has been converted into a formula grant with increased focus on after-school activities. ESEA programs are authorized through FY2008, and the 110th Congress is considering whether to amend and extend the ESEA. |
Coal fired power plants account for almost 45% of electric power generated in the United States. The coal combustion process at those facilities generates a tremendous amount of waste. In 2008, industry estimates indicate that 136 million tons of coal combustion waste (CCW) was generated. That would make CCW the second largest waste stream in the United States, second to municipal solid waste, or common household garbage. How CCW is managed and how those management methods are regulated have come under increased scrutiny in the last year. Coal combustion waste is managed in two ways: It may be disposed of in landfills or surface impoundment ponds, or in mines as minefill, or it may be used in some capacity (commonly referred to as "beneficial use")—for example, as a component in concrete, cement, or gypsum wallboard, or as structural or embankment fill. These management methods are largely unregulated at the federal level. Instead, they are regulated according to state requirements that vary from state to state. On December 22, 2008, national attention was turned to potential risks associated with CCW management when a breach in an impoundment pond at the Tennessee Valley Authority's (TVA's) Kingston, TN, plant released 1.1 billion gallons of coal fly ash slurry. The release covered more than 300 acres and damaged or destroyed homes and property. The sludge discharged into the nearby Emory and Clinch rivers, filling large areas of the rivers and resulting in fish kills. Sampling at the site in January 2009 found arsenic levels that exceeded the Environmental Protection Agency's (EPA's) Removal Action Level (contaminant levels at which time-critical response actions may be required). According to TVA, the estimated cleanup cost will likely reach $1.2 billion. TVA recognized that this estimate could change significantly depending on the method of containment or the amount of ash ultimately disposed of as well as the impact of new coal ash laws and regulations that may be implemented at the state or federal level. Further, TVA's estimate does not include the potential costs associated with future regulatory actions, litigation, fines or penalties that may be assessed, final remediation activities, or other settlements. EPA and TVA have estimated that the cleanup may take two to three years. In addition to the Kingston release, other events related to CCW management have attracted national media attention, as well as the attention of various stakeholders and some Members of Congress. For example, on December 30, 2008, a $54 million class action settlement was approved between Constellation Energy and Maryland residents after CCW that had been disposed of in a Gambrills, MD, quarry contaminated the owners' drinking water. Wells were determined to be contaminated with arsenic, lead, cadmium, and sulphates at levels above EPA drinking water standards. Concern for a potential accidental release or contamination associated with CCW management is not new. However, the recent high-profile incidents have brought increased attention to the issue. Concerns about CCW management generally center around the following issues: The waste is generated in tremendous volumes and has been accumulating at some sites for decades. Individual power plants may generate thousands to hundreds of thousands of tons of the waste each year—the majority of which is disposed of onsite. Some plants have been in operation for decades (the site of the Kingston release has accumulated ash sludge since 1954), resulting in the disposal of millions of tons of CCW at individual plants across the United States. The waste likely contains certain hazardous constituents that EPA has determined pose a risk to human health and the environment. Those constituents include heavy metals such as arsenic, beryllium, boron, cadmium, chromium, lead, and mercury, and certain toxic organic materials such as dioxins and polycyclic aromatic hydrocarbon (PAH) compounds. Under certain conditions, hazardous constituents in CCW migrate and can contaminate groundwater or surface water, and hence living organisms. For example, EPA determined that the potential risk of human exposure to arsenic and other metals in CCW (via the groundwater-to-drinking-water pathway) increased significantly when CCW was disposed of in unlined landfills. That risk criterion was slightly higher for unlined surface impoundments. According to EPA, the majority of new landfills and surface impoundments are constructed with liners and have groundwater monitoring systems. However, it is difficult to determine how many older units that may be operational do not have liners or groundwater monitoring. Although CCW contains hazardous constituents, it has been specifically exempt from federal hazardous waste management regulations. Instead, it is regulated in accordance with requirements established by the states. In 1999, EPA determined that national regulations regarding CCW disposal were needed, in part due to inconsistencies in state requirements. Since then, various surveys have been conducted and data gathered, but EPA has not proposed regulations. Members of the public, particularly those near utility plants, have expressed concern that their health or property values may be affected by either a sudden release of waste, as in Kingston, or the gradual release of contaminants. Industry organizations insist that the waste is generally safe and does not pose a significant risk that would warrant the increased cost of more stringent management—costs that would be ultimately borne by rate payers. They also argue that being required to manage the waste according to hazardous waste regulations would limit its potential for use—thereby increasing the amount that must be disposed of. Environmental organizations argue that the Kingston spill was a warning sign of spills to come and that there is currently inadequate oversight and monitoring of either existing or closed disposal sites. Some Members of Congress have also expressed concern over these issues, both before and after the Kingston release. Like other stakeholders, their concerns have stretched across various areas including the role that coal mining plays in our economy, the role that coal-fired utilities play as a major source of domestic energy, the federal role in the regulation of CCW, as well as the potential risks posed to their constituents if CCW is managed improperly. EPA has been studying how best to regulate CCW since at least 1980. Waste management is regulated under provisions of the Resource Conservation and Recovery Act (RCRA, 42 U.S.C. §6901 et seq .). In May 2000, EPA determined that CCW did not warrant regulation under subtitle C of RCRA (the federal hazardous waste requirements). EPA did, however, determine that national regulations under subtitle D of RCRA (the solid waste management requirements) were warranted for CCW when it is disposed in landfills or surface impoundments. EPA also found that CCW used to fill surface or underground mines warranted regulation under RCRA's solid waste requirements or possibly under modifications to existing regulations established under authority of the Surface Mining Control and Reclamation Act (SMCRA). Since then, various surveys have been conducted, reports issued, and data gathered, but no federal regulations have been proposed. On March 9, 2009, in the wake of the Kingston release, EPA declared its intent to move forward with CCW regulations to address the management of coal combustion residuals. EPA stated that regulations would be proposed for public comment by the end of 2009. Since EPA's statement, industry and environmental groups, state government representatives, and some Members of Congress have expressed concerns regarding how the waste will ultimately be regulated. Generally those concerns center around whether CCW will be regulated as a solid or hazardous waste. Subsequently, representatives with EPA have declared that, although they felt that regulating CCW under RCRA's solid waste management requirements (e.g., subtitle D's landfill criteria and permitting requirements) would provide sufficient protection, the agency had no authority to do so. Instead, their only existing authority was to regulate the waste under RCRA's hazardous waste management requirements (for more information, see " The Current Rulemaking "). On December 17, 2009, EPA issued a statement that its pending decision on regulating CCW would be delayed for a "short period due to the complexity of the analysis the agency is currently finishing." Regardless of the ultimate choice of waste management, the amounts of CCW generated each year are tremendous. As power plant emission standards become more stringent and air emission control devices capture more contaminants, both the total waste generated and the amount of toxins in the waste can be expected to increase. To provide information and context on this issue, this report discusses the nature of the waste itself; potential risks associated with its management; the regulatory history of CCW management requirements, including why CCW is exempt from federal regulations and issues associated with the current rulemaking; and CCW management options (e.g., landfill and surface impoundment disposal) and the likely state and federal requirements associated with those management methods. This report does not provide risk analysis regarding the disposal or use of CCW, or information regarding the potential fate and transport of hazardous constituents. It also does not discuss details regarding the Kingston release, such as determinations regarding the cause of the release or details of the cleanup. Numerous studies on those topics have been conducted, findings from which are cited or summarized where appropriate. This report focuses primarily on the issues associated with CCW disposal in landfills and surface impoundments, but also provides summary information on issues associated with its disposal in mines and its "beneficial use." Each step of the coal combustion process results in different types of waste. The characteristics and potential risks associated with that waste vary according to many factors. To minimize the potential negative impacts associated with CCW management, it is necessary to understand the characteristics of the specific type of CCW being handled as well as the physical environment in which it is placed. Coal combustion waste consists of inorganic residues that remain after pulverized coal is burned. At various stages of the coal combustion process, different types are generated. These residues include both coarse particles that settle to the bottom of the combustion chamber and fine particles that are removed from the flue gas by electrostatic precipitators, scrubbers, or fabric filters. Factors such as the source of the coal burned at a plant and the technology used (both to burn the coal and to filter the ash) have bearing on CCW's characteristics and potential toxicity. Table 1 describes the different types of CCW generated. The physical and chemical characteristics of each type of CCW have bearing on both its potential for use (e.g., as a component in concrete or gypsum wallboard) and its potential to present some level of risk to human health or the environment. In 2006, a study by the National Research Council (NRC) identified several factors that influence the physical and chemical characteristics of CCW. Included among the factors are: T he c hemical characteristics of the source coal . The waste itself represents noncombustible constituents in coal. Therefore, its characteristics are strongly influenced by the source coal itself (e.g. lignite, bituminous). T he chemical characteristics of any co- fired materials . Some coal-fired boilers, especially at non-utilities (e.g., boilers at industrial, commercial, or chemical facilities), may be co-fired with materials such as wood, biomass, plastics, petroleum coke, tire-derived fuel, refuse-derived fuel, or manufactured gas plant wastes. T he processes or technology used at individual utility plants . Waste characteristics are affected by the particular combustion technology, air emission control devices used to capture regulated contaminants (e.g., sulfur dioxide, nitrogen oxide, mercury), and residue-handling technology (collection systems result in either dry or wet residues) used at the plant. While the components of each type of ash vary, depending on these factors, all CCW will likely include certain amounts of toxic constituents, primarily heavy metals such as arsenic, beryllium, boron, cadmium, chromium, cobalt, lead, manganese, mercury, molybdenum, selenium, strontium, thallium, and vanadium. The waste will also likely include a certain level of toxic organic materials such as dioxins and polycyclic aromatic hydrocarbon (PAH) compounds. With regard to the source coal, the U.S Geological Survey (USGS) maintains a database of coal quality characteristics of coal basins in the United States. The three types of coal most often used in utility boilers, bituminous, subbituminous, and lignite, vary in terms of their chemical composition, ash content, and geological origin. Some of the principal components in the fly ash from these types of coal are silica, alumina, iron oxide, potassium, calcium, and magnesium. These same components can make CCW usable as an ingredient in Portland cement or as a soil amendment. Knowledge of coal chemistry—as well as the technology used to fire, filter, and collect it—is important to determine which mitigation procedure will be most efficient in reducing the amount of hazardous material potentially generated as waste. Generally, there are two potential risks associated with the disposal or use of CCW. Disposal or use that involves direct applications of the waste to the ground may allow hazardous constituents in the waste to leach from the material, migrate, and contaminate groundwater or surface water and, ultimately, living organisms. Also, the land disposal of high volumes of liquid waste could result in a sudden release, as occurred at Kingston. Although the possibility exists that hazardous constituents in CCW could become airborne, the primary concern regarding the management of the waste usually relates to the potential for hazardous constituents to leach into surface or groundwater, and hence contaminate drinking water, surface water, or biota. The presence of hazardous constituents in the waste does not, by itself, mean that they will contaminate the surrounding air, ground, groundwater, or surface water. The 2006 NRC report stated that there are many complex physical and biogeochemical factors that influence the degree to which heavy metals can essentially dissolve and migrate offsite. Those factors include: T he volume and degree to which water is able to flow through the waste . Water, such as precipitation or groundwater flow, is the primary mechanism for the transport of hazardous constituents through the waste. EPA has found that contaminants have a significantly higher likelihood of migrating away from the disposal site (i.e., landfill or surface impoundment) if they are disposed of in an unlined disposal unit (i.e., a scenario in which water is able to flow through the waste). T he chemistry , particularly the pH, of th e water that flows through or contacts the waste. Different metals commonly found in CCW are soluble in acidic (high pH), alkaline (low pH), or neutral environments. Many types of CCW are themselves alkaline and capable of neutralizing acidity. This is one reason why certain types of CCW are placed in mines to treat acid mine drainage. T he leachable mass of toxic constituents present in the waste . While general factors that contribute to contamination migration are known, it is difficult to determine the degree to which actual or potential contamination is being monitored at CCW disposal sites or sites where it has been placed directly on soil (e.g., as structural or embankment fill). EPA has documented selected cases of damages associated with disposal in landfills and surface impoundments. However, there is little data regarding contamination associated with its disposal in mines or the "beneficial use" of CCW when it is place directly on land—such as when used as embankment or structural fill. That does not mean that contamination has occurred in those uses—only that it is known that CCW has been managed in a way that contamination could be anticipated. The degree to which such data may be tracked in individual states is difficult to determine. Surface impoundment ponds hold liquid waste that has been sluiced from the power plant to the disposal area. It is generally held within the pond by depositing it in a natural depression in the ground or through the use of a dike of some sort (see discussion regarding the use and regulation of surface impoundments in " Landfill and Surface Impoundment Disposal "). The Kingston release resulted from a rupture in an impoundment dike. On March 9, 2009, in an attempt to avoid catastrophic releases such as that in Kingston, EPA sent a request for information to the owners and operators of CCW impoundment units. The information-gathering was intended to assist in prioritizing surface impoundment ponds for inspection, and, ultimately, to assess the structural integrity of the units. EPA regional offices were asked to assist in identifying facilities that they considered priorities. EPA sent the assessment survey to 61 utility headquarters and 162 individual facilities, requesting information regarding, among other factors, the stability of liquid-holding surface impoundment units. Responses to EPA's survey request identified 584 impoundment units (almost 300 more than EPA originally thought were operating). Survey responses also indicated that 49 units at 30 different locations were deemed "high hazard units." Such a rating is not an indication of the structural integrity of a unit or an assessment of its potential for failure. Rather, the rating allows dam safety and other officials to determine where significant damage or loss of life may occur if there is a structural failure of the unit. EPA's intent in determining the dam safety rating was to assist in prioritizing inspections at individual facilities. The Resource Conservation and Recovery Act (RCRA, 42 U.S.C. §6901 et seq .) provides the general guidelines under which all waste is managed. It also includes a congressional mandate to EPA to develop a comprehensive set of regulations to implement the law (also commonly referred to as RCRA). Enacted in 1976, RCRA was intended, in part, to protect human health and the environment from the potential hazards of waste disposal and to ensure that wastes are managed in an environmentally sound manner. The evolution of CCW regulation involves a long and somewhat complicated history. To understand issues associated with CCW disposal regulations and the current rulemaking process, it is useful to understand EPA's current authority under RCRA to regulate solid and hazardous waste; the terms of the "Bevill amendment," which excluded CCW from regulation under RCRA's hazardous waste requirements; EPA's actions in response to Bevill amendment directives; and issues associated with the current rulemaking process—particularly questions regarding EPA's potential to regulate CCW as solid or hazardous waste. Broadly, industrial waste is regulated pursuant to standards applicable to "solid waste" and "hazardous waste." The current debate regarding CCW management centers around determining under which of those categories CCW belongs. To understand some of the challenges associated with the current rulemaking, it is useful to understand how a waste is identified as a solid waste or a hazardous waste (under the regulatory definition), and EPA's current authority to regulate each category of waste. RCRA regulations define solid waste broadly as any discarded material. The regulations specify that a solid waste becomes a hazardous waste by exhibiting one or more of the following characteristics—toxicity, reactivity, ignitability, or corrosivity. If CCW were to be characterized as hazardous, it would likely be because hazardous constituents in the waste exceed regulatory toxicity levels. EPA requires that toxicity characteristics be determined using the Toxicity Characteristic Leaching Procedure (TCLP). The TCLP test is intended to simulate conditions that would likely occur in a landfill, and measures the potential for toxic constituents to seep or "leach" into groundwater. Generally, CCW does not "fail" TCLP (that is, a given sample of waste generally does not exceed toxicity levels for certain contaminants like lead, arsenic, selenium, or other heavy metals). However, the nature of CCW is unique, relative to other hazardous waste. That is, it is generated in huge volumes, with large amounts of inert, benign materials that effectively dilute what may be an overall significant amount of hazardous constituents in an entire CCW landfill or surface impoundment. Another means by which a waste may be identified as hazardous is by EPA specifically listing it as such (hence commonly referred to as "listed wastes"). One category of listed waste is "source specific waste." This list of waste includes wastes from specific industries, such as petroleum refining or pesticide manufacturing. If CCW were determined to be a hazardous waste it would likely be a specifically listed waste. In addition to specifically listing wastes as hazardous, certain wastes may be specifically excluded from the definition of hazardous waste or solid waste. Materials may be excluded for various reasons, including public policy, economic impacts, prior regulation, lack of data, or the waste's high volume and low toxicity. The decision to exclude these materials from the solid waste definition is a result of either congressional action (embodied in the statute) or EPA policy making (embodied in the regulations). For example, Congress excluded CCW from the definition of hazardous waste pending additional study from EPA (see discussion below regarding " CCW's Regulatory Exemption Under "the Bevill Amendment" "). Subtitle D of RCRA establishes state and local governments as the primary planning, regulating, and implementing entities for the management of non-hazardous solid waste, such as household garbage and non-hazardous industrial solid waste. RCRA specifically requires EPA to regulate solid waste management facilities that accept household hazardous waste or hazardous waste from "small quantity generators." Such a specific directive indicates that EPA does not have the authority to regulate other types of disposal facilities, such as those that receive CCW. Subtitle C of RCRA created a hazardous waste management program that, among other elements, directed EPA to develop certain waste management criteria. Under subtitle C, EPA is authorized to establish a system for controlling hazardous waste from the time it is generated until its ultimate disposal (i.e., from "cradle to grave"). Under subtitle C, hazardous waste treatment, storage, and disposal facilities (TSDFs) are required to have permits, to comply with operating standards specified in the permit, to meet financial requirements in case of accidents, and to close their facilities in accordance with EPA regulations. The 1984 amendments imposed a number of new requirements on TSDFs with the intent of minimizing land disposal. Bulk hazardous liquid wastes are prohibited from disposal in any landfill, and severe restrictions are placed on the disposal of containerized hazardous liquids, as well as on the disposal of nonhazardous liquids in hazardous waste landfills. EPA was directed to review all wastes that it defined as hazardous and to make a determination as to the appropriateness of land disposal for them. Minimum technological standards were set for new landfills and surface impoundments, requiring, in general, double liners, a leachate collection system, and groundwater monitoring. As required under subtitle C, EPA proposed hazardous waste management regulations in 1978. In these proposed regulations, EPA identified six categories of wastes it deemed "special wastes" (including fossil fuel combustion wastes) which would be deferred from hazardous waste management requirements until the completion of further study and assessment to determine their risk to human health and the environment. These special wastes were identified because they typically were generated in large volumes and, at the time, were believed to pose less of a risk to human health and the environment than wastes identified for regulation as hazardous waste. In 1980, the Solid Waste Disposal Act Amendments of 1980 amended RCRA in several ways, including exempting "special wastes" from regulation under subtitle C until further study and assessment of risk could be performed. This section of the law is frequently referred to as the "Bevill Amendments." Section 7003 of RCRA (42 U.S.C. § 6973) provides EPA with broad enforcement tools that can be used to abate conditions that may present an imminent and substantial endangerment to health or the environment. Section 7003 allows EPA to address situations where the handling, storage, treatment, transportation, or disposal of any solid or hazardous waste may present such an endangerment. In these situations, EPA can initiate judicial action or issue an administrative order to any person who has contributed or is contributing to such handling, storage, treatment, transportation, or disposal to require the person to refrain from those activities or to take any necessary action. Section 7003 is available for use in several situations where other enforcement tools may not be available. For example, Section 7003 can be used at sites and facilities that are not subject to subtitle C of RCRA or any other environmental regulation (as may be the case at CCW disposal or use sites). Action under Section 7003 may be initiated if the following three conditions are met: 1. Conditions may present an imminent and substantial endangerment to health or the environment—such conditions generally require careful documentation and scientific evidence. However, the endangerment standard under RCRA has generally been broadly interpreted. 2. The potential endangerment stems from the past or present handling, storage, treatment, transportation, or disposal of any solid or hazardous waste. 3. The person has contributed or is contributing to such handling, storage, treatment, transportation, or disposal. Under Section 7003, EPA may take action as deemed necessary, determined on a case-by-case basis. Further, it gives EPA authority to obtain relevant information regarding potential endangerments. Section 7003 authority has been cited by some industry representatives as one alternative to EPA to regulate CCW management. Proponents argue that such an approach would allow EPA to enforce disposal practices or uses that pose a potential threat. Opponents of this approach argue that it is a resource-intensive method of enforcement—one that would require EPA to gather substantial amounts of information on individual disposal sites, as opposed to implementing a consistent national approach to regulation. In the months before hazardous waste regulations were finalized in 1980, Congress debated RCRA reauthorization. In February 1980, Representative Tom Bevill introduced an amendment to the Solid Waste Disposal Act Amendments that would require EPA to defer the imposition of hazardous waste regulatory requirements for fossil fuel combustion waste and discarded mining waste until data regarding the materials' potential hazard to human health or the environment could be analyzed. Congressman Bevill stated that EPA's intent to regulate such waste as hazardous would discourage the use of coal and constitute an unnecessary burden on the utility industry. In anticipation of the enactment of this legislation, according to EPA, the agency excluded the regulation of fossil fuel combustion waste from its final hazardous waste regulations. P.L. 96-482 , the Solid Waste Disposal Act Amendments of 1980, was enacted on October 12 of that year. The law was intended, in part, to provide EPA with stronger enforcement authority to address illegal dumping of hazardous waste. The final version included Representative Bevill's amendment, which excluded the following large-volume wastes from the definition of hazardous waste under Subtitle C of RCRA: Waste generated primarily from the combustion of coal (e.g., fly ash waste, bottom ash waste, slag waste, and flue gas emission control waste) or other fossil fuels. Solid waste from the extraction, beneficiation, and processing of ores and minerals, including phosphate rock and overburden from the mining of uranium ore. Cement kiln dust waste. The Bevill amendment specified that the hazardous waste exclusion would be held pending completion of a study and report to Congress by EPA for each waste category. Factors to be addressed in each study were specified under Section 8002 of RCRA. For example, EPA was required to determine the potential danger, if any, posed by each form of waste to human health or the environment; identify documented cases in which danger to human health or the environment had been proved; identify then-current disposal practices, alternatives to those disposal methods, and the costs of such alternatives; and identify then-current uses and potential future uses of coal combustion products. Within six months of each report to Congress, EPA was directed to make a regulatory determination regarding whether the waste in question warranted regulation as a hazardous waste under Subtitle C of RCRA. Since 1980, EPA has conducted various studies, submitted reports to Congress, and made regulatory determinations in response to the directives in the Bevill amendment. Those actions primarily address issues associated with landfill and surface impoundment disposal. EPA has also conducted studies into the beneficial use of CCW. In addition, both EPA and the Department of the Interior's Office of Surface Mining (OSM) have conducted various activities related to mine placement of CCW. Selected actions undertaken by both EPA and OSM are summarized in Table 2 . As discussed above, EPA first stated its intent to develop regulations applicable to CCW management in May 2000. In its regulatory determination, EPA concluded that CCW did not warrant regulation as hazardous waste pursuant to provisions of subtitle C. However, EPA stated that it was convinced that CCW could pose risks to human health and the environment if not properly managed, and there is sufficient evidence that adequate controls may not be in place. The agency cited, for example, that most states can require newer units to include liners and groundwater monitoring, but that 62% of existing utility surface impoundments do not have groundwater monitoring. Further, EPA stated: ... [I]n light of the evidence of actual and potential environmental releases of metals from these wastes; the large volume of wastes generated from coal combustion; the proportion of existing and even newer units that do not currently have basic controls in place; and the presence of hazardous constituents in these wastes; we believe, on balance, that the best means of ensuring that adequate controls are imposed where needed is to develop national subtitle D regulations. EPA stated its decision to establish national regulations under RCRA subtitle D for CCW that is disposed of in landfills or surface impoundments or used to fill surface or underground mines. Since that decision, EPA gathered data, issued various reports, and held public hearings, but did not propose regulations. In the wake of the Kingston release, EPA again stated its intent to develop regulations applicable to CCW disposal. On March 9, 2009, EPA announced that it was moving forward on developing regulations to address the management of CCW. The agency stated that it planned to propose regulations by the end of 2009. In its May 2000 regulatory determination, EPA stated that it would establish national regulations under subtitle D of RCRA, and specifically sited sections 1008(a) and 4004(a) of the law as the basis of its authority to regulate for CCW disposed in landfills or surface impoundments or used to fill surface or underground mines. However, in 2009, statements attributed to an EPA representative indicated that the authority previously cited was not sufficient to regulate CCW under subtitle D. Instead, subtitle D gave EPA only the authority to regulate sanitary landfills (discussed above). Specifically, under subtitle D, Congress requires the "upgrading of open dumps" (42 U.S.C. § 6945) and directs EPA to determine the adequacy of certain guidelines and criteria (42 U.S.C. § 6949a) applicable to certain solid waste management and disposal facilities. Those sections of RCRA apply specifically to facilities that may receive hazardous household wastes or hazardous wastes from small-quantity generators. Solid waste facilities that receive CCW are not specifically identified in the law. Therefore, according to EPA, the agency is not authorized to promulgate enforceable regulations under subtitle D (e.g., to establish landfill criteria or require states to include CCW disposal units in their solid waste permitting programs. Considering the recent interpretation of its authority under subtitle D and the current existing authority (described above), it appears that EPA generally has three options for regulating CCW. Those options, as well as selected and pros and cons outlined by various stakeholders, are summarized in Table 3 . On December 17, 2009, EPA issued a statement indicating that the regulatory proposal is on hold. As discussed previously, CCW is managed in one of two ways—it is either disposed of in landfills, surface impoundments, or mines, or it is put to some beneficial use . In 2008, 136 million tons of CCW were generated. Industry estimates indicate that 8% was disposed of in mines as minefill and 37% was used in some capacity (e.g., as a component in concrete, cement, or gypsum wallboard, or as structural or embankment fill). The remainder was disposed of in landfills or surface impoundments. Requirements applicable to each of these management methods are determined by individual states. Generally, the only federal role in their management may be that certain state permit programs (e.g., those related to wastewater discharges to surface water) are implemented under the authority of federal law. Other than that, there is little federal role in CCW management. It is difficult to make any broad statements about regulations applicable to CCW management methods. Regulations do not just vary from state to state, but from unit to unit. For example, a given state likely regulates surface impoundments and landfills under different requirements associated with regulations applicable to solid waste and wastewater management, while mine disposal and beneficial uses may be largely unregulated. Regulatory requirements within a given state may also vary depending on when a disposal unit went into operation. For example, requirements applicable to older landfills may be grandfathered in, under less stringent requirements than newer units, as new laws are enacted. Also, no industry or federal agency tracks the total number of disposal units or waste usage sites (e.g., locations where waste may have been used as structural fill). That is not to say that the waste is necessarily unregulated or disposed of improperly—only that there are many unknown elements of both current disposal and use practices, and probably even less that is known about sites that have been closed. Landfilling CCW involves the long-term disposal of generally dry waste that is placed on an area of land or an excavation for permanent disposal. Surface impoundment units hold liquid waste that is generally sluiced directly from a power plant to the impoundment unit, where solids settle out, leaving relatively clear water at the surface (which may be recirculated into the plant or discharged to surface water). The impoundment itself may be a natural or man-made depression or diked area formed of earthen materials used for temporary or permanent storage or treatment of liquid waste. Solids may accumulate until the impoundment unit is full, or they may be dredged periodically and taken to another disposal unit such as a landfill. In 2006, in a joint-agency effort, EPA and the U.S. Department of Energy (DOE) conducted a study to determine state regulatory requirements applicable to CCW landfills and surface impoundments built between 1994 and 2004. At the time, it was estimated that roughly two-thirds of the waste was disposed of in landfills and the remainder in surface impoundments. However, it is unknown how accurate that estimate is. In March 2009, when EPA surveyed power plants to determine the integrity of existing surface impoundments, the agency estimated that there were approximately 300 ponds nationwide. Instead, survey results found that there are 584. There is no comparable data on the number of landfills. The EPA/DOE study also found that regulations varied for each type of surface disposal unit, and varied significantly from state to state. A common regulatory element was that all disposal units were required to have some type of permit to operate—generally more than one. The most commonly issued state permits were issued in accordance with a state's solid waste requirements, wastewater or water pollution control requirements, or dam safety requirements. As noted in the EPA/DOE study, these requirements applied to "new" landfills and surface impoundments. It is unknown how many landfills and surface impoundments built before 1994 exist, are still in operation, or may not have been properly closed. Older units may be required to have permits to continue operation, but would not likely have been required to install liners, leachate collection systems, or groundwater monitoring devices. With regard to surface impoundments, states commonly regulate two elements of a unit—the structure itself (commonly pursuant to the state's dam safety requirements) and any discharges from the unit to surface or groundwater (commonly pursuant to the state wastewater or water pollution control requirements). Another complicating factor in determining state CCW disposal requirements is states' tendency to allow a certain number of "exceptions" to state regulatory requirements. For example, a state may have specific requirements for landfill and surface impoundment liners or groundwater monitoring systems, but allow an individual plant to implement an alternative means of compliance on a case-by-case basis. With regard to both surface impoundments and landfills, many states are likely to require groundwater monitoring to detect contamination from a disposal unit, but fewer states are likely to have regulatory requirements intended to prevent groundwater contamination from occurring (e.g., they would not likely require a plant to install a liner in an older, unlined landfill). These potential variations within a state's own program make comparison from state to state even more difficult. This variation, in part, was the basis for EPA's 2000 determination that consistent, national regulation regarding CCW disposal under RCRA Subtitle D was needed. Although details of each state's regulatory requirements vary, there are certain broad requirements that may be similar. For example, a state is likely to regulate new landfills under provisions of the state's solid waste management program. New surface impoundments are likely regulated under provisions of the state's dam safety program and under the terms of a wastewater discharge permit program. States may regulate CCW landfills in accordance with state solid waste management program requirements. Most state waste management programs specifically exclude CCW from the definition of hazardous waste and instead regulate it as solid waste. States generally regulate solid waste disposal in accordance with a permit program. That is, landfills generally are required to operate in accordance with criteria specified in a permit. If a state regulates CCW landfills under its solid waste permit program, new CCW landfills likely are required to have a liner and groundwater monitoring system. Permits may also require leachate collection systems, closure and post-closure requirements, siting controls, or a financial assurance requirement. Not all states regulate CCW landfills through a permit program. For example, in the EPA/DOE study, of the 11 state programs analyzed, five adopted laws and regulations that resulted in exemptions from solid waste permitting requirements for certain CCW landfills. That does not necessarily mean that those states exempt CCW landfills from regulation, just that operational requirements established by the state are not met by complying with the terms of a permit. Many states use their dam safety requirements to regulate the construction, operation, and maintenance of surface impoundments. Such requirements would be intended to prevent a breach of a unit (such as the breach that occurred at Kingston). State dam requirements applicable to CCW surface impoundments may be similar to those for mining waste surface impoundment requirements found in the Surface Mining Control and Reclamation Act (SMCRA)—specifically requirements applicable to the unit design, construction, inspections, and emergency reporting. For example, West Virginia, a state that generates a significant amount of CCW, has dam safety requirements applicable to CCW surface impoundments. Selected elements of those requirements are: Units must have an application on file and a certificate of approval from the state to place, construct, or perform major repairs of a waste disposal dam. Plans and specifications of the design and construction must include, among other information, data regarding existing site conditions, subsidence potential, routine inspection and maintenance procedures and schedules, sediment control measures, the placement of spillways, seeding and mulching of the project area, surface drainage structures, installation of reading and monitoring devices, and an inventory of protected sites. Units must meet specific design requirements, such as conformance to general hydrological requirements and, like SMCRA, address criteria applicable to foundation stability, structural consideration, and spillways. Units must meet construction requirements regarding inspections, operations and safety (including emergency procedures), and maintenance. The presence of strong dam safety requirements is not a guarantee that regulated units will actually be operated and maintained according to those requirements. The requirements may be only as strong as a state's ability to enforce them. A state may have hundreds of structures required to meet its dam safety requirements and only a limited number of inspectors to insure that they are operated or maintained in an appropriate manner. In addition, a state may have strict requirements applicable to dam construction and operation, but limited ability to inspect those dams as often as necessary to ensure compliance. This makes it almost impossible to gauge the degree to which states are able to enforce their requirements. Disposal units, particularly surface impoundments, may be regulated as water pollution control facilities (as opposed to solid waste management units, such as landfills). In general, water pollution control facilities treat or store wastewater, including industrial wastewater, and discharge it directly or indirectly into the waters of a state, which may encompass both surface water and groundwater located wholly or partly within the state. A disposal unit that has an outfall that discharges to surface water would be required to meet effluent guidelines specified under requirements of the Clean Water Act (CWA), and to operate in accordance with parameters specified in a National Pollutant Discharge Elimination System (NPDES) permit. As a federal requirement, all states that have been authorized by EPA to administer the NPDES program are required to regulate discharges to surface waters in accordance with certain minimum requirements (e.g., in accordance with federally mandated effluent standards). Specifics regarding how a permit program is implemented may vary (as long as minimum federal requirements are adhered to). For example, state water quality agencies may evaluate facilities on a case-by-case basis to determine the need for groundwater-protection measures such as impoundment liners and groundwater monitoring. Even facilities that do not discharge wastewater to surface or groundwater may still be regulated in accordance with alternative water pollution control permits. Such facilities may be evaluated on a case-specific basis to determine the need for groundwater protection measures such as liners and groundwater monitoring. The Department of the Interior's Office of Surface Mining (OSM) administers provisions of the Surface Mining Control and Reclamation Act (SMCRA). Among other provisions, SMCRA specifies requirements applicable to mine reclamation. CCW can be used in the reclamation process when it is used as minefill. Potential benefits associated with the use of CCW include its potential to abate acid mine drainage (due to the alkalinity of much of the waste), to improve already-disturbed mine lands, and to avoid increased generation of aboveground landfills and surface impoundments. As with the disposal of CCW in landfills and surface impoundments, there are no explicit federal requirements specific to the use of CCW as part of the mine reclamation process. However, unlike landfill and surface impoundment disposal, some states define minefill disposal as a beneficial use that is exempt from any regulation or restriction. In its May 2000 regulatory determination, EPA stated that regulations under Subtitle D of RCRA (and/or possibly modifications to existing regulations established under the authority of the SMCRA) were warranted when these wastes are used to fill surface or underground mines. In 2000, minefill disposal was a relatively new practice that lacked long-term monitoring data regarding its potential risks. In 2003, Congress requested that EPA commission an independent study of the health, safety, and environmental risks associated with the placement of CCW in active and abandoned coal mines in all major U.S. coal basins. As a result, the National Research Council (NRC) established the Committee on Mine Placement of Coal Combustion Wastes in September 2004. In March 2006, the NRC committee published its study Managing Coal Combustion Residues in Mines . In part, it found that placing CCW in coal mines as part of the reclamation process is a viable management option as long as the waste placement is properly planned and carried out in a manner that avoids significant adverse environmental and health impacts, and that the regulatory process for issuing permits includes clear provisions for public involvement. The NRC committee cautioned that an integrated process of waste characterization, site characterization, management and engineering design of placement activities, and design and implementation of monitoring is required to reduce the risk of contamination moving from a mine site to the ambient environment. It stated further that comparatively little is known about the potential for minefilling to degrade the quality of groundwater and/or surface waters, particularly over longer time periods. The committee recommended the establishment of enforceable federal standards to govern the placement of CCW in mines. The committee's reasoning for its recommendation, after reviewing the laws and other relevant literature, was that, although SMCRA does not specifically regulate CCW placement at mine sites, its scope is broad enough to encompass such regulation during reclamation activities. Further, while SMCRA and its implementing regulations indirectly establish performance standards that could be used to regulate the manner in which CCW may be placed in coal mines, neither the statute nor those rules explicitly addresses regulation of the use or placement of CCW, and some states have expressed concern that they do not have the authority to impose performance standards specific to CCW. Therefore, the committee recommended that enforceable federal standards be established for disposal of CCW in mines. It proposed that OSM regulations be changed to address CCW specifically, or that joint rules be developed by OSM and EPA under the authority of both SMCRA and RCRA. In 2008, according to industry, approximately 37% of CCW was used in some capacity—most commonly as a component in concrete products, blended cement, gypsum panel products, and structural fill. Some types of CCW are also used for road-base materials, roofing tiles and shingles, snow and ice control, and soil modification. In its 1993 and 2000 regulatory determinations, among other factors, EPA looked at: Alternatives to current disposal methods. The costs of such alternatives. The impact of those alternatives on the use of natural resources. The current and potential utilization of coal combustion products. After its analyses, EPA did not identify any environmental harm associated with the beneficial use of coal combustion products, and concluded in each regulatory determination that these materials did not warrant regulation as hazardous waste. The beneficial use of coal combustion products can include both encapsulated and unencapsulated applications. The potential for contaminants to leach from CCW products largely depends on whether the waste is bound or encapsulated—as it would be in construction materials. According to EPA, unencapsulated uses of CCW require proper hydrogeologic evaluation to ensure adequate groundwater protection. Table 4 describes the primary encapsulated and unencapsulated uses of CCW. Under EPA's Resource Conservation Challenge (RCC), CCW is an industrial material targeted for increased use as a building and manufacturing material. As part of that effort, EPA formed the Coal Combustion Products Partnership (C2P2) program with the American Coal Ash Association, Utility Solid Waste Activities Group, DOE, U.S. Department of Agriculture's Agricultural Research Service, Department of Transportation's Federal Highway Administration, and Electric Power Research Institute to help promote the beneficial use of CCW and "the environmental benefits that result from their use." EPA has been criticized for promoting certain "beneficial uses" of CCW without first determining if such uses are safe. In particular, the safety of agricultural uses or its use as structural or embankment fill has been questioned. National attention was brought to its use as a fill material after developers used at 1.5 million tons of dry fly ash to build a golf course over a shallow aquifer at the Battlefield Golf Course, in Chesapeake, Virginia. An assessment of groundwater wells and private drinking water wells in close proximity to the golf course found elevated levels of arsenic, barium, chromium, copper, iron, lead, mercury, and zinc. However, from the available data, it has not been determined conclusively that the fly ash placed on the site has impacted nearby residential wells. Monitoring of the site is ongoing. Issues associated with the Battlefield Gold Course site brought attention to what little is known about certain "beneficial" uses of CCW. In November 2009, the EPA Office of Inspector General issued its findings in an investigation into allegations of a cover-up in the risk assessment for the coal ash rulemaking. The Inspector General found no evidence of wrongdoing, but in that report stated that it has opened an investigation into the EPA's "partnership" with the coal industry to market coal ash and other combustion wastes in consumer, agricultural, and industrial products. The report recommended a new probe of why EPA was promoting coal ash prior to determining whether these commercial applications were prudent or safe. In part, the report stated: "We identified a potential issue related to EPA's promotion of beneficial use through its Coal Combustion Product Partnership and have referred the question how EPA established a reasonable determination for these endorsements to the appropriate OIG office for evaluation." Since the regulation of CCW disposal and use is controlled by individual states, it is difficult to determine certain information about the waste. For example, it is difficult to determine the entire amount of CCW that has been disposed of in the United States. It can be estimated (although not known definitively) how many currently operational disposal units exist today, but is not likely possible to determine the total number that have ever been in operation—that is, unlined units that may have been closed without a cap or groundwater monitoring system. Also, it is difficult to determine the number of sites that have used unencapsulated CCW that have properly evaluated the site, as recommended by EPA, to ensure adequate groundwater protection. As power plant emission standards become more stringent, and air emission control devices capture more contaminants, both the total waste generated and the total amount of toxins in them can be expected to increase. As regulations are formulated to address new or expanded landfills, there are still many questions unanswered regarding the controls in place to minimize the potential risks posed by existing facilities—both with regard to a sudden, catastrophic release (as that in Kingston) or a gradual release and migration of contaminants. Congressional interest in the issue existed before the Kingston release, but increased significantly afterward. On January 14, 2009, the Coal Ash Reclamation, Environment, and Safety Act of 2009 ( H.R. 493 ) was introduced. The bill was intended to establish new standards applicable to surface impoundments. On February 12, 2009, the House Committee on Natural Resources, Subcommittee on Energy and Mineral Resources, held a legislative hearing on the bill. A scheduled markup was canceled when EPA announced that it would soon propose new regulations applicable to landfills and surface impoundments. The House Transportation and Infrastructure Committee, Subcommittee on Water Resources and Environment, held several hearings that looked at different aspects of the Kingston release, such as potential water quality impacts, causes of the release, and cleanup progress. Also, on December 10, 2009, the House Committee on Energy and Commerce, Subcommittee on Energy and the Environment, held a hearing entitled "Drinking Water and Public Health Impacts of Coal Combustion Waste Disposal." Given its interest in this issue, it is unclear how Congress may respond given the current debate regarding EPA's existing authority to regulate CCW and its potential to regulate it as hazardous waste. | In 2008, coal-fired power plants accounted for almost half of the United States' electric power, resulting in as much as 136 millions tons of coal combustion waste (CCW). On December 22, 2008, national attention was turned to issues regarding the waste when a breach in an impoundment pond at the Tennessee Valley Authority's (TVA's) Kingston, TN, plant released 1.1 billion gallons of coal ash slurry. The estimated cleanup cost will likely reach $1.2 billion. The characteristics of CCW vary, but it generally contains a range of heavy metals such as arsenic, beryllium, chromium, lead, and mercury. While the incident at Kingston drew national attention to the potential for a sudden catastrophic release of waste, the primary concern regarding the management of CCW usually relates to the potential for hazardous constituents to leach into surface or groundwater, and hence contaminate drinking water, surface water, or living organisms. The presence of hazardous constituents in the waste does not, by itself, mean that they will contaminate the surrounding air, ground, groundwater, or surface water. There are many complex physical and biogeochemical factors that influence the degree to which heavy metals can dissolve and migrate offsite—such as the mass of toxins in the waste and the degree to which water is able to flow through it. The Environmental Protection Agency (EPA) has determined that arsenic and lead and other carcinogens have leached into groundwater and exceeded safe limits when CCW is disposed of in unlined disposal units. In addition to discussions regarding the potential harm to human health and the environment, the Kingston release brought attention to the fact that the management of CCW is essentially exempt from federal regulation. Instead, it is regulated in accordance with requirements established by individual states. State requirements generally apply to two broad categories of actions—the disposal of CCW (in landfills, surface impoundment, or mines) and its beneficial use (e.g., as a component in concrete, cement, or gypsum wallboard, or as structural or embankment fill). In May 2000, partly as a result of inconsistencies in state requirements, EPA determined that national regulations regarding CCW disposal were needed. To date, regulations have not been proposed. However, on March 9, 2009, EPA stated that regulations to address CCW disposal in landfills and surface impoundments would be proposed by the end of 2009. Also, in March 2007, an advance notice of proposed rulemaking regarding the disposal of CCW in mines was released by the Department of the Interior's Office of Surface Mining (OSM). Draft rules have not yet been proposed. With regard to potential uses of CCW, EPA has stated that there have been few studies that would definitively prove that certain uses of CCW are safe, but that its use should include certain precautions to ensure adequate groundwater protection. It is unknown whether regulations regarding beneficial uses of CCW will be included in the upcoming rulemaking. Some Members of Congress and other stakeholders have expressed concern regarding how CCW will ultimately be regulated. Among other issues, there is concern that the upcoming regulations will be either too far-reaching, and hence costly, or not far-reaching enough—meaning that they will not establish consistent, enforceable, minimal federal requirements applicable to CCW disposal units. On December 17, 2009, EPA issued a statement that its pending decision on regulating CCW would be delayed for a "short period due to the complexity of the analysis the agency is currently finishing." |
Member-constituent communications serve a vital role in representative government. If information about legislative activity cannot easily flow from Members to constituents, citizens will be less capable of drawing policy judgments regarding congressional actions. Likewise, if constituents cannot easily communicate their preferences to Members, congressional action is less likely to reflect the interests of the governed. Constituent communication is one of the basic building blocks of a representative democracy. Throughout American history, concerns about this vital democratic connection have underpinned the existence of the franking privilege, which for much of the 19 th century allowed not only Members to send mail without personal cost, but also constituents to send mail to Congress free of charge. Technological changes during the 19 th and early 20 th centuries—most notably the rise of mass newspapers, the invention of the telephone, and advances in transportation that allowed Members to travel more easily—aided Members and constituents in exchanging information with each other. Until the late 20 th century, most Member-constituent interactions consisted of four forms of communication—postal mail; telephone calls; press releases, including through newspapers and other media; and face-to-face meetings. Although Members continue to use these traditional modes of interaction, the use of new electronic communications technology is dramatically increasing. For example, prior to 1995, there were virtually no email exchanges between Members and constituents. More recently, the volume of emails received by the House of Representatives has come to dwarf the volume of postal mail, while the amount of postal mail sent to Congress has continued to decline. Member official websites, blogs, YouTube channels, and Facebook pages—all nonexistent 20 years ago—also receive significant traffic. In less than 20 years, the entire nature of Member-constituent communication has been transformed, perhaps more than in any other period in American history. The rise of such electronic tools has altered the traditional patterns of communication between Members and constituents. Electronic technology has reduced the marginal cost of Member-constituent communications; unlike postal letters, Members can reach large numbers of constituents for a fixed cost, and constituents can reach Members at virtually no cost. The relay of information from Capitol Hill to the rest of the country (and vice versa) has been reduced to at times an instantaneous exchange. As soon as something happens in Congress, it can be known widely in real time. Members can now reach large numbers of citizens who are not their own constituents. These changes have wide-ranging implications for the work of Congress. They are altering how Members organize their personal offices and influencing how Members manage their legislative activities on and off the floor. And, perhaps most importantly, they are changing the nature of representation in the United States, as Members can more easily engage wider political and policy constituencies, in addition to their core interactions with their geographic constituencies. This report is divided into five parts. First, it discusses the role of constituent communications in a representative democracy, and briefly reviews the historical development of constituent communications in the United States. Second, it reviews the current nature of electronic communications in Congress. Third, it discusses how existing laws, rules, and regulations might apply to social media. Fourth, it discusses some of the strategic opportunities and challenges social media presents to Member offices. Finally, it presents some concluding observations that cover both the public nature of social media and the changing nature of representation. Since the Continental Congress, constituents have been communicating with their elected representatives. How communication occurs, however, has changed significantly. Changes in congressional communications technology and use can be considered in three groups: 1. historical communications (e.g., postal mail, telephone calls, press releases, and face-to-face meetings), 2. electronic communications (e.g., email and websites), and 3. social media (e.g., web 2.0, Twitter, Facebook, and other social media platforms). Constituent communications serve a vital role in representative government. In early America, concerns about these vital democratic connections underpinned the existence of the franking privilege. The franking privilege has its roots in the 17 th century. The British House of Commons instituted it in 1660, and free mail was available to many officials under the colonial postal system. In 1775, the First Continental Congress passed legislation giving Members mailing privileges so they could communicate with their constituents. In 1782, under the Articles of Confederation, Congress granted Members of the Continental Congress, heads of various departments, and military officers the right to send and receive letters, packets, and dispatches under the frank. After the adoption of the Constitution, the First Congress passed legislation for the establishment of federal post offices, which contained language continuing the franking privilege as enacted under the Articles of Confederation. Under the Post Office Act of 1792, Members could send and receive under their frank all letters and packets up to two ounces in weight while Congress was in session. Subsequent legislation extended Member use of the frank to a specific number of days before and after a session. The act of 1825 also provided for the unlimited franking of newspapers and documents printed by Congress, regardless of weight. Scholarly work suggests that franked mail played an important role in national politics during the late 18 th and early 19 th centuries. In 1782, James Madison described the postal system as the "principal channel" that provided citizens with information about public affairs. Members mailed copies of acts, bills, government reports, and speeches, serving as a distributor for government information and a proxy for the then-nonexistent Washington press corps. The distribution of information by Members provided local newspapers across the country with news on Washington politics. Because franking statutes allowed Members to both send and receive franked mail during much of the 19 th century, constituents could also mail letters to their Senators and Representatives for free. Historically, the franking privilege was seen as a right of the constituents, not of the Members. When the franking statutes were first revised in 1792, a proponent argued that "the privilege of franking was granted to the Members ... as a benefit to their constituents." More generally, President Andrew Jackson suggested that the Post Office Department itself was an important element of a democratic republic: This Department is chiefly important as a means of diffusing knowledge. It is to the body politic what the veins and arteries are to the natural—carrying, conveying, rapidly and regularly to the remotest parts of the system correct information of the operations of the Government, and bringing back to it the wishes and the feelings of the people. Even in the modern era, in addition to direct communications with constituents about matters of public concern, proponents of franking argue that free use of the mails allows Members to inform their constituents about upcoming town-hall meetings, important developments in Congress, and other civic concerns. Proponents argue that without a method of directly reaching his or her constituents, a Member would be forced to rely on intermediaries in the media or personal costs in order to publicize information. Technological changes during the late 19 th and early 20 th centuries—most notably the rise of mass newspapers, the invention of the telephone, and advances in transportation—aided Members and constituents in the exchange of information. Until the late 20 th century, the vast majority of Member-constituent communications comprised four forms of communication—postal mail; telephone calls; press releases, including through newspapers and other media; and face-to-face meetings. How Representatives and Senators have used various forms of communication to reach constituents and understand their preferences has changed based on media. For example, one Representative recounted that "newspapers, editors, and newsmen in one's district are particularly helpful in assessing public opinion" among constituents in the district. Another Representative emphasized the importance of being seen by constituents in the district and making sure everyone knows your name. Finally, another Representative recalled purposefully making phone calls to constituents who disagreed with him "not to change the individual's minds, but to let them know that I had read their letters, appreciated their opinion, but had legitimate reasons for disagreeing with them." Contemporary law and chamber regulations continue to reflect the belief that these traditional forms of Member-constituent communication are vital to the functioning of our representative system. By law, Representatives and Senators are provided an annual allowance that may be used to frank letters, make long-distance phone calls, travel to and from their districts for the purpose of interacting with constituents, and buy office equipment that supports their constituent contact. Although all Members continue to use traditional modes of constituent communication, they have many more choices and options than they did 20 years ago. In addition to traditional modes of communication Members can now reach their constituents via email, websites, tele-townhalls, online videos, social networking sites, and other electronic-based communication applications. Constituents can take advantage of these new mediums as well. There is overwhelming evidence that both Members and constituents are taking advantage of these new mediums; the use of new electronic communications technology is dramatically increasing. On the constituent side, email has now become the preferred form of communication with Congress. Prior to 1995, there were virtually no email exchanges between Members and constituents. More recently, the volume of emails received by the House of Representatives has come to dwarf the volume of postal mail received. Similar growth was seen in incoming Senate electronic mail. Figure 1 shows the rapid growth of email from constituents to Congress between 1995 and 2011, after widespread Internet access became available in the late 1990s. In comparison, the amount of postal mail sent to Congress dropped by more than 50% during the same time period, from almost 53 million pieces of mail in 1995 to fewer than 22 million pieces in 2011. But it had been replaced by over three hundred million emails. By 2011, postal mail was 7% of all mail coming to Capitol Hill. Communications from Congress have seen a similar transformation, with electronic communications over time seeing much greater volume than more traditional means of communication. Figure 2 reports the volume of quarterly mass postal mailings in the House from 1998 to 2008, and then the quarterly volume of all mass communications (which include postal mailing) from 2009 to 2015. Electronic communications have become, far and away, the most common method of Members communicating with their constituents. Whereas aggregate postal mass mailings never reached 60 million pieces in any quarter between 1998 and 2008, hundreds of millions of pieces of mass communication were sent in most quarters between 2009 and 2015. At the same time that Member use of email communications is increasing, the use of franked mail is at record lows. The total cost of official mail coming out of Congress (adjusted for inflation) is at its lowest point since Congress began reimbursing the Post Office for congressional mail costs in FY1954. In nominal dollars, official mail costs were down to $8.3 million in FY2015, from a high of over $113 million in FY1988. This decline in expenditures on postal mail was initially due to reform efforts in the late 1980s, including public disclosure of mail costs for individual Members and direct charging of Members' budgets for the cost of mail they send. However, nominal mail costs have also declined over 60% in the past 12 years, from $19.3 million in FY2003 to $8.3 million in FY2015. Adjusted for inflation, this is over a two-thirds decrease in mail expenditures, almost certainly driven by a shift toward electronic communications. In addition to the rise of email, the official websites, blogs, YouTube channels, and Facebook pages of Members—all nonexistent 20 years ago—also receive significant traffic. By January 2013, all 100 Senators had created Twitter accounts, and virtually all Members of Congress had at least one official congressional social media account. These numbers reflect a continued increase in the adoption of social media by individual Members. Whereas in September 2009, only 205 Members—39 Senators and 166 Representatives (a total of 38%)—had a registered Twitter account, by January 2012, that number had doubled with a total of 78.7% of Members having an official congressional Twitter account, and 87.2% having an official congressional Facebook account. Social media is not only adopted by Members of Congress. Congressional committees have also begun to use the technology. In a recent study of committee social media usage, 90% of committee majorities were found to have either a Twitter or Facebook account, while 76% of committee minorities had adopted the platforms. In addition to the adoption and use of Facebook and Twitter, Members of Congress and committees have begun to use other social media services. Surveys of Member webpages in 2015 found that YouTube, Instagram, and Flickr are the most popular social media platforms after Facebook and Twitter. In fact, more than 90% of Representatives and Senators had adopted YouTube, 42% had adopted Flickr, and 25% had adopted Instagram. Fewer than 10% of Representatives and Senators had adopted other social media platforms. The rise electronic communication has altered the traditional communication between Members and constituents. Unlike postal letters, Members can reach large numbers of constituents for a fixed cost, and constituents can reach Members at virtually zero cost. Likewise, information gets from Capitol Hill to the rest of the country much more quickly, to the point that as soon as something happens in Congress, it can be known everywhere in real time. Finally, Members can easily reach large numbers of citizens who are not their own constituents. The representational communication activities of both Members and constituents are constrained by cost. Representatives and Senators are given a fixed amount of money—known as the Members' Representational Allowance (MRA) in the House and the Senators' Official Personnel and Office Expense Account (SOPOEA) in the Senate—for the hiring of staff, travel expenses to and from their district or state, constituent communications, and other office expenses. Prior to the rise of electronic communications, this budget was a larger constraint on Members' representation and communications activities; postal mail and long-distance phone calls have a stable marginal cost. Likewise, constituents were constrained by their own personal financial budget; the marginal value of a phone call or letter to Congress had to be weighed against the marginal value of any other use of the same money. In effect, both Members and constituents were constrained, with the decision to contact made only when the importance of communication outweighed the cost of the communication. Electronic communications have virtually no direct marginal cost. Once a Member or constituent pays the startup and recurring costs of owning a computer and purchasing Internet access, there is no further financial cost for each individual email communication between them. Almost all electronic communication media (e.g., email, social media, tele-townhalls, and web advertisements) tend to have fixed capital or startup costs, but are then largely free to post messages on the margin. The result is that, for both Member and constituent, the only marginal cost to sending an additional communication is time. Direct financial costs have been largely eliminated. The impact of the near-zero cost of communications between Members and constituents likely has an effect on a Member's ability to determine the intensity of preferences, since the cost for a constituent reach out to Congress has been reduced significantly, and the volume of communications has increased significantly. In fact, studies have found that social media drives individuals toward one-sided news information, and that generally, individuals have a preference for one-sided information over a more balanced approach. If the preference for one-sided information holds, Members might be less likely to hear from constituents who disagree with them than those that agree, because those individuals may choose not to follow the Member's posts or Tweets. Electronic communications are faster than traditional forms of Member-constituent communications. This is obvious, but it has several important implications for how congressional offices choose to use electronic communications and how it shapes communications strategy. In the past, if Members wanted to send out time-sensitive communications on congressional action, the best outlet was probably a faxed press release to the media, perhaps to the local newspapers serving their district or state. There was no point in trying to send postal mail directly to constituents for time-sensitive information. Now, however, Members can update constituents on floor activity or other business instantly, using subscribed email lists or social media. Likewise, constituents can use email and social media to contact Members in real time. This changes not only how quickly information can be shared but also the types of information Members and constituents might provide each other. In the past, real-time information about an upcoming amendment on the floor might not have been possible to communicate; the vote might have taken place before the Member could alert the constituents about it, or before constituents could communicate preferences to the Member. With the rise of electronic communications, constituents and Members can easily share information about such an amendment in real time. The rise of direct, speedy communications has the potential to change how Members behave vis-a-vis their constituent's preferences. In his 1990 study, The Logic of Congressional Action , R. Douglas Arnold discussed how constituents might try to influence individual legislators and how Members work to "keep their public positions and actions within the bounds of what their constituents find acceptable." While historically it was difficult to know what constituents thought about many issues, today social media has provided a platform to facilitate constant communication—often in real-time—to provide specific preferences on a myriad of issues. As Arnold suggested, however, whether or not the preferences expressed on social media represent the most intense followers or are more broadly representative of the district or state, is still unknown. Perhaps the greatest difference between traditional constituent communications and electronic communications is the change in the constituents reached. Traditionally, Members could only reach citizens who were actually their electoral constituents. Following a federal court action ( Coalition to End the Permanent Government v. Marvin T. Runyon , et al ., 979 F.2d 219 (D.C.Cir. 1992)), the Rules of the House were amended to restrict Members from sending franked mail outside of their districts. Even if it was not cost-prohibitive, Members were not allowed to reach a wider-than-district audience using postal mail paid for through official funds. Electronic communications, however, are not so limited. Members can build email subscriber lists—many offer such subscription options immediately upon an individual entering their website—and the use of social media tools like Facebook, Twitter, and YouTube allows Members to broadcast and interact with a potential constituency far wider than their geographic district. This does, however, create some potential difficulties for Members who would prefer to only communicate with constituents in their district or state; unlike a postal address, an email account or a Facebook account is not attached to a verifiable geographic location. A further discussion of the changing nature of representation will be discussed in the " Concluding Observations " section. Both the House and the Senate have adopted formal social media policies to guide Representatives and Senators on the appropriate use of official resources in support of their offices' social media policy. The House and Senate policies, however, are not identical and treat the adoption of individual social media platforms in different ways. As social media continues to evolve, regulations may continue to evolve as well. The Committee on House Administration defines social media accounts as "profiles, pages, channels, or any similar presence on third-party sites that allow individual or organizations to offer information about themselves to the public." Included in the Members' Congressional Handbook , the House Internet policy allows Members to "establish profiles, pages, channels or other similar presence on third-party sites ... ," so long as Members ensure that their official position (i.e., Representative, Congressman, Congresswoman) is clearly stated in the account name. Further, all information provided on Member-controlled social media accounts "is subject to the same requirements as content on Member websites." Therefore, material posted on official Member social media accounts "must be in compliance with Federal law and House Rules and regulations applicable to official communications and germane to the conduct of the Member's official and representational duties." House regulations further allow Members to use official funds from their Member Representational Allowance (MRA) for ordinary and necessary expenses associated with the creation and continued operation of official websites. The creation of profiles, pages, channels, or any similar presence on third-party sites that allow individuals or organizations to offer information about themselves to the public is covered under these regulations. First adopted in 2008, the Senate Internet Services and Technology Resources Usage Rules (Senate Internet Policy) sets rules and guidelines for Senators using social media to conduct official business. The Senate Internet Policy defines covered services, sets out responsibilities and prohibited uses, addresses the use of Senate.gov webpages, and addresses the Senate Committee on Rules and Administration process to approve third-party social media platforms. When a Senator is interested in using a third-party social media site for official communications, the Senate Rules Committee evaluates that platform and determines whether or not it can be used for official purposes. Once the committee has determined that a platform can be used for official purposes, it issues a "Dear Colleague" letter approving the platform and any additional information or requirements necessary for a Senator to use that service. As more tools are developed, the relevant authorities review the platform and provide guidance to Senators. For example, in 2013, the Rules Committee formally announced that Vine was an approved platform. Use of the congressional franking privilege—which allows Members of Congress to transmit postal mail under their signature without postage—is regulated by federal law, House and Senate rules, orders of the Committee on House Administration and Senate Rules and Administration Committee, and regulations of the Senate Select Committee on Ethics and the House Commission on Congressional Mailing Standards. Because social media communications do not require use of the postal mail, Member use of social media platforms is not directly affected by franking regulations. The franking regulations, however, are incorporated via reference into some of the chamber and committee regulations regarding electronic communications, particularly unsolicited mass communications. Most Member use of social media platforms is considered "solicited" communication and is exempt from such regulations. However, some forms of social media use may be considered unsolicited mass communications. For example, electronic advertisements purchased by Representatives using their MRA are subject to advisory opinions from the House Commission on Congressional Mailing Standards and must follow commission regulations regarding timing and frankable content. If a Representative decides to purchase a "promoted" tweet on Twitter, it may be considered an unsolicited mass communication and subject to franking timing and content regulations. As was discussed above under " The Nature of Electronic Communications ," the decision to adopt and use social media as a constituent communications tool has important implications for Member office operations. The cost, speed, and scope of social media present Members with new opportunities to communicate with constituents and wider audiences. The nature of electronic communications presents unique challenges for Members of Congress. These include challenges in the areas of office operations, communications strategies, and constituent representation. Each congressional office is sometimes thought of as analogous to a small business. As such, individual Representatives and Senators have the ability to decide how to organize and staff their Washington, DC, and district or state offices within the confines of House or Senate rules and available funding. As Members choose to adopt and use social media, how constituent expectations are responded to and how staff are allocated become key challenges. The adoption of electronic communications by congressional offices has increased the potential for speedier communications with constituents and other relevant actors, but has also increased constituent expectations about the speed of communications. Whereas communication with a congressional office used to require the use of the postal system, today communication can be nearly instantaneous using email and social media. The ability to reach constituents in real time has created, for some constituents, an expectation that Members will use electronic communications to rapidly respond. In the past Members may have had days to consider how they would present issues or voting decisions to constituents. Today in many cases they may be expected to provide the same in a matter of hours. Even email, however, does not present the office operations challenges associated with social media. Email, in many ways, is a faster version of postal mail. Most email senders expect a prompt response, but few likely expect an instantaneous interaction. For social media, that is likely not the case. As some analysts have put it, "social media has accelerated the speed at which information is shared, amplified the reach of the messages, and solidified the ability of disparate individuals to organize." Posting to Facebook or Twitter naturally invites followers (who may or may not be constituents) to post responses and to expect real-time replies. In 2012, the American Red Cross conducted a survey of the expectations of individuals who make requests on social media for disaster assistance and found that "three out of four Americans (76 percent) expect help in less than three hours of posting a request on social media, up from 68 percent [in 2011]." Communications with a congressional office likely do not take on the same urgency as someone requesting disaster assistance, but if the response expectations are similar, staff would need to continuously monitor social media accounts to meet constituent expectations. Interacting with constituents on social media, which is arguably one of its most compelling features, would likely require resources to be devoted to ensure timely responses. Some studies have also found that as the speed of communications increases, social context cues decline. Therefore, a change in how Members communicate with constituents could have significant implications for the dissemination of information. As the speed of communications and the number of possible platforms increase, Members likely need to create a communications plan that accounts for these changes and for the use of shorter, more direct language that can convey a message within the defined limits of social media (e.g., 140 characters or less on Twitter). The pressure to craft succinct, social-media-ready communications means that Members are often left unable to explain nuances or complexities of issues to the degree that they might like. Allocation of staff resources is a fundamental building block of office operations strategies, reflecting the priorities of the Member. Constituent service and communications is an important aspect of what goes on in Members' personal offices, but it is far from the only important activity. Members must choose how to allocate resources for communications against other legislative and oversight responsibilities. Consequently, Representatives and Senators choose to allocate staff in different ways. The explosion of electronic communications has put increased pressure on these allocation decisions. To the degree that more staff time needs to be allocated to the collection, processing, and responding tasks associated with communications, less time can be allocated to policy or other work. The number of staffers working in personal offices has increased modestly in the last generation (about a 4% increase in House Members' offices since 1982). There may not be resources to hire additional staff to handle communications. There is evidence that social media is adding to this pressure. One study has found that in the 113 th Congress (2013-2014), 16% of Senators had staff members with "social media" or "new media" in their job titles, reflecting the growing importance of electronic media in staff resource allocation. If an office chooses to use social media only to share information—much like a press release—it is possible that existing staff levels could be sufficient to manage social media accounts. If, however, Members want social media to be interactive between the office and constituents, existing resource allocations may or may not be sufficient to handle the need to respond in a timely manner. Every congressional office engages in official communication with constituents, other relevant actors, media outlets, and others. The rise of electronic communications and social media has created both opportunities and challenges for such office activities. Whereas in the past many offices were concerned with their ability to reach a wider audience or the ability to react quickly to relevant developments, in the current context concerns may be as much about managing communications with an audience that is overwhelmingly large, or about whether to engage in communications at the real-time pace that is now possible. As described above, the number of incoming emails to Congress in 2011 was more than 10 times as great as the number of pieces of postal mail in 1995. This is almost certainly due to the elimination of a marginal cost for constituents to communicate their preferences to Members electronically. There is virtually no marginal financial cost to sending an email or posting to a social media site, and such electronic communications also have less time costs than sending traditional postal mail, particularly when the communications are produced and distributed by groups, and only forwarded or reposted to Congress by individual citizens. In effect, the intensity threshold at which a constituent might express a preference to a Member has been greatly reduced. Before electronic communications, Members could expect that any constituent willing to spend the time and money to write them had a fairly strong preference or opinion about the subject matter. Members can no longer count on various communications representing the same level of intensity. In effect, congressional offices receive more constituent opinion, but have less ability to determine the intensity of the opinion. Conversely, social media can provide Members of Congress with real-time data that if monitored by staff could provide insight into constituent thinking in a way that has never been possible before. As discussed above, however, dedicating staff to follow and analyze social media trends is not without a cost to staff resources. The real-time nature of social media presents new challenges for Member offices about what types of content will be covered in communications. In the past, the limiting factor of speed prevented Member offices from engaging in certain types of communications. For example, an amendment introduced in a committee markup and voted on 15 minutes later could only be discussed retroactively. With the advent of social media, Members have the opportunity, if they wish, to engage the public in real time, making it possible to discuss such an amendment between the time it is introduced and when the committee votes on it. Furthermore, if other Members are engaging in such discussions on social media platforms, both constituents and the wider public may become aware of the amendment in real time, and attempt to engage with other Members prior to the vote. If Members or staff choose to take on such real-time communications, there are potential benefits and costs. Real-time communications offer the possibility of Member-constituent information sharing that was never before possible, potentially increasing the degree to which each is informed about the others' preferences. Likewise, the potential for Members to educate their constituents on issues or process in a compelling and interesting way may be dramatically faster, but depending on the social media platform, could be without as much nuance or context. On the other hand, using real-time communications leaves Members and staff with less time for reflection or careful consideration of the message they are sending. Also, engaging in real-time communications, particularly those related to Member activities that were previously impractical from a technological standpoint (such as live-tweeting markup amendments) may create constituent expectations for future engagement and consultation. Social media can be used to send information to recipients in similar ways to traditional communications. Social media, however, also allows for the possibility of Members or staff to engage both with other legislators and with constituents in real-time online conversations. Recent studies have found that social media is mostly used as a "push" tool by government agencies and elected officials. For Members of Congress, early studies of Twitter found little evidence of anything other than Members posting links to press releases and media events. More contemporary studies have documented the beginning of a shift to more interactive activities, but the percentages of all congressional Tweets, for example, that reply to other users are still very low. The decision to employ an interactive strategy on social media presents a number of challenges. First, the office may want to formalize interactivity protocols. Who can interact on social media on behalf of the office? In what circumstances or for which topics? Second, the scope of interactivity that the office will engage in may need to be clarified. Will the Member or office ever respond to individual tweets, or will they only use social media interactivity capabilities in formalized settings, like a pre-arranged Facebook question-and-answer session? As with other aspects of social media, setting expectations may become an overarching concern. Relatedly, social media seems to change the traditional relationship between Members of Congress and constituents. Instead of information being primarily a one-way street (e.g., either from the constituent to the Member or from the Member to the constituent), with interaction only available in face-to-face or telephone based settings, social media transforms communications into two-way interactions. In fact, social media not only promotes two-way communication, but it also allows constituents to interact with each other, something that has never before been possible. How Members deal not only with two-way communication with constituents, but also the information generated by constituents talking to each other on Twitter or Facebook, may be an important strategic decision. Social media has the potential to provide real-time information about public preferences to Members. Over the past few years, many government agencies (especially in the executive branch) have adopted guidelines or rules for posting and responding to comments on social media platforms. These guidelines or rules often discuss the use of social media during work time, what positions are allowed to access and post on official agency accounts, and policies about timeliness and content of replies. For example, the Department of the Interior's (DOI's) social media policy for official accounts includes a list of covered services (e.g., YouTube, Twitter, Facebook, and Flickr), a reminder that all official communications must follow standard records accessibility and records management practices, and a requirement that communications be officially sanctioned by the agency or bureau. Similarly, the General Services Administration's (GSA's) social media policy includes many of the same features as DOI's, but also includes reminders that content is in the public realm, that language should be chosen with caution, and that discussion of agency-related matters "may need [be] coordinat[ed] ... with the Office of Communications and Marketing (OCM) and the Office of General Counsel (OGC)." Both the House of Representatives and Senate have overarching social media policies for their respective chambers. Because individual Representatives and Senators can control their own office budgets subject to the guidelines and rules set by the House and Senate, respectively, the chamber-wide policies tend to focus on the use of official resources for constituent communications. A more detailed discussion of House and Senate rules and guidelines can be found below under " Regulation ." Within the chamber rules and guidelines, some Members have created their own policies for the use of social media. For example, some Members of Congress include disclaimers or commenting policies on their Facebook or Twitter pages. One Member reminded potential commenters that This is the official page for [the district].... Comments posted by users do not necessarily reflect the views of [the] Congressman ... or his Congressional office. We reserve the right to delete user comments that include profanity, name-calling, threats, personal attacks, or other inappropriate comments or material. Please help us keep this a welcome place for everyone. Setting such policies is seen by some as an important step to setting limits for what can and cannot be posted on official congressional social media pages. While these disclaimers allow the Representative or Senator to be proactive in stopping certain types of posts and language, in order for them to be effective they must be enforced. Enforcement of these types of policies requires appropriate staffing to monitor inappropriate comments quickly and fairly. Since a norm exists, and ethics rules require, that Representatives and Senators treat all constituents the same, regardless of factors such as political viewpoint or activity, the implementation of policies like the one above could be important for the Members and staff and might affect the amount of time necessary to enforce such policies. The foundation of representation for Members of Congress is their geographic constituency. The adoption and use of social media, however, is potentially changing the nature and challenges of representation in at least two ways. First, social media grants users potential anonymity. Since individuals fill out their profile information with as much or as a little information as they choose and most social media services allow users to "turn off" geolocation services, it is not always possible to know where a specific user is located. This presents a unique challenge for Members of Congress, many of whom want to interact mostly or exclusively with geographic constituents. Additionally, House and Senate rules for franked mail have long required that franked mail only be sent to postal addresses in a district. While social media is virtually cost free and franking regulations likely do not apply, the idea of gathering information from or otherwise interacting with nongeographic constituents has the potential to change the very nature of representation. The rise of electronic communications and social media has also increased the opportunities for surrogate representation. Political scientist Jane Mansbridge defines surrogate representation as Members representing constituents outside their district based on other shared characteristics. In the traditional formulation, this often happens around specific issues with dispersed national constituencies: for example, a woman might be viewed as best representing or advocating for women's rights. Prior to the rise of electronic communications, few Members were engaged in such surrogate activities. They simply did not have the resource capacity. Representatives were (and still are) barred from sending franked postal mail outside of their districts. The only way to grow a national audience was to appear on television—which usually meant having at least the power of a committee chair, or doing something unusually newsworthy. Electronic communications have rearranged this playing field. Even rank-and-file Members can gather a national following to advance their policy objectives with relative ease, and at virtually no financial cost. The zero marginal cost of the Internet, and in particular the social media applications like Twitter, YouTube, and Facebook, have opened up opportunities. Any Member can stake out an issue, make a concerted effort to become a national leader on the issue, and have some chance of success, all without expending almost any marginal resources on communications. Finally, scholars of Congress and the presidency have argued that the rise of mass media, particularly television, has given the President a comparative advantage over Congress. While the President can employ the resources of the executive branch to promote his unitary message, individual Members of Congress lack the institutional resources to compete with the President, and Congress as a whole lacks a unity of message. The rise of electronic communications has arguably allowed Congress, as a sum of its Members, to have a more influential voice in public political debates. Since the Continental Congress, individual citizens have been corresponding with their elected representatives. Over time, how these communications took place and the expectations for response have changed. As the speed of communications has increased and the real and marginal costs decreased, the type of information that Members of Congress can communicate and the scope of individuals they communicate with have increased. As this report has discussed, the volume of information that is sent and received by Members' offices and the ability for Representatives and Senators to communicate with more than just their geographic constituencies have created unique challenges and opportunities for constituent communications. The nature of communications between Members of Congress and constituents is evolving. In light of the constant change, several potential implications exist for the continued use of social media as a communications tool. These include the public nature of social media and further consequences for representation. A major difference exists between engaging in online conversations versus traditional in-person discussions or written letters or emails. Whereas postal mail and email are private conversations between the senders, most social media posts are available for public inspection by anyone who visits the users "wall," "feed," or timeline. Additionally, hidden costs may be associated with adopting social media. For example, one study reiterates that the decision to use third-party social media software requires data to be owned by the third-party, not by the government entity establishing the account. Further, as one observer noted, "agencies cannot opt out of revisions of the technology. They cannot hire contractors to outsource changes or request customization of services to platforms to accommodate government needs. Public managers in charge of social media accounts are therefore exposed to constant changes of the platforms and at the same time have to deal with emergent citizens and employee behavior that challenge government's one-directional communication paradigm." The location of congressional data on non-congressional servers is a potential concern. To address these concerns the House and Senate have established policies for the use of third-party websites and the linkage of official house.gov or senate.gov webpages to those services. Finally, privacy concerns beyond who "owns the data" exist in the online world. Information posted to social media sites potentially exists for everyone to see, even those for whom the information was not intended. Both the House and the Senate have developed privacy policies to help guide Representatives and Senators on the content of websites and to remind users that information posted to sites is considered public information. These policies could impact how a Representative or Senator chooses to use social media and whether Twitter, Facebook, or other platforms are helpful to a Member with his or her representational responsibilities. The decision to adopt and use social media has broader implications than just the ability to disseminate information or to gauge constituent positions on policy issues. For individual Members, there are clear benefits to using social media. Engaging with individuals on social media provides the potential for a higher political profile both inside and outside the House or Senate. This could translate into greater opportunity to influence public policy. While there is little hard empirical evidence, analysts have suggested that some Members are beginning to alter their representational strategies, leveraging the power of social media to engage broader audiences to advance their policy and political goals. The interaction of such "surrogate" representation and traditional district and state representation may be a subject of interest as social media evolves. Certain things, of course, have not changed. First, only people in a district or state can vote for a Member of Congress. Second, district offices have to be in the district and franked mail still can only be sent to the district. So, while Members might use electronic communications to expand their "constituencies," they will likely always be primarily tied to a geographic district or state. Nevertheless, the evolving use of social media may make the relationship between national and local issues more complex. | The mediums through which Members and constituents communicate have changed significantly over American history and continue to evolve today. Whereas most communications traditionally occurred through the media, via postal mail, or over a telephone, the adoption and use of electronic communications via email and social media technologies (e.g., Twitter, Facebook, YouTube, and other sites) changes how Representatives and Senators disseminate and gather information, who they communicate with, and what types of information they share and receive from the general public, many not residing in their district or state. In less than 20 years, the entire nature of Member-constituent communication has been transformed, perhaps more than in any other period in American history. Over the last several years, the number of Representatives and Senators adopting social media and the number of different services being utilized has increased. In 2009, for example, Members of Congress were just beginning to adopt social media and only a small number were actively using Twitter, mostly as a dissemination tool. Today, all 100 Senators and almost all Representatives have adopted Twitter, Facebook, and other social media tools as a way to supplement their overall office communication strategies and disseminate information. Electronic communication and social media differ from traditional Member-constituent communication in three key ways. Electronic communication is inexpensive. Members can reach large numbers of constituents for a fixed cost, and constituents can reach Members at virtually zero cost. Electronic communication is fast. The relay of information from Capitol Hill to the rest of the country (and vice versa) has been reduced, time-wise. As soon as something happens in Congress, it can be known everywhere in real time. Electronic communication reaches a wide audience. Members can reach large numbers of citizens who are not their own constituents. The cost, speed, and reach of social media have wide-ranging implications for the work of Congress. When Members choose to use electronic communication, they must consider many issues, including office operations (communications expectations and staff allocation); communications strategies (gathering and evaluating constituent opinions, content, interactivity, policies for posting and responding to content); and consequences for representation, including whether the office will respond to postings and, if so, how often. How an office evaluates and manages its social media presence varies from Member to Member. |
The United States is a member of five multilateral development banks (MDBs): the World Bank, African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for Reconstruction and Development (EBRD), and Inter-American Development Bank (IDB). It also belongs to two similar organizations, the International Fund for Agricultural Development (IFAD) and the North American Development Bank (NADBank). The World Bank also administers trust funds, focused on particular global issues such as food security and the environment. The MDBs have similar programs, though they all differ somewhat in their institutional structure and emphasis. Each has a president and executive board that manages or supervises all of its programs and operations. Except for the EBRD, which makes only market-based loans, all the MDBs make both market-based loans to middle-income developing countries and concessional loans to the poorest countries. Their loans are made to governments or to organizations having government repayment guarantees. In each MDB, the same staff prepares both the market-based and the concessional loans, using the same standards and procedures for both. The main differences between them are the repayment terms and the countries which qualify for them. The MDBs also have specialized facilities which have their own operating staff and management but report to the bank's president and executive board. The World Bank's International Finance Corporation (IFC) and the IDB's Inter-American Investment Corporation (IIC) make loans to or equity investments in private-sector firms in developing countries (on commercial terms) without government repayment guarantees. The AsDB makes similar loans from its market-rate loan account. The World Bank's Multilateral Investment Guarantee Agency (MIGA) underwrites private investments in developing countries (on commercial terms) to protect against noneconomic risk. At the IDB, the Multilateral Investment Fund (MIF) helps Latin American countries institute policy reforms aimed at stimulating domestic and international investment. It also funds worker retraining and programs for small and micro-enterprises. The MIF originated as part of President Bush's 1990 Enterprise for the Americas Initiative (EAI). The NADBank was created by the North American Free Trade Agreement (NAFTA) to fund environmental infrastructure projects in the U.S.-Mexico border region. The International Fund for Agricultural Development (IFAD), created in 1977, focuses on reducing poverty and hunger in poor countries through agricultural development. Finally, the World Bank also serves as the trustee for several targeted multilateral development funds, for which the Administration has requested and Congress has appropriated funds. These multilateral funds include the Clean Technology Fund (CTF), the Strategic Climate Fund (SCF), the Global Environment Facility (GEF), and the Global Agriculture and Food Security Program (GAFSP). The MDBs' concessional aid programs are funded with money donated by their wealthier member country governments. Periodically, as the stock of uncommitted MDB funds begins to run low, the major donors negotiate a new funding plan that specifies their new contribution shares. Loans from the MDBs' market-rate loan facilities are funded with money borrowed in world capital markets. The IFC and IIC fund their loans and equity investments partly with money contributed by their members and partly with funds borrowed from commercial capital markets. The MDBs' borrowings are backed by the subscriptions of their member countries. They provide a small part of their capital subscriptions (3% to 5% of the total for most MDBs) in the form of paid-in capital. The rest they subscribe as callable capital. Callable capital is a contingent liability, payable only if an MDB becomes bankrupt and lacks sufficient funds to repay its own creditors. It cannot be called to provide the banks with additional loan funds. Countries' voting shares are determined mainly by the size of their contributions. The United States is the largest stockholder in most MDBs, and has maintained this position to preserve veto power in some institutions over major policy decisions. Figure 1 , Figure 2 , and Tables 1-4 show the amounts the Administration has requested and Congress has appropriated annually since FY2000 to the multilateral development banks. Note that the figures and tables do not include callable capital. Since the early 1980s, Congress has authorized but not appropriated callable capital. As Figure 1 illustrates, appropriations to the MDBs increased dramatically starting in 2009, from $1.28 billion in 2008 to a peak of $2.67 billion in FY2014. The uptick was driven largely by capital increases for the nonconcessional lending facilities at the MDBs in response to the global financial crisis, as well as the proliferation of trust funds administered by the World Bank focused on specific policy issues. As these commitments have been met, particularly in funding the capital increases at the MDBs, overall funding levels started declining. Appropriations have declined over the past three fiscal years to $1.52 billion in FY2018. President Trump campaigned on an "America First" platform and has signaled a reorientation of U.S. foreign policy. In March 2017, the Trump Administration proposed cutting $650 million over three years compared to the commitments made under the Obama Administration. For FY2019, the Trump Administration requested $1.42 billion for the MDBs, a 16% cut from the amount appropriated in FY2017. The bulk of the request—$1.32 billion, about 90%—would fund U.S. commitments to concessional lending facilities at the MDBs, particularly IDA. The request also includes funding toward the capital increase at the AfDB, multilateral trust funds focused on environmental issues, and international food security programs. | This report shows in tabular form how much the Administration requested and how much Congress appropriated for U.S. payments to the multilateral development banks (MDBs) since 2000. Multilateral development banks provide financial assistance to developing countries in order to promote economic and social development. The United States belongs to several multilateral development banks, including the World Bank and four regional development banks (the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, and the European Bank for Reconstruction and Development). It also belongs to the North American Development Bank, which is a binational (U.S.-Mexico) development bank; the International Fund for Agricultural Development, which focuses on poverty and hunger in developing countries; and several trust funds administered by the World Bank, which focus on specific global issues, such as food security and the environment. The United States appropriates funding on an annual basis to various multilateral development banks and related funds. In FY2018, U.S. appropriations for MDB programs totaled $1.5 billion. Most of the FY2018 funding (about 90%) went to the concessional lending facilities at the MDBs, which provide grants and low-cost loans to the world's poorest countries. Congress also provided funding for the African Development Bank, IFAD, and the Global Environmental Facility (GEF), administered by the World Bank. The Treasury Department manages U.S. participation in the MDBs, and the Administration's request is submitted as part of Treasury International Programs. For FY2019, the Administration has requested $1.4 billion for the MDBs and related funds. Most of the funding would go to the concessional lending facilities at the World Bank, the African Development Bank, and the Asian Development Bank. It would also provide funding for the African Development Bank. The Administration has proposed cutting U.S. contributions to IFAD and reducing U.S. contributions to the GEF. For further information about the MDBs and relevant U.S. policy process, see the following CRS reports: CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by [author name scrubbed]; CRS Report R41537, Multilateral Development Banks: How the United States Makes and Implements Policy, by [author name scrubbed] and [author name scrubbed]; CRS In Focus IF10144, The Global Environment Facility (GEF), by [author name scrubbed]; and CRS Report R44890, Department of State, Foreign Operations, and Related Programs: FY2018 Budget and Appropriations, by [author name scrubbed], [author name scrubbed], and [author name scrubbed] |
Over the past 25 years, defined contribution (DC) plans have become the most prevalent form of employer-sponsored retirement plan in the United States. According to the Bureau of Labor Statistics (BLS), 51% of workers in the private sector participated in an employer-sponsored retirement plan of some kind in 2007. Only 20% of all private-sector workers were covered by traditional pensions—also called defined benefit or "DB" plans—whereas 43% participated in 401(k) plans and other DC plans. Twelve percent of workers participated in both types of plan. One of the key distinctions between a defined benefit plan and a defined contribution plan is that in a DB plan, it is the employer who bears the investment risk. The employer must ensure that the pension plan has sufficient assets to pay the benefits promised to workers and their surviving dependents. In a DC plan, the worker bears the investment risk. The worker's account balance at retirement will depend on how much has been contributed to the plan over the years and on the performance of the assets in which the plan is invested. In a typical 401(k) plan, a worker must decide whether to participate, how much to contribute, how to invest the contributions, what to do with the account if he or she changes jobs, and how to take money out of the account after retiring. The majority of assets held in DC plans are invested in stocks and stock mutual funds, and as a result, the decline in the major stock market indices in 2008 greatly reduced the value of many families' retirement savings. According to the Federal Reserve Board, assets held in DC plans fell from $3.73 trillion at year-end 2007 to $2.66 trillion at year-end 2008, a decline of 28.7%. The decline would have been even greater if not for ongoing contributions to the plans by workers and employers. The effect of stock market volatility on families' retirement savings is just one issue of concern to Congress with respect to DC plans. Other issues that have received attention in hearings and through proposed legislation include increasing access to employer-sponsored plans, raising participation and contribution rates, helping participants make better investment choices, requiring clearer disclosure of fees charged to plan participants, preserving retirement savings when workers face economic hardship or change jobs, and promoting life annuities as a source of retirement income. This CRS report describes these seven major policy issues with respect to DC plans: access to employer-sponsored retirement plans, participation in employer-sponsored plans, contribution rates, investment choices, fee disclosure, leakage from retirement savings, and converting retirement savings into income. According to the National Compensation Survey (NCS), 61% of private-sector workers were employed at establishments that offered one or more retirement plans in 2007. Twenty-one percent worked for employers that offered a DB plan, 55% worked for employers that offered a DC plan, and 15% worked for employers that offered both types of plan. Thus, almost 4 out of 10 workers in the private sector did not have the opportunity to participate in a retirement plan where they worked. Moreover, there is a substantial disparity in sponsorship of retirement plans between large employers and small employers. Workers at establishments with fewer than 100 employees are much less likely to have access to an employer-sponsored retirement plan than are workers at larger establishments. (See Table 1 .) Policies that would increase the number of small employers that offer retirement plans could expand access to these plans to include millions more workers. Surveys of households and employers illustrate the gap in retirement plan sponsorship between large and small employers. Data collected by the Bureau of the Census indicate that there were 75 million private-sector workers between the ages of 25 and 64 who were employed year-round, full-time in 2007. Thirty million of these workers, or 40%, worked for employers that did not sponsor a retirement plan of any kind. Of these 30 million workers, 19.1 million, or 64%, worked for firms with fewer than 100 employees. Likewise, data from the Department of Labor's 2007 National Compensation Survey show that 78% of workers at establishments with 100 or more employees worked for employers that sponsored retirement plans in 2007, compared with just 45% of workers at establishments with fewer than 100 employees. Although workers at small establishments are less likely to be offered a retirement plan, when one is offered, they are as likely as employees at larger businesses to participate in the plan. In 2007, for example, 70% of workers at establishments with 100 or more employees were offered a DC plan, and the take-up rate among those offered a DC plan was 76%. At establishments with fewer than 100 employees, 42% of workers were offered a DC plan, and the take-up rate among those offered a DC plan was 79%. Workers at firms with fewer than 100 employees comprised 44% of all private-sector workers in the United States in 2007. If employees at small firms had been offered DC plans at the same rate as employees of larger firms, an additional 11.4 million workers would have had the opportunity to participate in employer-sponsored retirement plans in 2007. If take-up rates among these employees had been the same as at firms that already offered DC plans, an additional 9.0 million workers would have participated in DC plans in 2007. Qualified retirement plans, including 401(k) plans, must comply with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). Among the requirements for retirement plans to receive favorable tax treatment is that they are prohibited from discriminating in favor of highly-compensated employees (HCEs) in terms of contributions or benefits. This assures that rank and file employees as well as owners and managers benefit from the tax breaks that Congress has granted to tax-qualified retirement plans. The nondiscrimination tests compare the participation rates and plan contributions for HCEs to those of other employees. In a small firm, relatively modest changes in employee participation or contributions can make the difference between the plan passing or failing the nondiscrimination test. If the plan fails, some of the contributions made by HCEs must be returned to them and included in their taxable income for the year. A plan that fails the nondiscrimination test also can lose its tax-qualified status, but this penalty is applied only in rare circumstances. To encourage more employers, especially small employers, to sponsor retirement plans, Congress has authorized several kinds of defined contribution plans that are exempt from some administrative requirements that otherwise would apply. In some cases, plans that adopt certain characteristics that favor rank-and-file workers are exempt from nondiscrimination testing. In 1996, Congress authorized a "safe-harbor" 401(k) plan that exempts the plan sponsor from the annual nondiscrimination tests in exchange for the employer agreeing to make contributions to the plan. In a safe-harbor 401(k), the employer must either contribute an amount equal to 3% of pay on behalf of each eligible employee or match the first 3% of salary deferrals of each participating employee on a dollar-for-dollar basis and match the next 2% of employee deferrals at 50 cents per dollar. Any firm with one or more employees can establish a safe-harbor 401(k). The Small Business Job Protection Act of 1996 ( P.L. 104-188 ) authorized the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE). In exchange for mandatory employer contributions, the plan is exempt from the nondiscrimination tests. An employer that sponsors a SIMPLE must either contribute an amount equal to 2% of pay on behalf of every eligible employee or match 100% of the first 3% of each participating employee's contributions to the plan. The maximum allowable employee contribution to a SIMPLE is $11,500 per year in 2010 and 2011. Participants aged 50 and older can make additional contributions of up to $2,500 to a SIMPLE plan. SIMPLE plans can be established only by employers with fewer than 100 employees that do not already have retirement plans. In the Revenue Act of 1978 ( P.L. 95-600 ), Congress authorized a defined contribution plan called the Simplified Employee Pension (SEP) for firms that do not already sponsor a retirement plan. Only the employer can make contributions to a SEP, and the employer can decide from year to year whether to contribute to the plan. Employer contributions must be made on behalf of all eligible employees, and the contributions must be the same percentage of pay for all eligible employees. Contributions cannot exceed an amount equal to 25% of pay up to a maximum of $49,000 in each year 2010 and 2011 (indexed to inflation). Participants are fully and immediately vested in the employer's contributions to the plan. Any firm with one or more employees can establish a SEP. Despite the availability of the SEP, SIMPLE, and safe-harbor 401(k), there has been relatively little growth in retirement plan sponsorship among small firms over the past 20 years. According to the Bureau of Labor Statistics, 36% of employees at small private-sector establishments participated in an employer-sponsored retirement plan of some kind in 1990. By 2007, the participation rate in all types of retirement plans among employees at small private-sector establishments had increased by just one percentage point to 37%. One reason that small firms are less likely than large firms to offer retirement plans is that small employers are much more likely than large employers to go out of business in any given year. For example, over the six years from 2000 through 2005, an average of 10.2% of firms with fewer than 20 employees went out of business each year. Among firms with 20 to 99 employees, an average of 4.6% of firms went out of business annually, whereas among firms with 500 or more employees, an average of 2.3% of firms went out of business each year. Because small firms face relatively greater uncertainty about their survival from year to year, their owners are less likely to offer a retirement plan to their employees. Because small employers are less likely to sponsor retirement plans for their employees, policy analysts have continued to search for ways to help employees of these firms save for retirement. One proposal that has received considerable attention is to promote the adoption of payroll deduction IRAs by employers who do not sponsor retirement plans. Some such proposals would require employers above a certain size who do not sponsor a retirement plan to allow employees to contribute to an IRA through payroll deduction. Payroll deduction IRAs are not subject to the Employee Retirement Income Security Act. Small business owners who are concerned about the administrative burden of complying with ERISA might be willing to set up a payroll deduction IRA for their employees. Although some small business owners who already have retirement plans for their employees might drop these plans in favor of payroll deduction IRAs, many will not because it would reduce their opportunity to save for retirement on a tax-deferred basis. In 2011, the annual contribution limit for an IRA is $5,000 whereas the maximum employee contribution to a 401(k) is $16,500. A small business owner who sponsors and participates in a 401(k) plan can save more for retirement on a tax-deferred basis than he or she could save in an IRA. If IRA contribution limits were the same as 401(k) contribution limits, small business owners would be more likely to drop 401(k) plans for IRAs. One possible area of concern with respect to payroll deduction IRAs is that because they are not subject to ERISA, workers who save through these plans do not have the same rights and protections as participants in 401(k) plans. The participation and vesting requirements of ERISA are not relevant to payroll deduction IRAs, but ERISA has rigorous fiduciary standards that provide important protections to plan participants. Not all of these protections extend to IRAs. Even when an employer offers a retirement plan, not all employees choose to participate. In 2007, about 75% of employees whose employer sponsored a 401(k) plan participated in the plan, and about 78% of eligible employees participated in DC plans of all types. Participation in a 401(k) plan usually requires the employee to elect to contribute to the plan. Although some 401(k) plans now automatically enroll eligible employees, almost two-thirds of DC plans continue to require employees to elect to participate. Participation rates are affected both by access to retirement plans and take-up rates among employees who are offered a plan. The take-up rate is the percentage of employees offered a plan who choose to participate. For example, only 32% of workers under the age of 35 participated in DC plans in 2007. (See Table 2 .) Although this was due in part to the relatively low percentage of these workers whose employers sponsored plans, another important factor was the low take-up rate among younger workers who were offered a plan. Only 70% of workers under age 35 whose employer sponsored a DC plan participated in the plan in 2007. In contrast, the take-up rate among workers aged 35 to 44 was 82%, and the take-up rate among workers aged 45 to 54 was 83%. In contrast to the lower participation rate of younger workers compared with older workers, participation rates among employees of small firms are lower than those of employees of larger firms mainly because a smaller proportion of workers at small firms are employed by firms that sponsor retirement plans. Among employees who are offered a retirement plan, take-up rates are similar for employees of small firms and large firms. The data presented in Table 2 show that in 2007, only 9% of workers employed at firms with fewer than 20 employees participated in a DC plan, compared with 35% of workers at firms with 20 to 99 employees, 46% of those at firms with 100 to 499 employees, and 57% of those at firms with 500 or more employees. However, only 12% of workers at firms with fewer than 20 employees were offered a DC plan, compared with 46% of those at firms with 20 to 99 employees, 59% of those at firms with 100 to 499 employees, and 70% of workers at firms with 500 or more employees. Take-up rates were similar among employees at small firms and large firms. The take-up rate in 2007 among employees at firms with fewer than 20 employees was 77%, whereas the take-up rates among workers at firms with 20 to 99 employees and firms with 100 to 499 employees were 75% and 78%, respectively. The take-up rate at firms with 500 or more employees was slightly higher (81%). Access to employer-sponsored retirement plans and participation in plans also differ between better-educated and less-educated workers and between workers in higher-income and lower-income households. Only 39% of workers in households in which the household head had a high school education or less worked for an employer that sponsored a DC plan in 2007, compared with 60% of workers in households in which the household head was a college graduate. The take-up rate among the less-educated group was 73%, compared with 85% for those in the better-educated group. Similarly, only 30% of workers in households in the bottom quartile of household income worked for an employer that sponsored a DC plan in 2007, compared with 62% of workers in households in the top income quartile. The take-up rate among workers in the bottom income quartile was just 57%, compared with 88% among workers in the top income quartile. These results imply that policies intended to raise participation in retirement plans should be designed with the situation of the target population in mind. Efforts to increase plan participation among younger workers should be focused on the low take-up rate among young employees who are offered a plan, perhaps by encouraging firms to adopt automatic enrollment or to provide more education for workers about the importance of saving for retirement. Policies designed to raise participation among employees of small firms will need to target the low sponsorship rate among small employers, which may require finding new ways to make offering a retirement plan less burdensome and costly to small employers. Less-educated workers may need more guidance, perhaps in the form of investment education and investment advice, than better-educated workers. Workers in lower-income households, who may be hesitant to opt into a 401(k) plan that will reduce take-home pay, may be more receptive to plans that devote a portion of future pay increases to the retirement plan. Congress has established tax incentives to encourage employers to sponsor retirement plans and employees to participate in these plans. Employer contributions to qualified plans are a tax-deductible business expense, and neither contributions—whether made by the employer or the employee—nor the investment earnings on those contributions are taxed as income to the employee until they are withdrawn from the plan. Because higher-earning workers pay higher marginal tax rates than lower-earning workers, the tax deduction for contributing to a retirement plan is worth more to a worker in a higher tax bracket than it is to a worker in a lower tax bracket. For a worker with a marginal income tax rate of 35%, contributing $1 to a 401(k) plan costs just 65 cents after taking the tax deduction into account. For a worker with a marginal income tax rate of 20%, contributing $1 to a 401(k) plan costs 80 cents on an after-tax basis. Moreover, both economic theory and empirical evidence suggest that the propensity to save rises with income. Because higher-earners would save much of their income even without tax incentives to do so, a substantial share of the tax revenue lost through the deduction for contributions to retirement plans does not result in a net increase in national saving. Consequently, some economists have suggested that the tax incentives for retirement saving are "upside down." Most of these tax breaks are enjoyed by higher-wage workers who would be likely to save part of their income even without a tax deduction, rather than by low-wage workers who might respond to an effective tax incentive with new saving. One strategy for increasing contributions to retirement plans would be to provide tax incentives that are targeted to low- and middle-income workers. To provide an additional incentive for lower-income workers to contribute to retirement savings plans, Congress in 2001 authorized a new retirement savings tax credit, sometimes called the "saver's credit." In 2011, single taxpayers with adjusted gross income (AGI) up to $17,000 are eligible for a credit of 50% on qualified retirement contributions up to $2,000. For single filers with AGI of $17,001 to $18,250, the credit is 20%, and for single filers with AGI of $18,251 to $28,250, the credit is 10%. Married couples filing jointly with AGI up to $34,000 are eligible for a credit of 50% on qualified retirement contributions up to $2,000. For married couples with AGI of $34,001 to $36,500, the credit is 20%, and for married couples with AGI of $36,501 to $56,500, the credit is 10%. The saver's credit is now claimed on about 5 million tax returns each year. The maximum credit is $1,000. The average credit in 2007 was $167. Although the saver's credit provides an incentive for lower-income workers to save for retirement, its effect has been limited because the credit is non-refundable and phases out steeply over a range of income that is relatively low. A nonrefundable credit reduces taxes owed by the amount of the credit. However, if the individual or family owes no income tax after having taken the exemptions and deductions for which they are eligible, a nonrefundable credit has no value. This is the case for many households with modest earnings who might benefit from the saver's credit if the credit were refundable. H.R. 1961 of the 111 th Congress would have increased the rate of the tax credit for retirement savings contributions, mad the credit refundable, and required the credit to be paid into retirement accounts. The income limit for the maximum credit of 50% of contributions would have been increased to an adjusted gross income of $32,500 for individuals and $65,000 for couples. The credit would have phased out between $32,500 and $42,500 for individuals and between $65,000 and $85,000 for married couples filing jointly. The bill would have set the maximum amount of an employee contribution that is eligible for the credit at $500 for an individual and $1,000 for a couple. The contribution limits would have increased by $100 and $200, respectively, each year until 2020. After that time, the limits would have been indexed to the rate of inflation. If an employee elects to participate in a 401(k) plan, the next important decision he or she must make is how much to contribute to the plan. Studies have shown that employees are more likely to contribute to a plan if it provides matching contributions, and the amount that an employee contributes to a plan can be influenced by the formula for the matching contribution. About two-thirds of all 401(k) plans offered an employer matching contribution in 2007. The most common matching formula was 50% of the first 6% of pay contributed by the employee, for a total employer contribution equal to 3% of employee pay. The maximum permissible annual contribution to a retirement plan is limited by federal law, but very few workers contribute amounts near the annual legal maximum. Many employees contribute only enough to receive the full amount of the employer matching contribution. Those who elect not to contribute to a plan that offers a match, or who contribute less than the amount necessary to receive the full match, are in effect choosing to reduce their own compensation below the maximum available to them. In defined contribution plans, the benefit available to the worker at retirement is the amount in his or her account. The account balance depends on the amount that the employer and employee have contributed to the plan, the investment gains or losses on those contributions, and the fees charged to participants. Research has shown that, historically, the most important factors affecting workers' retirement account balances at retirement are the number of years over which they have contributed and the amounts that they contributed each year to their retirement plans. Consequently, persuading workers to save more and to begin saving earlier are two of the most effective ways of increasing workers' income in retirement. Table 3 shows households' monthly contributions to DC plans in 2007 both in dollars and as a percentage of household earnings. The top panel of the table shows contributions categorized by the age of the household head, the middle panel shows contributions categorized by household income, and the bottom panel shows contributions by all households that contributed to a DC plan. In 2007, the median monthly contribution to defined contribution plans by households in which at least one worker aged 25 to 64 participated in a DC plan was $290. This is equivalent to $3,480 on an annual basis. As a percentage of household earnings, the median contribution by households in which one or more workers participated in a DC plan was 5.1% of earnings. Twenty-five percent of households that contributed to a DC plan in 2007 contributed $660 or more per month, and 25% contributed $130 per month or less. As a percentage of earnings, 25% of households participating in DC plans contributed 8.3% of earnings or more to the plan in 2007, and 25% of participating households contributed 2.9% of earnings or less to the plan. Households headed by persons under age 35 contribute less to DC plans, both in dollars and as a percentage of household earnings, than households headed by individuals aged 35 and older. In 2007, the median monthly contribution to DC plans by households headed by persons under age 35 in which at least one worker participated in a plan was $190. Among households headed by persons aged 35 to 44, the median monthly contribution was $310, and among households headed by persons aged 45 to 44, the median monthly contribution was $368. The median monthly DC plan contribution among households headed by persons aged 55 to 64 was $330 in 2007. As a percentage of total household earnings, the median monthly contribution to DC plans by households headed by persons under age 35 in which at least one worker participated in a plan was 4.2% of earnings. The median contribution among households headed by persons aged 35 to 44 was 5.2% of earnings. Among both households headed by persons aged 45 to 54 and households headed by persons aged 55 to 64, the median contribution to DC plans in 2007 was 5.7% of household earnings. As one might expect, household contributions to DC plans vary substantially by household income. This is likely to be the case both because higher-income households have more disposable income to save and also because, as was discussed earlier, the tax deduction for retirement savings is more valuable to higher-income households than to lower-income households. In addition, higher-income households are more likely than lower-income households to have more than one worker contributing to a DC plan. In 2007, the median monthly contribution to DC plans among households in the top income quartile in which one or more workers participated in a plan was $750. Among households in the bottom income quartile in which one or more workers participated in a DC plan, the median monthly contribution to DC plans was $100. As a percentage of income, the median contribution among households in the top income quartile was 6.6% of household earnings, whereas among households in the bottom income quartile, the median contribution was 4.3% of household earnings. Employer matching contributions have been shown to raise participation rates in 401(k) plans. Many employees, however, contribute just enough to receive the full employer match. Employer matching contributions usually phase out at relatively low employee contribution rates. Matching contributions on employee salary deferrals of more than 6% of pay are relatively uncommon. Consequently, employer matching contributions are not as effective at raising employee contribution rates over time as they are at inducing employees to start contributing to the plan. Just as automatic enrollment has proven to be an effective means of raising participation rates in 401(k) plans, automatic contribution escalation can raise contribution rates. The Pension Protection Act of 2006 sought to encourage employers to adopt automatic enrollment as a feature of their retirement plans by granting an exemption to certain regulations to plans that include a "qualified automatic contribution arrangement." One of the features that a qualified automatic contribution arrangement must include is automatic escalation of employee contributions. Employee deferrals must be equal to specific percentages of pay unless the employee elects a different percentage. The minimum required deferral amount is 3% of pay in the employee's first year of participation, 4% in the second year, 5% in the third year, and 6% in the fourth and later years. The automatic deferral cannot exceed 10% of pay, but participants can elect a higher deferral rate, provided their total deferrals for the year do not exceed the annual limit under I.R.C. § 402(g). In 2011, this limit is $16,500. A qualified automatic contribution arrangement also must include employer contributions. The employer contribution can be either a non-elective contribution equal to at least 3% of pay for all employees or a matching contribution equal to 100% of the first 1% of salary deferred and 50% of deferrals from 1% of pay to 6% of pay. Other matching formulas are permitted if they result in matching contributions that are at least equal to the amount provided under the prescribed matching formula, do not increase as the employee's rate of deferral increases, and do not apply to deferrals in excess of 6% of pay. In 2007, the median employee salary deferral into employer-sponsored defined contribution plans was 6% of pay; however, 25% of workers who contributed to a DC plan deferred 3.9% of pay or less. Qualified automatic contribution arrangements that include automatic contribution escalation could raise employee contribution rates for a substantial percentage of participants. Employees could elect not to participate or to lower their contributions. The experience of most plans with automatic enrollment has been that the majority of participants who are automatically enrolled continue to participate. There is less evidence on the long-term effects of automatic contribution escalation on employee contributions because not as many plans have yet adopted automatic escalation. A worker who has elected to participate in a 401(k) plan and has decided how much to contribute to the plan usually also must decide how to invest these contributions. More than 90% of 401(k) plans allow employees to direct the investment of their contributions, and three-fourths of plans allow employees to direct the investment of the employer's contributions. In order for a plan sponsor to be relieved of liability for investment losses in a participant-directed retirement plan, participants must be given a choice of at least three investment alternatives, each of which must have different risk and return characteristics. Most plans offer participants more than the minimum number of investment choices required by law. In 2007, the average 401(k) plan offered participants 18 investment options. The investment options most commonly offered were actively managed U.S. stock funds (77% of plans), actively managed international stock funds (73%), indexed U.S. stock funds (70%), and actively managed U.S. bond funds (64%). Participants in 401(k) plans bear the risk of investment losses. An individual's retirement account might suffer investment losses because the particular stocks, bonds, or other assets in which he or she has chosen to invest decline in value. Diversification can reduce the risk associated with investing in specific assets because declines in the value of some assets may be fully or partially offset by gains in the value of other assets. Stock and bond mutual funds, for example, help protect individuals from investment risk by purchasing securities from many companies in a variety of industries. In a stock mutual fund, investment losses from companies that are performing poorly may be offset by investment gains from companies that are performing well. A broader form of investment risk is market risk , which is the possibility of an overall decline in a broad class of assets, such as stocks. Even a well-diversified portfolio of stocks, for example, will not protect the value of an individual's retirement account from depreciating if stock values fall across the board, as they did in 2008. This is why most investment advisors recommend diversification not only within a class of assets—by buying broadly diversified stock mutual funds instead of individual stocks, for example—but also diversification across asset classes. Bond prices have historically been less volatile than stock prices, and there have been long periods when returns on stocks and bonds have not been closely correlated. Life-cycle funds and target date funds diversify across classes of assets by buying shares in stock mutual funds, bond funds, and sometimes other investments as well. Although most financial advisors recommend diversifying investments across classes of assets and periodically re-balancing accounts to maintain appropriate diversification, relatively few plan participants put this advice into practice. The assets of DC plans are heavily invested in stocks and stock mutual funds. At year-end 2007, 78% of all DC plan assets were invested in stocks and stock mutual funds. Investment in stocks and stock mutual funds varied little by age, indicating that many workers nearing retirement were heavily invested in stocks, and risked substantial losses in a market downturn like that in 2008. According to the 2007 Survey of Consumer Finances, nearly 30% of DC plan participants between the ages of 35 and 54 had 100% of their account balance invested in stocks in 2007. Twenty-eight percent of participants aged 55 to 64 had their entire account balance invested in stocks and stock mutual funds. (See Figure 1 .) Because many plan participants lack basic financial literacy, policy analysts have suggested that plans should take steps to help participants make better investment choices or adopt plans that automatically allocate contributions among various classes of investments. Investment education and target date funds are two approaches to achieving asset diversification in DC plans. To make informed decisions about how much to save for retirement and how to invest these savings, plan participants need to understand certain basic principles of finance. For example, an individual who understands the risk-and-return characteristics of stocks and bonds will be better able to balance the risk of investment losses with the expected rate of return from each kind of investment compared to someone who lacks this understanding. Not everyone understands investment risk, however, and many people make decisions about their investments that are not well-informed. Some 401(k) plan sponsors have attempted to help employees make better investment decisions by providing investment education, offering investment advice, and adding "life-cycle funds" or "target date funds" to their plans. According to Hewitt Associates, more than 90% of all 401(k) plans offer some form of investment education. Typically, investment education is offered through enrollment kits, seminars and workshops, and internet sites. Investment education helps plan participants understand the importance of saving for retirement. It typically focuses on educating individuals about basic tenets of finance, such as the effects of compound interest and the difference between stocks and bonds. Employees who understand how investment gains compound over time are more likely to start contributing to the plan, to continue to contribute to the plan, and to raise their contributions as their earnings rise over time. Participants who understand that the higher expected rate of return on stocks compared to bonds comes at the cost of greater price volatility will be better able to balance their tolerance for risk with their desire for higher returns when choosing investments. Even with more investment education, some employees will choose not to participate in retirement savings plans because they prefer higher current income to higher income in retirement. For workers who discount future income heavily, changing their default participation status to automatic enrollment may be more effective than investment education. Investment education consists mainly of giving plan participants general information about the basic principles of finance that they need to be informed investors. Investment advice, on the other hand, is tailored to the individual and often involves recommending specific investments. Some plan sponsors have been reluctant to offer investment advice both because of the cost of paying professional advisors and concerns about possible legal liability for investment losses incurred by plan participants. Almost half (49%) of all 401(k) plans offered investment advice to plan participants in 2007, up from 35% in 2000. Even if a plan offers a range of low-cost, diversified investment options and offers investment education and investment advice, it is not unusual for some participants to make investment choices that may prove to be unwise in the long run. For example, some participants invest too much of their retirement savings in the stock of their employers. This exposes them to the risk of losing their retirement savings as well as their jobs if the firm goes out of business. Others invest too conservatively while they are young—putting most of their contributions into low-yielding money market funds, for example—even though their longer investment horizon would suggest that they could take on more risk. Sound investment advice can help plan participants avoid these common mistakes. Under ERISA, providing investment advice is a fiduciary act. A plan sponsor could be held liable for investment losses incurred by a participant who follows investment advice offered by a plan or its agent. The Pension Protection Act of 2006 (PPA) amended ERISA to allow plan sponsors who follow certain procedures to provide investment advice without being held liable for investment losses of participants who act on the advice. In general, to be permissible under the provisions of the PPA, the advice must be provided for a fee rather than a commission, or it must be based on a computer model that meets requirements set forth in statute and regulations. The advisors must disclose their fee arrangements to plan participants and inform them of their affiliations with investments they recommend and with the developer of the computer model. The model on which the advice is based must "operate in a manner that is not biased in favor of investments offered by the fiduciary adviser or a person with a material affiliation or contractual relationship with the fiduciary adviser." On January 21, 2009, the Department of Labor (DOL) published a final regulation on the investment advice provisions of the PPA. On March 19, the department delayed the effective date of the regulation for 60 days, pending further review and receipt of additional public comments. On May, 21, 2009, the department announced that the regulation would not be implemented until November 18, 2009. On November 20, 2008, DOL announced that it was withdrawing the final rule. The investment advice provisions of the PPA allow investment advice to be provided to plan participants by individuals with a financial interest in the investments that they recommend, provided that they disclose this information to plan participants. On April 23, 2009, Representative Robert Andrews introduced H.R. 1988 , the Conflicted Investment Advice Prohibition Act of 2009. This bill would allow investment advice to be provided to plan participants only by independent investment advisers who are registered under the Investment Advisers Act of 1940 and who meet certain other qualifying requirements. The bill would prohibit advisers from managing any investments in which any of the assets of the plan are invested, and it would prohibit plans in which individuals direct the investment of their accounts from contracting with investment advisers who are not independent advisers. Independent advisers would be required to provide participants with documentation of the historic rates of return of investment options available to the plan, and to notify participants that the investment adviser is acting as a fiduciary of the plan. Even if a plan participant understands the basic principles of finance, he or she may have neither the time nor the inclination to monitor and manage a retirement account. Because many plan participants lack either the aptitude, interest, or time to manage their retirement accounts, plan sponsors have begun to add "life-cycle funds" or "target date funds" to their 401(k) plans. These plans are designed to allocate the participant's investments between stocks and bonds in a way that takes into account his or her risk tolerance and expected date of retirement. Although these funds have proved popular with participants and have won the approval of many investment professionals, the sharp downturn in stock prices in 2008 showed that they are not without problems. Many target-date funds for people expecting to retire in 2010 or 2011 were heavily invested in stocks and lost 25% to 30% of their value in 2008. Life-cycle funds and target date funds are similar. Many financial analysts consider target date funds to be a subset of the category of funds called life-cycle funds. A life-cycle fund is a mutual fund in which the allocation of assets among stocks, bonds, and cash-equivalents (money market funds, for example) is automatically adjusted during the course of the participant's working life. As the participant nears retirement age, the investment allocation is shifted away from higher-risk investments, such as stocks, and moves toward lower-risk investments, such as bonds and cash equivalents. A target-date fund is a life-cycle fund designed to achieve a particular (generally conservative) mix of assets at a specific date in the future, which is usually the year when the participant expects to retire. Although life-cycle funds and target date funds are typically designed with the intent of achieving more rapid growth in the early years of the participant's career and greater stability of asset values in the later years, they can contain any mix of stocks, bonds, and cash. There are no industry standards or federal regulations that specify what allocation of assets is required for a life-cycle fund or a target date fund that is intended for plan participants of a given age or with a particular investment time horizon. Currently, less than 5% of DC plan assets are invested in life-cycle funds. Analysts expect this percentage to rise over the next 10 years because the Pension Protection Act allows companies to use life-cycle funds as the default investment option for employees who are automatically enrolled in a 401(k) plan and who do not select an investment fund for their 401(k) contributions. Allocation of assets among stocks, bonds, and cash-equivalents varies greatly among target date funds with the same target retirement date. A recent study by Morningstar, Inc. found that among target-date 2010 funds that were at least three years old, stock allocations ranged from 14% of assets to 63% of assets. In December 2008, the average 2010 fund had more than 45% of its assets invested in stocks. Fund performance also varied greatly during the bear market of 2008. The S&P Target Date 2010 Index Fund, a benchmark of fund performance, fell 17% in 2008. The fund holds 60% of its assets in bonds and other fixed-income securities and 40% in equities. In comparison, the Deutsche Bank DWS Target 2010 Fund fell just 4% in 2008, whereas Oppenheimer's Transition 2010 fund fell 41%. In January 2009, the Thrift Savings Plan's "L2010 Fund" for federal employees who plan to retire in 2010 held 70% of its assets in bonds and 30% in stocks. Shares of the L2010 Fund fell 10.5% in 2008. In a letter sent to Secretary of Labor Hilda Solis in February 2009, Senator Herb Kohl, chairman of the Senate Special Committee on Aging, urged the Secretary to "immediately commence a review of target date funds and begin work on regulations to protect plan participants." In her reply to Senator Kohl on March 26, Secretary Solis stated that the Department of Labor would, in coordination with the Securities and Exchange Commission, begin a review of target date funds to determine if these funds should be subject to further federal regulation. Another issue that has concerned Congress is the effect of fees on retirement account balances. Retirement plans contract with service providers to provide investment management, record-keeping, and other services. There can be many service providers, each charging a fee that is ultimately paid by plan participants. The arrangements through which service providers are compensated can be very complicated. Because the structure of 401(k) fees is opaque to most plan participants, it is very difficult for them to judge whether they are receiving services at a price they would be willing to pay in a more transparent market transaction. Figure 2 illustrates the administrative structure of a typical 401(k) plan. Plan participants have individual accounts to which the employees, the employer, or both contribute. As the plan sponsor, the employer arranges for one or more third parties to provide various services for the plan. Services include recording transactions, arranging for loans, cashing out departing employees' accounts, and contracting with the funds into which participants can direct their contributions. Employers can purchase services separately from several service providers or they might purchase two or more services from a single service provider. Services may be priced individually or purchased in a bundled arrangement. In a bundled arrangement, several services are offered to the plan for a single fee. The service provider sometimes contracts out the provision of these services to one or more third parties. Fees vary from plan to plan. They are affected by the amounts and kinds of services offered to plan participants and also by the size of the plan. As a percentage of plan assets, fees are negatively correlated with the number of plan participants and the average account balance. In general, the greater the number of plan participants and the larger the average account balance, the lower the fees will be as a percentage of plan assets. A recent survey conducted by Deloitte Consulting for the Investment Company Institute looked at fees in plans ranging in size from those with fewer than 100 participants and less than $1 million in total assets to plans with more than 10,000 participants and assets of more than $500 million. The study looked at fees for administration, recordkeeping, and investment management, which were combined into a single "all-in" fee, expressed as a percentage of plan assets. The median fee for all plans in the survey was 0.72% of plan assets, or approximately $350 for an account with the median balance of plans in the survey, which was $48,500. The study found that 10% of plans had total fees of 0.35% of assets or less and that 10% of plans had total fees of 1.72% of assets or more. The firms that provide record-keeping, investment management, and other services to 401(k) plans charge fees for these services, and many of these fees are passed on to plan participants. Fees for some services are charged for each transaction, while others are charged as a flat fee per account per year, and still others—such as investment management—are typically charged as a percentage of total plan assets. Small differences in fees can yield large differences in account balances at retirement, especially in the case of yearly or recurring fees. For example, after 20 years, an initial $20,000 account balance earning 7% yearly would be worth about $70,000 if fees were equal to 0.5% of plan assets each year. The account would have a balance of about $58,000, or 17% less, if fees amounted to 1.5% per year. Over the course of 30 years, a participant in a plan charging fees equal to 1.5% of assets would pay almost $33,000 more in fees than he or she would have paid if the annual fees were 0.5% of assets. Section 404(a) of ERISA states that plan sponsors are responsible for "defraying reasonable expenses of administering the plan." This has been interpreted by the Department of Labor as imposing a duty on plan sponsors to assure that expenses—including fees—are reasonable. Plan sponsors are not required to minimize fees, but they are required to make sure that plan fees are "reasonable." This standard allows for wide variation in fees across plans. Although sponsors of DC plans are required by law to assure that fees are reasonable, they do not have the same financial incentive to keep fees low as do the sponsors of DB plans. In a DC plan, many fees are passed through to the plan participants, while in a DB plan most fees are paid by the plan sponsor. If plan participants were better-informed about the fees that they pay and the services they receive in return for those fees, they could question plan sponsors about fees that they believe to be unreasonable. Therefore, policies that increase the transparency of fee arrangements could result in participants paying lower fees. Plans are required by law to disclose some of the fees that plan participants pay. However, the information is not always easily accessible or easily understood by the average participant. On July 16, 2010, DOL issued final regulations requiring greater disclosure of fees. Members of Congress have been developing legislation that would require greater disclosure of fees to participants. Several bills were introduced in the 111 th Congress to increase fee disclosure. On February 10, 2009, Senator Tom Harkin introduced S. 401 , the Defined Contribution Fee Disclosure Act. On April 21, 2009, Representative George Miller introduced H.R. 1984 , the 401(k) Fair Disclosure for Retirement Security Act. On June 24, the House Education and Labor Committee ordered the 401(k) Fair Disclosure and Pension Security Act reported to the House. The bill reported by the committee was numbered H.R. 2989 . This bill combined H.R. 1984 with H.R. 1988 , the Conflicted Investment Advice Prohibition Act, which was introduced by Representative Robert Andrews. On June 9, 2009, Representative Richard Neal introduced H.R. 2779 , the Defined Contribution Plan Fee Transparency Act, which was referred to the Committee on Ways and Means. The tax incentives that Congress has authorized for retirement savings accounts are designed to assure that the money workers have set aside for retirement remains in the account until they are near retirement age. In recognition of needs that may arise over the course of an individual's life, Congress has allowed certain exceptions to the general restriction on access to these accounts before retirement. Each exception, however justifiable on its own merits, increases the danger that workers will reduce their retirement savings before they have reached retirement. Pre-retirement withdrawals from retirement accounts are sometimes described as "leakages" from the pool of retirement savings. Congress has used a combination of regulation and taxation to limit and discourage pre-retirement access to money in retirement accounts, but it has not completely prohibited pre-retirement access to these accounts because this access is important to many plan participants. Research has shown that workers are less likely to put money into a retirement account if they believe that the money will be inaccessible in the event of emergency. Consequently, current law represents a compromise between limiting leakages from retirement accounts and allowing people to have access to their retirement funds in times of great need. Leakages from retirement plans can take a variety of forms, including "hardship" withdrawals from the plan prior to retirement, borrowing against plan assets, and cashing out plan assets upon separation from employment. The tax code permits 401(k) plans to make distributions available "upon hardship of the employee." Although the Internal Revenue Code (IRC) allows plans to make these distributions available, it does not require them to do so. Federal regulations specify that a hardship distribution can be made only on account of "an immediate and heavy financial need of the employee" and cannot exceed the amount of the employee's previous elective contributions. Qualifying expenses include medical care for the participant or family members, the purchase of a principal residence, college tuition and education expenses, expenses to prevent eviction or foreclosure on a principal residence, and funeral expenses. A hardship distribution must be limited to the amount needed to meet the employee's immediate financial need plus any taxes that will result from the distribution. Plan participants are prohibited from making contributions to a plan for a period of six months after a hardship distribution, and consequently they forego any employer match on contributions during that time. Hardship distributions are always subject to ordinary income taxes, and unless the distribution is used for a purpose specifically designated in law, the distribution will be subject to a 10% early withdrawal tax penalty unless the plan participant is over age 59½. The IRC allows participants in employer-sponsored retirement plans to borrow from their accounts, but plans are not required to allow such loans. A loan cannot exceed the greater of $10,000 or 50% of the participant's vested benefit in the plan, up to a maximum of $50,000. Most loans from retirements plans must be paid back within five years, although loans used to purchase a home can be repaid over 15 years. If repayment ceases, the IRS will treat the full amount of the loan as a distribution from the plan, and it will be subject to income tax and possibly to an early distribution penalty. Most plans require employees who separate from the employer before the loan is repaid to repay the balance immediately or the loan will be treated as a taxable distribution from the plan. For the plan participant, borrowing from a 401(k) plan is usually preferable to taking a hardship withdrawal. With a loan, the account balance is not permanently reduced because the loan will be repaid into the account, generally within five years. Unlike a hardship distribution, after which employee contributions must be suspended for six months, the participant can continue to contribute to the plan while the loan is outstanding. Also unlike hardship distributions, loans are not subject to income taxes or the early withdrawal penalty if repayments continue on schedule. According to the Federal Reserve Board's Survey of Consumer Finances, 9.5% of households in which the householder or spouse participated in a DC plan had one or more plan loans outstanding in 2007. The mean balance of all loans from DC plans was $6,683 and the median loan balance was $5,000. Ten percent of households with loans from DC plans had outstanding loan balances of $15,000 or more and 10% of households had loan balances of $1,000 or less. Leakages from retirement savings can occur when workers change jobs. A participant in a retirement plan usually has several options to choose from when leaving a job. He or she can keep the account in the former employer's plan; roll over the account into the new employer's retirement plan; roll over the account into an Individual Retirement Account (IRA); or receive the account balance directly as a distribution from the plan. Congress has amended the IRC several times to encourage workers who change jobs to leave their accrued retirement benefit in the former employer's plan or to roll over the account into an IRA or another qualified retirement plan. For example: Section 72(t) of the IRC imposes a 10% tax in addition to ordinary income taxes on distributions from retirement plans received before age 59½ that are not rolled over into an IRA or another tax-qualified plan within 60 days. The Unemployment Compensation Amendments of 1992 ( P.L. 102-318 ) require employers to give departing employees the option to transfer a distribution directly to an IRA or to another employer's plan. If the participant instead chooses to receive the distribution, the employer is required to withhold 20%, which is applied to any taxes due on the distribution. IRC §411(a)(11) allows a plan sponsor to distribute to a departing employee his or her accrued benefit under a retirement plan without the participant's consent only if the present value of the benefit is less than $5,000. The Economic Growth and Tax Relief Reconciliation Act of 2001 ( P.L. 107-16 ) requires that if the present value of the distribution is at least $1,000, the plan sponsor must deposit the distribution into an IRA unless otherwise instructed by the participant. In developing policies to prevent leakages from retirement savings, Congress has attempted to promote the preservation of savings until workers retire while recognizing that they may have to take money from their accounts in times of financial hardship. An example of how these goals have been balanced is the treatment of distributions when a worker leaves a job in which he or she participated in a retirement plan. In this situation, Congress has sought to encourage recipients to roll over pre-retirement distributions from retirement plans, but it has not required such distributions to be rolled over into an IRA or another retirement plan. Current law allows accrued benefits worth less than $5,000 to be cashed out automatically, but it requires the plan participant to agree in writing to a distribution of more than $5,000. The law allows workers to take cash distributions from plans when they leave a job, but it requires 20% to be withheld against taxes owed, and it places an additional 10% tax on amounts that are not rolled over into another retirement account within 60 days of the distribution. Current law on pre-retirement distributions represents a compromise between competing goals. Stricter limits on access to retirement savings prior to retirement could lower participation or contributions. Research has shown that participation in plans that do not permit plan loans or hardship distributions is lower than in plans that allow these kinds of access to funds held by the plan. Allowing easier pre-retirement access to retirement accounts could lead to more leakages from the plans, depleted account balances, and poorer retirements for many. Moreover, to the extent that retirement accounts could be freely tapped before retirement, they would not be retirement accounts at all, but merely tax-deferred general-purpose savings accounts. In summary, the laws that Congress has passed with respect to taxation of early distributions from retirement plans represent a compromise among several competing objectives, including encouraging employees to participate in retirement plans; promoting the preservation of retirement assets; allowing participants to have access to their retirement savings when they would otherwise face substantial economic hardship; and assuring that the tax preferences granted to retirement savings plans are not used for purposes other than to fund workers' financial security during retirement. A retiree who is deciding how to convert retirement savings into income will have to take into account many risks. Increases in average life expectancy mean that many retirees will have to ensure that their savings will last through a retirement that could span 30 or 40 years. Volatility in equity markets, the effects of inflation on purchasing power, and the possibility of substantial expenses for medical treatment and long-term care will further complicate this decision. Many retirees may find it more challenging to manage their financial assets in retirement than it was during their working years. There are a number of ways to convert retirement savings into income. One option is to purchase an annuity. A life annuity—also called an immediate annuity—is an insurance contract that provides regular income payments for life in return for an initial lump-sum premium. Life annuities can help protect retirees against some of the financial risks of retirement, especially longevity risk and investment risk. A life annuity pays income to the purchaser for as long as he or she lives, and in the case of a joint-and survivor annuity, for as long as the surviving spouse lives. Some annuities offer limited protection against inflation through annual increases in income; however, the annual increases must be paid for by accepting a lower initial monthly annuity income. Other annuities allow the purchaser to share in investment gains from growth in equity markets as a way to offset the effects of inflation. These annuities also require the purchaser to share in the investment losses if markets fall. Relatively few 401(k) plans provide the opportunity for retiring workers to convert all or part of their 401(k) accounts into life annuities at retirement. Only 21% of plans offered an annuity option in 2007, down from 26% in 2000. One reason few plans offer annuities is that they have proven to be unpopular in plans that offer them. Fewer than 10% of participants in plans that offer an annuity choose this option. At retirement, most DC plan participants either take periodic withdrawals or roll the account balance into an IRA from which they take withdrawals. Few people purchase life annuities for a number of reasons. Social Security provides benefits in the form of an inflation-adjusted annuity, and some retirees may consider this to be sufficient protection against the risk of spending all of their retirement assets before they die. In addition, about one-third of retirees receive income from defined benefit pensions, and they therefore have less need to purchase an annuity with their retirement savings. Some potential purchasers of annuities are concerned that the fees charged by insurers are too high and that the insurance companies do a poor job of explaining the fees that they charge. Others are concerned that purchasing an annuity will reduce the financial assets that they have available to meet unexpected expenses. Finally, some older persons prefer not to purchase an annuity in the hope that they will be able to leave their assets as an inheritance for their children. For these and other reasons, the number of retirees who purchase income annuities has remained relatively low compared with the number who elect to take periodic withdrawals from their retirement accounts. Defined benefit pension plans are required by law to offer participants a joint and survivor annuity as the default form of benefit. No such requirement applies to defined contribution plans. Congress could require DC plan sponsors to contract with insurance companies to offer participants the option of taking their retirement benefits in the form of an annuity, but most policy proposals have focused on making annuities a more appealing option rather than a mandatory form of benefit. For example, H.R. 2748 of the 111 t h Congress (Pomeroy) would amend the Internal Revenue Code to exclude from gross income up to 50% of annuity income up to an annual maximum of $5,000 for single tax filers and $10,000 for couples filing jointly. Because most 401(k) plans do not offer an annuity option, retirees who wish to purchase annuities have to withdraw money from their accounts and buy annuities in the individual market. Individual annuities are more expensive than group annuities, and they place the responsibility for finding the best deal from a financially sound insurer on individuals who usually have had little or no experience shopping for annuities. Many consumers may not feel competent to do this on their own. They may be more comfortable taking periodic withdrawals from their accounts. Some retirees are reluctant to purchase a life annuity because canceling the annuity contract can be costly. The charge for canceling an annuity—the "surrender charge"—can account for more than 10% of the principal in the first year of the contract. Many economists have found the low demand for life annuities to be puzzling in light of the protection they provide against longevity risk. Recent research has found that the appeal of annuities to potential purchasers depends greatly on whether prospective buyers understand and appreciate the value of the income security that annuities provide. Researchers have found that when annuities are portrayed—or "framed"—as investment vehicles, the lower rates of return on life annuities (which are backed mainly by bonds) can put them at a competitive disadvantage with respect to stocks and stock mutual funds. However, when the insurance aspects of annuities are emphasized—in particular, the insurance against outliving one's assets—potential buyers have been found to be more receptive to the idea of buying a life annuity. As a way to familiarize people with annuities, researchers at the Retirement Security Project have suggested a strategy they call "automatic trial income." This would allow retirees to "test drive" an annuity for 24 months. They suggest that if the default form of benefit from a 401(k) plan were a monthly check, even for only a 24-month period with the option to take the remainder as a lump-sum at the end of two years—it would help change the public's perception of retirement accounts by framing them as an income stream rather than as a lump sum. Under automatic trial income, at least part of the assets in a worker's 401(k) account would be automatically paid out as income at retirement unless the individual chooses another option. Retirees would receive monthly payments from the automatic trial income plan for 24 months, at the end of which they could choose to take the remainder as a lump sum or have it converted to an annuity. To assure that only people who are near retirement have their accounts distributed as income when they leave an employer, automatic trial income could apply only to those who are 55 or older when they leave a job. To prevent small account balances from being converted to annuities, the policy could apply only to accounts above a minimum value of perhaps $50,000. Another annuity product, the Advanced Life Deferred Annuity (ALDA), is purchased at retirement but does not begin paying income until the purchaser reaches an advanced age, such as 80 or 85. If the purchaser dies before the age at which income payments are scheduled to begin, he or she forfeits the premium. On the other hand, because income payments are deferred until an advanced age, premiums would be relatively low compared to immediate income annuities. A recent analysis concluded that "this product would provide a substantial proportion of the longevity insurance provided by an immediate annuity, at a small fraction of the cost," and that "few households would suffer significant losses were it used as a 401(k) plan default." Although the ALDA could provide substantial insurance against living into very old age for a comparatively low premium, "it remains to be seen whether such a product would overcome annuity aversion." One way to help participants in 401(k) plans to begin thinking of their accounts as a source of retirement income rather than as a savings account would be to report the value of the participant's accrued benefits as a stream of monthly income beginning at age 65 in addition to reporting the account balance. To make these presentations comparable across plans, it might be necessary for the federal government to set standards on the appropriate interest rates and mortality tables for plans to use in restating account balances as streams of future income. Some financial firms are designing managed withdrawal programs as alternatives to annuities. These are typically investment accounts with periodic distributions that are designed to assure that the account balance will not be exhausted before a specified number of years have passed. Unlike annuities, however, these accounts do not provide longevity insurance. The account owner bears the risk that investment losses or living longer than he or she anticipated will result in the account being exhausted during his or her lifetime. About half of all workers in the United States participate in employer-sponsored retirement plans, a proportion that has remained essentially unchanged since the early 1970s. Since the 1980s, the proportion of workers in defined benefit pension plans has fallen while the proportion in defined contribution plans has risen. Sponsorship of retirement plans is substantially lower among small employers than among large employers. Efforts to increase retirement plan sponsorship among small employers have had only limited success. Some policy analysts have suggested that expanding access to payroll deduction IRAs could greatly increase the number of employees at small firms who have a retirement savings account. Even among employers who offer a retirement plan, not all workers participate. Roughly 20% to 25% of workers employed at firms that sponsor a defined contribution plan do not participate in the plan. Participation rates may rise if more firms adopt automatic enrollment, but currently, almost two-thirds of DC plans continue to require employees to elect to participate in the plan. On average, individual workers who participate in DC plans contribute about 6% of their pay to the plan, and households with one or more participants contribute about 5% of total household earnings. One way to boost employee savings rates would be for employers to adopt automatic escalation of contributions. Employee contributions can be increased slightly each year until reaching a target contribution rate, such as 10% of pay. As with automatic enrollment, employees must be permitted to opt out of the increase or to choose another contribution rate. In most DC plans, workers must decide not only whether to participate in the plan and how much to contribute, but also how to invest the contributions. As employers have become more aware of how daunting these choices can be for their employees, some have begun to add life-cycle funds that automatically adjust the allocation of contributions between stocks, bonds, and other investments based on the employee's expected date of retirement. The majority of plan sponsors also offer investment education for participants. Some employers arrange for financial planners or other professionals to offer investment advice to their employees. Excessive fees can substantially reduce retirement account balances, but plan participants often are unable to discern from their account statements how much they are paying in fees and what services they are receiving in exchange for the fees charged to their accounts. Improving the disclosure of fees charged to participants in 401(k) plans could help to drive down fees because participants and plan sponsors would be better able to compare fees across plans and to evaluate the services provided relative to the fees charged for those services. Although pre-retirement access to money held in 401(k) plans is limited by law, money sometimes "leaks" from workers' accounts before they retire. This happens when a worker withdraws funds from a 401(k) plan when changing jobs, or through a hardship distribution from the plan. Current law imposes a 10% tax penalty on most withdrawals from 401(k) plans before age 59½. The tax penalty creates a disincentive for withdrawing money from the account before retirement and also helps assure that 401(k) accounts remain dedicated to preparing for retirement rather than functioning as tax-deferred general-purpose savings accounts. Workers who are approaching retirement today are less likely than those who retired 20 or more years ago to have a defined benefit pension. Those who have retirement savings in a 401(k) plan or an IRA will have to decide how to convert their retirement savings into retirement income. One of the risks that they will face is the possibility that if they withdraw money too quickly, they might exhaust their savings while they still have many years to live. Income annuities insure retirees against the possibility of outliving their retirement savings, but for a variety of reasons income annuities have not yet proved to be a popular option for providing retirement income. One of the most important public policy challenges of the next several years will be to develop strategies that will help retirees manage their retirement savings wisely so that they can remain financially independent throughout retirement. | Over the past 25 years, defined contribution (DC) plans—including 401(k) plans—have become the most prevalent form of employer-sponsored retirement plan in the United States. The majority of assets held in these plans are invested in stocks and stock mutual funds, and the decline in the major stock market indices in 2008 greatly reduced the value of many families' retirement savings. The effect of stock market volatility on families' retirement savings is just one issue of concern to Congress with respect to defined contribution retirement plans. This report describes seven major policy issues with respect to defined contribution plans: 1. Access to employer-sponsored retirement plans. In 2007, only 61% of employees in the private sector were offered a retirement plan of any kind at work. Fifty-five percent were offered a DC plan. Only 45% of workers at establishments with fewer than 100 employees were offered a retirement plan of any kind in 2007. Forty-two percent were offered a defined contribution plan. 2. Participation in employer-sponsored plans. Between 20% and 25% of workers whose employer offers a DC plan do not participate. Workers under age 35 are less likely than older workers to participate. 3. Contribution rates. On average, participants in DC plans contributed 6% of pay to the plan in 2007. The median contribution by household heads who participated in a DC plan in 2007 was $3,360. This was just 22% of the maximum allowable contribution of $15,500 in that year. 4. Investment choices. At year-end 2007, 78% of all DC plan assets were invested in stocks and stock mutual funds. This ratio varied little by age, indicating that many workers nearing retirement were heavily invested in stocks and risked substantial losses in a market downturn like that in 2008. Investment education and target date funds could help workers make better investment decisions. 5. Fee disclosure. Retirement plans contract with service providers to provide investment management, record-keeping, and other services. There can be many service providers, each charging a fee that is ultimately paid by participants in 401(k) plans. The arrangements through which service providers are compensated can be very complicated and fees are often not clearly disclosed. 6. Leakage from retirement savings. Pre-retirement withdrawals from retirement accounts are sometimes called "leakages." Current law represents a compromise between limiting leakages from retirement accounts and allowing people to have access to their retirement funds in times of great need. In general, borrowing from a 401(k) plan poses less risk to retirement security than a withdrawal. Pre-retirement withdrawals can have adverse long-term effects on retirement income. 7. Converting retirement savings into income. Retirees face many financial risks, including living longer than they expected, investment losses, inflation, and possible large expenses for medical care and long-term care. Annuities can protect retirees from some of these risks, but few retirees purchase them. Developing polices that motivate retirees to convert assets into a reliable source of income will be a continuing challenge for Congress and other policymakers. |
Recently, as Congress considers policies to foster economic growth, arguments have been made that some traditional expectations of fiscal policy should be revisited, namely that cutting spending will contract the economy in the short run. Under this view, what would normally be considered contractionary fiscal policy would instead be expansionary. Proponents of this view also argue that cutting spending rather than raising taxes would be a more effective means of increasing economic growth. These arguments often refer to recent empirical studies of deficit reductions across countries. This view contrasts with that held by most economists, which will be referred to as "mainstream economics." Mainstream economics relies on a basic theory regarding policies to expand the economy in a downturn. This theory can be found in economics textbooks and is used by government and private forecasters to project the path of the economy. This view has been the basis for fiscal and monetary policy interventions to stimulate the economy for many years, under both Republican and Democratic administrations. Chairman Bernanke of the Federal Reserve was referring to this view when he cautioned against large and immediate spending cuts. The basic thrust of the model for fiscal policy is that increasing the deficit (whether by increasing spending or cutting taxes) expands an underemployed economy, and decreasing the deficit (cutting spending or raising taxes) contracts it. Just as economists generally consider spending cuts to be contractionary in the short run in an underemployed economy, they believe that deficits can be harmful in the long run by crowding out private investment. There is widespread agreement that the continuation of current tax and spending policies will lead to an unsustainable path of the national debt. The fundamental cause of these long-run problems predates the Great Recession and the increase in debt relative to GDP from that recession, and arises from the aging of the population and the growth in health care costs. Thus, to most economists, the policy challenge is a trade-off between the benefits of starting to address the debt problem earlier versus risking damage to a still-fragile economy by engaging in contractionary fiscal policy, or failure to continue with expansionary fiscal policy. Although the unemployment rate has been falling, it remains high, and the growth rate, while strong in the third quarter of 2012 (3.1%), was 1.3% in the second quarter of 2012. This report begins with an overview of this mainstream theory. The next section of the report then examines the evidence that has been used to challenge this theory. Current fiscal policy theories began with a work published during the Great Depression by British economist John Maynard Keynes. As a result, this type of policy is often referred to as Keynesian, although there have been numerous refinements and developments in the theory. These developments include, among others, the standard model (referred to as IS-LM ) that includes both monetary and fiscal policy, the refinement of the tradeoff between inflation and unemployment, leading to the notion of a natural rate of unemployment (where policies tend to affect price rather than output), the incorporation of expectations, and modifications for an open economy (where goods and capital flow across borders). Some commentators contrast Keynesian economics with neoclassical economics. Neoclassical economics originated in the late 19 th century and theorizes that output and prices adjust to forces of supply and demand. Supply and demand are, in turn, driven by decisions made by economic agents (consumers, workers, and producers) who maximize their welfare. Most economists have both neoclassical and Keynesian-style views, one applied largely to questions of microeconomics and the other to questions of macroeconomics. Since World War II, government policy to address business cycles has generally been guided by some form of Keynesian theory. The fundamental concept behind this view of macroeconomics and fiscal policy is that prices in an economy do not immediately adjust to shocks, which can lead to unemployment of resources. Workers may become unemployed and capital may sit idle, due to a lack of sufficient demand. To reduce unemployment, expansionary fiscal policy (an increase in spending or a reduction in taxes to expand aggregate demand) can be employed. The magnitude of the effects of fiscal policy is measured by a multiplier. If the government spends a dollar, then someone in the economy receives a dollar. Part of that dollar might be saved and part might be spent; to the extent that it is spent, it increases aggregate demand in a second round. The recipients of that second round of spending will in turn spend part of their receipts. There are multiple rounds of spending, each diminishing a bit because part is saved, and the sum of all these rounds defines the multiplier. As demand increases, businesses hire additional workers and purchase more capital goods to satisfy demand. The strength of the multiplier depends not only on the share that is spent in the initial and subsequent rounds but also on the effect on interest rates and prices. As demand increases it places upward pressure on interest rates, reducing private sector spending on investment and consumer durables, and also, in an open economy, attracting capital flows into the United States, appreciating currency, and reducing net exports. When the economy is at full employment or close to full employment, the effects of a stimulus are more likely to lead to price increases rather than real output growth. In this case, the deficit spending crowds out investment and net exports. Thus, even for a particular type of spending or tax cut its short run effects are likely smaller at higher interest rates, smaller for small open economies with a large trade sector and flexible exchange rates, and smaller for economies at or close to full employment. Under current circumstances, there is little indication that deficits have significantly crowded out investment or exports, since interest rates have remained extremely low. They are also not likely to have led to price increases given significant unemployment in the U.S. economy and low inflation rates. The estimated size of the fiscal multiplier also depends on assumptions about monetary policy and its response to a fiscal stimulus. One might think of a neutral monetary response as one that permits the fiscal stimulus to increase interest rates, output, and prices (in the context of the IS-LM model, equivalent to keeping money supply fixed). The monetary authorities may, at one extreme, keep the interest rate fixed, which will enhance the fiscal stimulus, or, at the other, keep prices fixed, which will offset the fiscal stimulus. In the recent recession, both interest rates and inflation remain low. In a fully employed economy, fiscal stimulus will not affect output, but rather the composition of output. Without an offsetting change in the nominal money supply, prices will rise to reduce the real value of money. Alternatively, the money supply can be contracted to be consistent with total output without a price increase. As indicated in Figure 1 , which plots growth rates since 1821, the post-World War II period has been characterized by much more moderate business cycles (to the right of the vertical line), and limited instances of negative growth, as compared to those occurring in the latter half of the 19 th century and the first half of the 20 th century. (Note, however, that data for earlier years is less reliable.) Moreover, it is generally agreed one of the more significant contractions, in the early 1980s, was deliberately brought about by restrictive monetary policy (which may, however, have been more restrictive than initially planned). Along with the practice of countercyclical monetary and fiscal policy (or at least an understanding of what policies could make things worse, as they had in the past), business cycles may have been moderated by deposit insurance, automatic stabilizers (transfer and tax systems that automatically increase the deficit during downturns), and the expectation that the government will counter business cycles, which may help to reduce panics in the first place, though some believe they may also increase the risk of speculative bubbles. Some debates have centered on whether fiscal or monetary policy (or both) should be used as tools of discretionary policy. Both are susceptible to policy lags. Some economists came to believe that political lags made fiscal policy ill-timed, while monetary policy could be enacted quickly. Others became less enamored of fiscal policy because it becomes somewhat less effective in an open economy. At the same time, there are circumstances where traditional monetary policy does not work well (at very low interest rates, for example) or where a contraction appears to be serious enough to warrant both monetary and fiscal measures. During the 2007–2009 Great Recession there was broad bipartisan agreement that fiscal stimulus should be used, as it was in both the Bush and Obama Administrations. The textbook consensus is that spending increases are more effective than tax cuts, because the full amount of the initial increase is actually spent, while some of a tax cut is initially saved. Spending in the form of transfers could also be partially saved, although it is believed that most transfers benefit lower-income recipients who are likely to spend all or most of the transfer. Different types of tax or spending policies may also have different effects depending on the portion initially saved. At the same time, much federal government spending is funneled through the states and a portion of spending in the form of grants to states could also be saved. The spending funneled through the states could include both government purchases of goods and services or transfers. Table 1 shows a list of multipliers provided by a major private forecaster during mid-2008. It illustrates the different multipliers embedded in his forecasting model. Consistent with the theory above, the spending multipliers in this model are larger than tax cut multipliers. Among tax cuts, those that are likely to go to middle- and lower-income individuals (notably a refundable tax credit) have larger effects than those going to higher-income taxpayers (such as the alternative minimum tax or taxes on dividends or capital gains). This difference reflects different propensities to save: higher-income individuals tend to save more and cutting their taxes increases demand less per dollar of tax cut. The multipliers also indicate that tax cuts for businesses (such as accelerated depreciation and rate cuts) are less effective, again because they are unlikely to induce spending. These differential effects are consistent with the fundamental notion that the short-run problem is lack of demand and increased deficits are most effective when they induce spending. Table 2 shows a range of multipliers in a Congressional Budget Office document released in 2010. The range is intended to encompass the views of most economists on the magnitude of multipliers. They show a similar pattern to those in Table 1 , although the estimates, especially at the bottom of the range, are considerably smaller. In general, spending increases have a larger effect than tax cuts, and tax cuts directed to lower- and middle-income taxpayers have larger effects than those directed at high-income individuals or business investment. The Congressional Budget Office also provides multipliers for the first quarter of 2011 for specific provisions of the stimulus enacted in February 2009 ( P.L. 111-5 ) as the latest in a series of reports on the effect of the legislation. Their estimates indicated multipliers of 1.0 to 2.5 for government spending and transfers to the states for infrastructure, and 0.7 to 1.8 for transfers to the states for other purposes. For direct transfers to individuals (who have low incomes) the multipliers were between 0.8 and 2.1. Payments to retirees (largely Social Security beneficiaries) were 0.3 to 1.0. For taxes, tax cuts for lower- and middle-income taxpayers (mainly those claiming the making work pay tax credit) were 0.6 to 1.5, while the increase in the alternative minimum tax exemption for higher-income individuals was 0.2 to 0.6. Business tax cuts, mostly of a cash flow nature, were 0.0 to 0.4. These multipliers are consistent in general direction with those listed in Table 1 and Table 2 : larger for spending and larger for transfers and tax cuts for lower-income individuals than for higher-income ones. The report also shows the estimated impact on unemployment (at its peak in the third quarter of 2010, reducing the unemployment rate between 0.8 and 2.0 percentage points) and other variables on a quarter-by-quarter basis. The current arguments for expecting spending cuts to stimulate demand appeal to empirical observations. The proponents also offer an explanation of how their interpretation of these empirical findings could be correct despite their apparent contradiction with conventional theory. If agents in the economy believe that reducing the deficit reduces the likelihood of more costly adjustments in the future, such as possible disruptions associated with a fiscal crisis, they expect their future income to be larger and have increased confidence to spend in the present. Proponents also argue that in some countries, where default on the government debt is seen as possible, deficit reduction may lead to a reduction in risk premiums built into interest rates, thus increasing demand and perhaps inducing asset price increases. With current interest rates low in the United States, this second channel of effect seems unlikely to occur in the short run. Another argument that has been made, although not in close association with the empirical research, is that companies fear rising taxes in the future, which depresses investment. Alternatively, arguments are made that the deficit is directly crowding out investment. This argument contrasts with the mainstream view that business investment in cyclical downturns is heavily affected by current demand (this effect is called the accelerator), as well as being affected by interest rates, and signs of crowding out would be reflected in rising interest rates. Note that for the increase in expected future income to transform a contractionary fiscal policy into an expansionary one in the short-run, these results arising from expectations must not only arise but also be large enough to overwhelm the normal channels of contraction. Also, when the contraction involves government spending cuts that lead directly to a decrease in government employment, the demand effects must overcome this direct effect on unemployment. Several studies have examined the short run effects of fiscal consolidation or adjustments (that is, spending reductions and/or tax increases) on government debt and the economy. Two widely cited studies are discussed. The critical part of each analysis is the identification of discretionary fiscal policy. Government spending, tax revenue, and the budget deficit can change due to automatic stabilizers that react to economic changes or to discretionary (often legislated) changes. Typically transfer payments (e.g., unemployment compensation) increase and tax revenue decreases automatically when the economy enters a recession and, consequently, budget deficits increase. The reverse is true when the economy recovers. Two methods have typically been used to identify discretionary fiscal changes: (1) use of cyclically adjusted fiscal variables, and (2) the action-based approach. Most studies use cyclically adjusted fiscal variables to separate fluctuations due to the business cycle from those that are discretionary. The method used by Alberto Alesina and Silvia Ardagna was first proposed by Olivier Blanchard and has been described as simple and transparent. The cyclically adjusted variable is the estimated value of the variable that would have prevailed had the unemployment rate been the same as in the previous year. The adjustment only requires the value of the unemployment rate in the previous year and the elasticity (how the fiscal variable changes when the unemployment rate changes). Although this method is simple and transparent, it also has some limitations. First, the method assumes that the elasticities are constant over time (and the business cycle). Evidence suggests that the elasticities are not constant over time and may behave asymmetrically over the business cycle—changes in the elasticity may be different as the economy enters a recession than when it comes out of a recession. Second, the International Monetary Fund (IMF) notes that the method may suffer from measurement errors that are correlated with economic developments unrelated with the unemployment rate, such as asset price booms and busts. Lastly, the IMF further argues that the method "ignores the motivation behind fiscal actions." It is, therefore, possible that some identified instances of discretionary fiscal policy changes bear no relation to actual fiscal policy changes. The action-based approach to fiscal adjustment involves identifying specific policy actions to reduce budget deficits. The IMF, for example, examined various OECD, IMF, and country-specific sources to identify discretionary and deliberate fiscal policy actions. Christina Romer and David Romer compare the cyclical adjustment and action-based methods for the United States and find that while action-based changes show up as cyclically adjusted changes, there is substantial variation in cyclically adjusted changes that are not in the action-based changes. They conclude that "non-legislated factors are an important source of movements in cyclically adjusted measures." The study by Alberto Alesina and Silvia Ardagna examines fiscal adjustments using a panel of 21 OECD countries from 1970 to 2007. They use the cyclical adjustment method to separate automatic fiscal changes from discretionary policy driven changes. They define a fiscal adjustment as an improvement (i.e., decrease) in the cyclically adjusted primary balance of at least 1.5% of gross domestic product (GDP). Using this definition, they identify 107 episodes of fiscal adjustments. An expansionary fiscal adjustment is defined as an episode of fiscal adjustment in which the increase in the GDP growth rate is greater than the value at the 75 th percentile for all episodes of fiscal adjustment (26 episodes of fiscal adjustment—about 25% of the episodes of fiscal adjustment). They define a successful fiscal adjustment as one in which the three-year cumulative reduction in the debt-to-GDP ratio is greater than 4.5 percentage points, which selects 21 episodes of successful fiscal adjustment (about 21% of the total). Only nine episodes of fiscal adjustment were expansionary and successful (about 8% of the total). Alesina and Ardagna find that primary spending (total expenditures minus interest payments) declines by about 2% of GDP and government revenues fall by about 0.5% of GDP in successful fiscal adjustments. Primary spending falls by 0.7% of GDP and revenue increases by 1.4% of GDP in unsuccessful fiscal adjustments. According to their tabular analysis, however, economic growth improves during both successful and unsuccessful fiscal adjustments. They generally find that tax decreases are more likely to stimulate economic growth than spending increases. They conclude that "successful fiscal adjustments are completely based on spending cuts accompanied by modest tax cuts" and suggest that their results are relevant to the current U.S. fiscal situation (high debt-to-GDP ratio). Two other recent studies replicate the work of Alesina and Ardagna and reach the same conclusions. The authors also indicate that the nine episodes in which deficit reduction was associated with economic expansions rather than recessions involved spending cuts, which leads them to conclude that adjustments on the spending side are less likely to create recessions. Both this finding and their identification of the 26 episodes of debt reduction (which have simply been identified as being the top quarter of the growth distribution) have been pointed to as evidence that cutting spending in the United States will be expansionary rather than contractionary. These views, some explicitly in the study and some interpreting the study, are generally inconsistent with the mainstream view of fiscal policy where short-term multipliers for spending decreases are negative and also tend to be larger in absolute value than those for tax cuts. The IMF study examines the same types of contractions as those in the Alesina and Ardagna study, but with a different methodology. Rather than identifying episodes based on swings in the cyclically adjusted primary deficit, they identify them by policy-maker intent. They also do not restrict the changes to sustained (multiyear) deficit reductions. They suggest that the choices made by Alesina and Ardagna, as well as others, bias the results away from contractionary effects. For example, countries that embark on a deficit reduction program are more likely to continue with the plan if negative outcomes are not occurring. Thus, focusing on sustained deficit reductions tends to select instances where growth occurs. The IMF results are consistent with the mainstream view of fiscal policy. They find that deficit reduction has a contractionary effect on output, with deficit reduction equal to 1% of GDP reducing output by 0.5% of GDP and the unemployment rate by about 0.3 percentage points. These results are usually softened by offsetting monetary policy that reduces interest rates. They also find that a decline in the value of the currency has a cushioning effect, by increasing net exports. They find that spending cuts are less contractionary than tax increases, but attribute this effect in part to the greater offsetting monetary stimulus. They also note that monetary stimulus is especially limited when increases in indirect taxes (such as the value added tax) occur because of the pressure on prices. They find that deficit reduction in countries with a high default risk on debt tend to be less contractionary than in other countries, but even in these cases expansionary effects are unusual. Some recent analyses have questioned the applicability of Alesina and Ardagna's findings to the current U.S. fiscal situation. Most of the fiscal adjustments in advanced economies identified by Alesina and Ardagna were neither successful nor expansionary. Furthermore, most of their successful fiscal adjustments took place during fairly favorable economic conditions, which is illustrated in Figure 2 . The figure displays the output gap for the year that a successful fiscal adjustment started (as defined by Alesina and Ardagna) and for the United States. Of the 17 successful episodes of fiscal adjustment, 10 (about 60%) occurred when actual output was above potential output—resources were fully employed. Seven of the successes occurred when the output gap was negative, though most were only slightly negative. In comparison, the output gap for the United States in 2009 was about -6% of potential output and is projected to be almost -4% of potential output in 2011. The Congressional Budget Office (CBO) projects that the output gap will remain below 3% until 2013—well outside the range of output gaps of successful fiscal adjustments. The next figure, Figure 3 , compares the projected 2011 U.S. output gap with the average output gaps for successful and unsuccessful fiscal adjustments (as defined by Alesina and Ardagna). The output gap is shown for the year that the fiscal adjustment began (Period T) and for the year before it began (Period T−1). On average, the output gaps for successful fiscal adjustments were positive (+0.34% of potential output) in the year the adjustment began and slightly negative (0.30% of potential output) the year before. The average output was negative in the year the adjustment began as well as the year before for all unsuccessful fiscal adjustments (see the bars labeled "all unsuccessful" in the figure). The bars labeled "below potential" focus on the unsuccessful fiscal adjustments that began when actual output was below potential output. On average, the output gap was less than -2% of potential output in the year the adjustment began and the year before. The output gap for the United States is projected to be -3.7% of potential output in 2011 and was almost -5% of potential output in 2010 (see the bar labeled U.S. 2011 under period T−1 in Figure 3 ). The results suggest that successful fiscal adjustments (as defined by the cyclical adjustment method) occurred when the economy was at or near potential output, that is, labor and capital resources were fully employed. Unsuccessful fiscal adjustments generally occurred when actual output was below potential output. The U.S. output gap for 2011 is considerably more negative than the average output gap for all unsuccessful fiscal adjustments and even those that began when actual output was below potential output. Almost nine out of ten fiscal adjustments beginning when actual output was below potential output were unsuccessful—fiscal adjustments beginning in a slack economy (such as the current situation in the United States) appear to have a low probability of success. The discussion in the previous section relates to short-run effects. Long-term policy regarding budget deficits, their effects, and methods of addressing them raise different issues. The focus turns to the supply side of the economy, the rate of growth of potential output, the distributional implications of policy, and the desirability of various government programs. Short-tem policy focuses on job creation. Economic theory, however, suggests that there is no reason to view general job creation as a long-run objective of government policies. The economy can generate the jobs needed by the natural process of growth and market adjustment. In 1961 and in 1991 the unemployment rate was the same, 6.7%. Employment, however, rose from 66 million to 117 million. Employment tends to grow over the long run; the unemployment rate fluctuates. Long-term jobs policies, therefore, should not be aimed at increasing jobs (which at full employment will only lead to inflation), although they can be designed to reduce structural or frictional unemployment (such as improving the skills of disadvantaged workers). There is general agreement, however, that in the long-run, reducing the deficit will increase output, because government dissaving crowds out capital spending in a fully employed economy and slows the rate of economic growth. Some of this crowding out effect might be offset by reduced net capital inflows (arising from lower interest rates as the government's demands on capital markets decrease), but this increased private capital stock ownership, even if invested abroad, will accrue earnings and an increased standard of living to U.S. savers. Deficits place some of the burden of government on future generations. Deficits are not necessarily undesirable; in addition to their use for short-term fiscal stimulus, they may be appropriate for financing spending whose benefits accrue to future generations. For example, World War II was financed in large part by deficit spending. Furthermore, deficits that grow at a rate less than or equal to GDP growth can be sustainable in that the debt-to-GDP ratio does not increase. Addressing the deficit is important in the United States, however, because U.S. debt is on an unsustainable course, at least under current policies. A Congressional Budget Office document, published before the tax cuts enacted in 2001 and 2003 were extended at the end of December 2010, estimated that under current law the federal debt will rise from 62% of output to 80% by 2035, and interest payments would rise from 1% to 4% of GDP. Under an alternative, but perhaps more realistic scenario (which included permanent extension of the 2001 and 2003 tax cuts and growth in health costs) the debt would grow to 185% of GDP and interest payments to 9% by 2035. This interest cost is equal to the entire individual income tax estimated to be collected in 2013 assuming the tax cuts do not expire. Although the debt increased during the recession due to automatic reductions in taxes and increases in spending along with legislative stimulus, the unsustainability of the debt is generally due to the growth in entitlements (Social Security, Medicare, and other health spending). Indeed, CBO projects declines in other spending as a percent of GDP. Medicare, for example, grows from 3.6% of output in 2010 to 5.9% in 2035 (7% in the alternative scenario). These increases, combined to increased interest payments and little or no increase in revenues, lead to the unsustainable path. The major determinant of the effects on growth is the magnitude of deficit and debt reductions. Some arguments are made that increases in taxes will reduce growth more than cuts in spending, because they will have supply side effects that reduce labor supply and savings. Most evidence, however, suggests that these responses are small. Moreover some kinds of spending cuts, such as those that support investment in physical or human capital, could reduce growth. Fundamentally, however, the nature of measures taken to control the deficit depend on many factors, including the preferences of Americans for government programs. For example, Medicare costs are projected to grow because of the aging of the population and the increase in health care costs. Ultimately, however, the question is whether it is more desirable to cut Medicare benefits in half, double taxes used to finance Medicare, or make deep cuts in other government programs that are already being reduced relative to output (or some combination). The differential effect on growth of the alternative methods of reducing the deficit may well be a secondary issue. The claim based on the evidence of Alesina and Ardagna (and similar studies) that policies traditionally viewed as contractionary, such as cutting spending, will increase growth in the short run in the United States, can be questioned on at least two grounds. First, when a methodology that looks to intentions was used to select instances of deficit reduction, as in the IMF study, the empirical results were consistent with traditional fiscal policy. Second, the deficit reductions in the Alesina and Ardagna study that were successful by the authors' measures were associated with economies generally above, or close to, full employment in most cases. The United States is still operating considerably below potential output. Two major policy questions include when, and how, to reduce the deficit. Reducing the deficit while the economy is still fragile and well below full employment would likely involve further contraction that might not be desirable. At the same time, the sooner long-run debt problems are addressed, the more room there is for the adjustments to be implemented gradually. The mix of policies (tax increases, spending cuts, and the types of either) depend on many factors, including preferences for public programs and distributional objectives, as well as growth. | As Congress considers policies to foster economic growth, arguments have been made that the traditional expectations of fiscal policy, namely that cutting spending will contract the economy in the short run, should be reversed. Proponents of this view also argue that cutting spending rather than raising taxes would be a more effective means of increasing economic growth (or at least avoiding contractions). These arguments often refer to recent empirical studies of deficit reductions across countries. This view contrasts with that held by most economists and found in conventional models. In those models cutting spending will contract the economy. Chairman Bernanke of the Federal Reserve was referring to this view when he cautioned against large and immediate spending cuts. Most multipliers (measures of the effect of deficits on the economy) indicate that spending cuts contract the economy more than do similarly sized tax increases. Just as economists generally consider spending cuts to be contractionary in the short run in an underemployed economy, they believe that deficits can be harmful in the long run by crowding out private investment. There is considerable agreement that the continuation of current tax and spending policies will lead to an unsustainable path of the national debt, largely because of the growth of mandates arising from the aging of the population and the growth in health care costs. Thus, to most economists current macroeconomic policy challenges involve a trade-off between the benefits of starting to address the debt problem earlier versus risking damage to a still-fragile economy by engaging in contractionary fiscal policy, or failure to continue with expansionary fiscal policy. Alesina and Ardagna, in the study perhaps most commonly cited to support the view that cutting spending will not be contractionary, find that historical episodes across 21 countries when debt reduction was associated with growth used spending cuts rather than tax increases. Other studies that largely perform the same analysis find similar results. This research has been interpreted as suggesting that spending cuts are superior to tax increases and that such cuts would not necessarily contract the economy. Proponents of this view, to support these empirical findings with theory, argue that deficit reduction will increase confidence of consumers and business, resulting in increased current spending on consumption and investment. The International Monetary Fund, however, correcting problems they perceived in the Alesina and Ardagna study, found spending cuts to be contractionary, consistent with mainstream views. Moreover, while the IMF found cuts in spending to have smaller effects than tax increases, those effects were generally ascribed to offsetting monetary policy which was more significant with spending cuts than tax increases. The findings in the Alesina and Ardagna study that successful debt reductions were associated with higher growth when spending cuts were used was based on 9 observations out of 107 instances of deficit reduction, or less than 10% of the sample. In addition, most of the countries where debt reductions were successful were at or close to full employment, while the United States remains well below full employment, raising questions as to whether this evidence is applicable to current U.S. conditions. Thus, both methodological questions and questions of applicability to current circumstances can be raised for the Alesina and Ardagna, and similar, studies. |
In precedent stretching back to the Chinese Exclusion Case of 1889, the Supreme Court has held that Congress possesses "plenary power" to regulate immigration. This power, according to the Court, is the most complete that Congress possesses. It allows Congress to make laws concerning aliens that would be unconstitutional if applied to citizens. And while the immigration power has proven less than absolute when directed at aliens already physically present within the United States, the Supreme Court has interpreted the power to apply with most force to the admission and exclusion of nonresident aliens abroad. The Court has upheld or shown approval of laws excluding aliens on the basis of ethnicity, gender and legitimacy, and political belief. Outside of the immigration context, in contrast, laws that discriminate on such bases are almost always struck down as unconstitutional. To date, the only established limitation on Congress's power to exclude aliens concerns lawful permanent residents (LPRs): they, unlike nonresident aliens, generally cannot be denied entry without a fair hearing as to their admissibility. The plenary power doctrine has long drawn scholarly criticism. Some legal commentators contend that the doctrine lacks a coherent rationale, and that it is an anachronism belonging to an earlier era of constitutional law predating the development of modern individual rights jurisprudence. More than 125 years after its initial recognition of the plenary power doctrine, however, the Supreme Court has continued to rely on it in immigration cases. Some commentators have argued that the Court is in the process of narrowing the parameters of the doctrine's applicability, although they find support for this argument mainly in cases outside of the exclusion context. The Constitution does not mention immigration. It does not expressly confer upon any of the three branches of government the power to control how citizens of other countries enter, live, and remain in the United States. Parts of the Constitution address related subjects. The Supreme Court has sometimes relied upon Congress's enumerated powers over naturalization and foreign commerce, and to a lesser extent upon the Executive's implied Article II foreign affairs power, as sources of federal immigration power. Significantly, however, the Court has also consistently attributed the immigration power to the federal government's inherent sovereign authority to control its borders and its relations with foreign nations. This inherent sovereign power, according to the Court, gives Congress essentially unfettered authority to restrict the entry of nonresident aliens. The Court has determined that the executive branch, by extension, possesses unusually broad authority to enforce laws pertaining to alien entry, and to do so under a level of judicial review much more limited than that which would apply outside of the exclusion context. The scope of the federal government's power to exclude aliens is at the forefront of litigation concerning two successive executive orders (the second revising and replacing the first) issued by President Donald Trump that, in their revised form, seek to deny entry temporarily to foreign nationals from six predominantly Muslim countries and to all refugees, subject to limited waiver. A series of lower court decisions largely enjoined implementation of the orders. In particular, courts ruled that the President's travel restrictions are likely unconstitutional or exceed his statutory authority. The Supreme Court granted certiorari to review decisions by the U.S. Courts of Appeals for the Fourth and Ninth Circuits that upheld nationwide injunctions against the revised executive order. The Supreme Court also partially stayed the injunctions, allowing the executive branch to implement the revised order in part pending the outcome of the litigation. A decision by the Court on the merits of these cases, which have come to be known as the "Travel Ban" litigation, could deliver a major statement about the constitutional and statutory scope of the President's power to exclude aliens. The litigation has threshold issues, however, such as questions of mootness and standing, that may well prevent the Court from reaching the merits, particularly following the issuance of a presidential proclamation superseding and somewhat modifying some of the entry restrictions at issue in the case. This report provides an overview of the legislative and executive powers to exclude aliens. First, the report discusses a gatekeeping legal principle that frames those powers: nonresident aliens outside the United States cannot challenge their exclusion from the country. Second, the report analyzes the extent to which the constitutional and statutory rights of U.S. citizens limit the exclusion power under the "facially legitimate and bona fide" test of Kleindienst v. Mandel . The report concludes with a case study. The report applies the principles of the Supreme Court's immigration jurisprudence to the two primary claims that U.S. persons and entities have pressed against the President's revised executive order in the "Travel Ban" litigation: (1) that the revised order violates the Establishment Clause; and (2) that the revised order violates the Immigration and Nationality Act (INA). As discussed later in the report, case law on the exclusion of aliens has come to focus upon whether the rights of U.S. citizens limit the government's power to exclude. The case law arrived at this issue, however, only after the Supreme Court had worked out an essential underlying principle: nonresident aliens outside the United States have no constitutional or statutory rights with respect to entry and therefore no legal grounds to challenge their exclusion. The Supreme Court developed this principle in a series of cases between the late 19 th and mid-20 th centuries about aliens denied admission after arriving by sea. The law at the time allowed such aliens to challenge the legality of their exclusion by filing a petition for habeas corpus in federal district court. This procedural right, however, proved hollow. In every case, the Supreme Court determined that the federal government's sovereign prerogative to forbid the entry of foreigners foreclosed the aliens' claims. In one famous case, the Court declared itself powerless to review the government's decision to exclude—without any explanation other than that the entry would be "prejudicial"—the German bride of a U.S. World War Two veteran. In another case, the Court refused to question the government's undisclosed reasons for denying entry to an essentially stateless alien returning to the United States after a prior period of residence, even though the exclusion relegated the stateless alien to indefinite detention on Ellis Island. The Supreme Court has since relied upon these cases for the proposition that excluded nonresident aliens cannot state legal claims with respect to entry. The related doctrine of consular nonreviewability precludes judicial review of visa denials. This doctrine developed in the lower courts and appears to derive from the line of Supreme Court cases described above. The consular nonreviewability doctrine, like the rule foreclosing alien claims itself, does not have a clearly enunciated theoretical foundation. It does have a clear consequence, however: the millions of nonresident aliens denied visas each year at U.S. consulates abroad cannot themselves challenge the visa denial in federal court. The Supreme Court has never endorsed the doctrine by name, but the Court has twice stated (without holding) that nonresident aliens cannot challenge visa denials. Put simply, under the consular nonreviewability doctrine and the related Supreme Court cases, nonresident aliens located outside the United States cannot challenge their exclusion from the country in federal court. The rule against alien challenges to denials of entry becomes more convoluted in the context of arriving aliens denied entry at the border, notwithstanding the rule's provenance in cases about such aliens. Arriving alien cases, unlike visa cases, can involve people stranded at the nation's threshold and, accordingly, sometimes present issues that go beyond the denial of entry itself to implicate the government's treatment of persons under its control. Whether the Constitution protects arriving aliens from unduly burdensome enforcement measures, such as prolonged detention pending removal, remains a disputed question. But Congress has provided certain statutory protections in this regard. Moreover, arriving aliens have succeeded in obtaining judicial review of statutory claims against detention or interdiction at sea by U.S. authorities. Such review for aliens pressing claims against the denial of visas abroad, in contrast, does not exist. To be sure, the exclusion power with respect to arriving aliens remains vast, and Congress relied on this broad power in 1996 when it created expedited removal procedures for many arriving aliens that limit or foreclose judicial review. But the exclusion power applies with its maximum force, in practice if not in theory, only to aliens who apply to enter from abroad, because such applications isolate the issue of denial of entry from the treatment issues that physical presence at the border or inside the country sometimes triggers. It is this core of the exclusion power that the remainder of this report addresses and that the Travel Ban cases, which concern the exclusion of aliens generally located far from the nation's shores, implicate most directly. Even as applied to aliens abroad, the rule against nonresident alien challenges to denials of entry has a major limitation: the rule only forecloses challenges brought by nonresident aliens themselves. Thus, if a U.S. citizen claims that the exclusion of an alien violated the U.S. citizen ' s rights , the rule against alien challenges does not apply. Cases that invoke this limitation account for the entirety of the Supreme Court's modern exclusion jurisprudence. The Court has not considered a nonresident alien's own challenge to a denial of entry in decades. The question about the extent to which U.S. citizens can challenge an alien's exclusion, on the other hand, has occupied the Court in three important cases since 1972: Kleindienst v. Mandel , Fiallo v. Bell , and the splintered Kerry v. Din . Under the rule that these cases establish, the government need only articulate a "facially legitimate and bona fide" reason for excluding a nonresident alien or class of aliens in order to prevail against an American citizen's claim that his or her constitutional rights have been violated by the exclusion. This section of the report discusses the three exclusion cases, an understanding of each of which is fundamental to this area of the Supreme Court's jurisprudence. Next, the section discusses the cases' implications for the scope of congressional power to exclude aliens and the scope of the concomitant executive power. The section ends by noting two unresolved issues concerning the executive power: (1) the extent to which U.S. citizens may challenge an alien's exclusion on statutory grounds; and (2) the extent to which the Constitution limits the Executive's exclusion decisions under broad delegations of congressional power. In 1972, the Court confronted a case in which a group of American professors claimed that the exclusion of a Belgian intellectual, Ernest Mandel, violated the American professors'—and not Mandel's—First Amendment rights. The professors had invited Mandel to speak at their universities. A provision of the INA rendered him ineligible for a visa because of his communist political beliefs. A separate provision authorized the Attorney General to waive Mandel's ineligibility upon a recommendation from the Department of State, but the Attorney General declined to do so. The case produced the test that continues to govern claims that the exclusion of an alien violates an American citizen's constitutional rights: [P]lenary congressional power to make policies and rules for exclusion of aliens has long been firmly established.... We hold that when the Executive exercises [a delegation of this power] negatively on the basis of a facially legitimate and bona fide reason , the courts will neither look behind the exercise of that discretion, nor test it by balancing its justification against the First Amendment interests of those who seek personal communication with the applicant. Applying this test, the Court upheld Mandel's exclusion on the basis of the government's explanation that it denied the waiver because Mandel had abused visas in the past. The American professors and two dissenting Justices pointed to indications of pretext and argued that Mandel had actually been excluded because of his communist ideas. Nonetheless, the majority refused to "look behind" the government's justification to determine whether any evidence supported it. In other words, the Court accepted at face value the government's explanation for why it denied Mandel permission to enter. The "facially legitimate and bona fide" standard resolved what the Court saw as the major dilemma that the dispute over Mandel's visa posed for the bedrock principles of its immigration jurisprudence. The American professors, unlike Mandel himself or the unadmitted aliens from prior exclusion cases, stated a compelling First Amendment claim. But for the Court to grant relief on that claim, or even to grant full consideration of the claim, would have undermined Congress's plenary power to exclude aliens by interjecting the courts into the exclusion process. After all, nearly every exclusion for communist ideology would have been susceptible to the same attack. The "facially legitimate" standard protected the plenary power against dilution by limiting the reach of the American professors' claim. Under the standard, the professors were not entitled to balance their First Amendment rights against the government's exclusion power; they were entitled only to a constitutionally valid statement as to why the government exercised the exclusion power. Significantly, the Court left open the question whether the American professors' rights entitled them to even that much. Although the government proffered a "facially legitimate and bona fide" justification for Mandel's exclusion, the Court declined to say whether the government would have prevailed even if it had offered "no justification whatsoever." The Court has followed Mandel in two subsequent exclusion cases. These cases—one concerning a statute and one concerning the Executive's application of a statute—generally reinforce the notion of the government's plenary power to exclude aliens even in the face of constitutional challenges brought by U.S. citizens. The second case, however, includes limiting dicta that appears to contemplate a pathway for future challenges. First, in Fiallo v. Bell , the Court upheld a provision of the INA that classified people by gender and legitimacy. The statute granted special immigration preferences to the children and parents of U.S. citizens and LPRs, unless the parent-child relationship at issue was that of a father and his illegitimate child. Four U.S. citizens and permanent residents claimed that the restriction violated their equal protection rights by disqualifying their children or fathers from the preferences. Despite the "double-barreled discrimination" on the face of the statute, the Court upheld it as a valid exercise of Congress's "exceptionally broad power to determine which classes of aliens may lawfully enter the country." Although it relied on Mandel , the Fiallo Court did not identify a concrete "facially legitimate or bona fide" justification for the statute. Instead, the Court simply surmised that a desire to combat visa fraud or to emphasize close family ties may have motivated Congress to impose the gender and legitimacy restrictions. Similar to the analysis in Mandel , the Fiallo Court justified its limited review of the facially discriminatory statute as a way to prevent the assertion of U.S. citizen rights from undermining the sovereign prerogative to exclude aliens. In the second case, Kerry v. Din , the Court considered a U.S. citizen's claim that the Department of State (State) violated her due process rights by denying her husband's visa application without sufficient explanation. State indicated that it denied the visa under a terrorism-related ineligibility, but it did not disclose the factual basis of its decision. The Court rejected the claim by a vote of 5 to 4 and without a majority opinion. Justice Scalia, writing for a plurality of three Justices, did not reach the Mandel analysis because he concluded that Din did not have a protected liberty interest under the Due Process Clause in her husband's ability to immigrate. But Justice Kennedy, in a concurring opinion for himself and Justice Alito, rejected the claim under the "facially legitimate and bona fide reason" test after assuming without deciding that the visa denial did implicate due process rights. Justice Kennedy's concurring opinion made two significant statements about how Mandel works in application. First, the government satisfies the "facially legitimate and bona fide reason" standard by citing the statutory provision under which it has excluded the alien. According to Justice Kennedy, such a citation fulfills both the "facially legitimate" and "bona fide" prongs of the test. Thus, because the government stated that it denied Din's husband's visa application under the terrorism-related ineligibility, it provided an adequate justification even though it did not disclose the factual basis for applying the ineligibility. Pointing to the statute suffices. Second, however, Justice Kennedy inserted a caveat into his application of the "bona fide" prong: Absent an affirmative showing of bad faith on the part of the consular officer who denied Berashk [Din's husband] a visa—which Din has not plausibly alleged with sufficient particularity— Mandel instructs us not to "look behind" the Government's exclusion of Berashk for additional factual details beyond what its express reliance on [the terrorism-related ineligibility] encompassed. In other words, under Justice Kennedy's reading of the Mandel standard, courts will assume that the government has a valid basis for excluding an alien under a given statute unless an affirmative showing suggests otherwise. In Din , the facts did not suggest bad faith, because Din's own complaint revealed a connection between the statutory ineligibility and her husband's case. Justice Kennedy therefore had no occasion to apply the caveat, and the opinion does not clarify what kind of "affirmative showing" would trigger it. Nonetheless, as discussed later in the report, the mere mention of a bad faith exception arguably hedges, in a way that has proved significant in the Travel Ban cases, against the absolutism of Mandel 's instruction not to examine the government's underlying factual basis for excluding a given alien. Mandel and Din , in their examination of executive application of the immigration laws, appeared to take the absoluteness of Congress's exclusion power as a given. In Din , Justice Kennedy grounded his conclusion—that a visa denial withstands constitutional attack so long as the government ties the exclusion to a statutory provision—on the premise that Congress can impose whatever limitations it sees fit on alien entry. In other words, because Congress's limitations are valid per se , executive enforcement of those limitations is also valid. Mandel makes the same point, albeit mainly through omission. Recall that the case concerned application of an INA provision that rendered the Belgian academic ineligible for a visa because he held communist political beliefs. The Court acknowledged that the statute triggered First Amendment concerns by limiting, based on political belief, U.S. citizens' audience with foreign nationals. But the Court did not decide whether the statute violated the First Amendment. Rather, the Court simply accepted that Congress had the power to impose such an idea-based entry limitation. As a result, the Mandel decision considered only the First Amendment implications of the Attorney General's refusal to waive Mandel's communism-based ineligibility, not the statutory premise of the ineligibility. The untested assumption underlying Mandel and Din —that Congress's immigration power encompasses the power to exclude based on any criteria whatsoever, including political belief—raises a fundamental question about the nature of the plenary power. Often, the Court has described the power as one that triggers judicial deference , meaning that courts may conduct only a limited inquiry when considering the constitutionality of an exercise of the immigration power. But the plenary power doctrine, as some scholars have noted, can be understood another way, one that perhaps makes more sense of Mandel : the "plenary" refers to the scope of the power itself, in substance, and not to its immunity from judicial review. The congressional power to admit or exclude aliens is so complete, this theory goes, as to override the constitutional limitations that typically constrain legislative action. For example, the power overrides the First Amendment principles that would invalidate legislation that expressly provides for unfavorable treatment based on political belief in almost any other context. Aspects of Fiallo , however, arguably do not support this concept of a substantively limitless congressional power to regulate alien entry. Unlike Mandel and Din , which examined the Executive's application and implementation of authority delegated by statute, Fiallo squarely considered the constitutionality of a statute itself. And while Fiallo 's outcome (upholding an immigration law that discriminated by gender and legitimacy) aligns with the concept of an unbridled legislative power, the Court's reasoning wavered between statements suggesting that the legislative power might have limits and statements describing the power as absolute. The lack of clarity in the opinion seemed to stem from the awkwardness of applying Mandel —which fashioned a rule for review of executive action (the "facially legitimate and bona fide" test)—in a case reviewing legislative action. Ultimately, the Fiallo Court cited the Mandel test as an analogue but did not actually apply the test. Rather, the Court upheld the statute at issue under something that looked like a version of rational basis review, one in which a hypothetical justification suffices to sustain the statute. While extremely deferential, this version of rational basis review implies an underlying constitutional limitation against legislative unreasonableness, at least in theory. In other words, an even-handed reading of Fiallo suggests that statutes regulating the admission of aliens must at least be reasonable. Some scholars have argued that Fiallo was incorrectly decided and that stricter constitutional scrutiny should apply to admission and exclusion laws that classify aliens by factors such as race, religion, and gender. To date, this argument does not find support in Supreme Court precedent. To be sure, the Supreme Court has made clear that Congress cannot deny certain rights to aliens subject to criminal or deportation proceedings within the United States, and the federal government cannot deny some procedural protections to LPRs returning from brief trips from abroad. But the Court has never suggested that laws regulating the admission of nonresident aliens trigger anything more than the deferential rational basis review that it applied to the gender-based immigration preferences statute at issue in Fiallo . In other words, the Court has never called Fiallo into question. In one recent case, Sessions v. Morales-Santana , the Supreme Court applied heightened constitutional scrutiny to strike down a derivative citizenship statute that, much like the statute in Fiallo , used gender classifications. However, the Morales-Santana Court distinguished Fiallo and the plenary power doctrine by noting that the statute before it concerned citizenship, not immigration. Accordingly, Morales-Santana does not appear to portend imminent reconsideration of Fiallo . To summarize, dicta in the exclusion cases that decided challenges to executive action, Mandel and Din , give the impression of a substantively absolute congressional power to control the entry of aliens. But courts have generally interpreted Fiallo , which concerned a direct challenge to a law regulating alien admission and exclusion, to mean that such laws must at least survive a review for reasonableness. To date, the Supreme Court has not heeded scholarly calls for more exacting review of laws regulating alien entry. As described above, Mandel 's "facially legitimate and bona fide reason" test governs claims that an exclusion decision violates a U.S. citizen's constitutional rights. The Executive satisfies the test by identifying the statutory basis for the exclusion. However, the Executive may also have to disclose its factual basis for invoking a particular statute where the U.S. citizen challenger makes an "affirmative showing of bad faith." Despite the relatively clear picture of the scope of the Executive's exclusion power drawn from Mandel , Fiallo , and Din , three unresolved issues warrant discussion: (1) whether the Executive possesses inherent exclusion power, as opposed to solely statutory-based power; (2) the extent to which U.S. citizens or entities may challenge an alien's exclusion on statutory grounds; and (3) the extent to which the Constitution limits the Executive's application of broad delegations of congressional power to make exclusion determinations. The Supreme Court seems to have determined that the authority to exclude aliens reaches the Executive through congressional action alone, rather than through an inherent source of executive power. The text of the Constitution itself does not settle the question. Because the federal government's immigration power rests at least in part upon an "inherent power as a sovereign" not enumerated in the Constitution, courts cannot determine who owns the power by reading Article I or Article II. At least one pre- Mandel Supreme Court decision states that the Executive does possess inherent authority to exclude aliens. The case makes this statement, however, only in the context of a now-antiquated challenge to the constitutionality of congressional delegations of immigration authority to executive agencies. The case also acknowledges that, notwithstanding any inherent executive authority, in immigration matters the Executive typically acts upon congressional direction. Moreover, the weight of Supreme Court precedent assigns the immigration power to Congress rather than the Executive. Din and Mandel illustrate this point perhaps most clearly: even though both cases considered the constitutionality of executive action, they spoke only of statutory sources of executive authority. Because executive exclusion power derives primarily from legislative enactment, the Executive's decision to exclude an alien is susceptible in theory to attack on the grounds that the decision violates the governing statutes. In cases pressed by U.S. citizens, some lower courts have, on statutory grounds, rejected or called into question visa denials. In these cases, the courts have not applied Mandel 's deferential "facially legitimate and bona fide reason" test when reviewing the government's determination that a particular statutory provision required the denial of a visa application; instead, the courts have approached that statutory question as they would outside of the immigration context. As a result, these cases have analyzed the government's justifications for excluding aliens much more closely than the Supreme Court analyzed the constitutional claims in Mandel and Din . Supreme Court precedent offers limited guidance as to whether such statutory claims are cognizable and, if so, what standard of review should govern them. On the one hand, in recognizing that U.S. citizens could challenge exclusion decisions despite the bar against such suits when brought by aliens, Mandel and Din spoke narrowly of constitutional claims by U.S. citizens. Thus, one could read the cases to imply disapproval of statutory claims by U.S. citizens against exclusion decisions. On the other hand, even though the Supreme Court has never expressly endorsed statutory challenges to visa denials or other exclusion decisions concerning aliens outside the United States, it has reviewed statutory claims in arguably similar contexts. In Sale v. Haitian Centers Council , the Court considered and ultimately rejected statutory challenges to the U.S. Coast Guard's interdiction and forced return of Haitian migrants trying to reach the United States by sea. Specifically, the Court analyzed whether the interdictions violated the INA provision requiring immigration authorities to consider potential asylum or withholding of removal claims of arriving aliens before returning them to their place of origin. Similarly, in Jean v. Nelson , the Court considered whether the Immigration and Naturalization Service had violated its own regulations in denying immigration parole to a group of arrivals from Haiti who were detained in Florida pending a decision on their admissibility. In both cases, the Supreme Court reviewed the statutory and regulatory issues without applying Mandel or any other deferential standard of review. Both cases, however, concerned aliens in the government's control and resulting issues about the proper treatment of those aliens, rather than the issue of exclusion alone. On balance, a certain level of statutory analysis may sometimes inhere in judicial consideration of constitutional claims against exclusion decisions. Statutory and constitutional challenges do not always lend themselves to clear separation. Under the doctrine of constitutional avoidance, for example, courts strive to avoid "serious constitutional questions" through reasonable construction of underlying statutes or regulations. The Supreme Court invoked this doctrine in the exclusion context when it construed agency regulations to mean that returning LPRs could not be denied entry without a hearing. As one jurist noted in a visa denial case, courts cannot practicably review some constitutional claims without construing the relevant statutes first. Thus, principles of federal court jurisprudence probably require courts to consider statutory arguments against exclusion decisions to some extent, although perhaps only when constitutional claims point up those statutory arguments. The question that remains open, however, is what standard of review should govern such statutory arguments and, more specifically, whether courts may conduct a more exacting analysis of the government's justifications when the challenges against an alien's exclusion are styled as statutory rather than constitutional. An issue remains as to what limitations the Constitution imposes on the Executive's manner of implementing broad delegations of congressional exclusion authority. Justice Kennedy concluded in Din that the plenary nature of Congress's power to exclude aliens means that an executive exclusion decision for a statutory reason is facially legitimate and bona fide. But what about where Congress transfers its exclusion power to the Executive with few limiting criteria? What constitutional restrictions does the Executive face in that scenario? As Justice Kennedy observed in Din , Mandel itself raised this issue. There, the statute gave the Attorney General broad discretion to waive the communism-based ground for exclusion. In addressing the constitutional claim against the denial of Mandel's waiver, the Court assumed that Congress had the authority to exclude communists based on their political ideas, but the Court nonetheless proceeded to analyze whether the Attorney General had violated the First Amendment by denying Mandel's waiver because of his political ideas. This approach implies that the First Amendment could potentially limit the Attorney General's, but not Congress's, power to exclude based on political belief. Put differently, Mandel implies that congressional delegations of exclusion authority may not transfer the full scope of Congress's plenary power over such matters. Of course, Mandel sustained the waiver denial at issue and expressly left open the question whether it would have done so even if the government had declined to justify its action or justified it on less innocuous grounds. The case does at least suggest the possibility, however, that the Constitution limits the Executive's exclusion choices in a way that it does not limit Congress's. At the very least, the reasonableness requirement that appears to limit legislative action following Fiallo would also extend to executive implementation of broad delegations of legislative exclusion authority. President Trump set forth what has become known colloquially as the "Travel Ban" in two iterations of an executive order titled "Protecting the Nation from Foreign Terrorist Entry into the United States." The second order (EO-2), issued on March 6, 2017, revised and revoked the first (EO-1), issued on January 27, 2017, after the Ninth Circuit upheld an injunction against the first order. The two orders are similar but not identical; as discussed below, the Trump Administration narrowed the scope of EO-2 in response to the Ninth Circuit decision. As its primary source of statutory authority, EO-2 relies upon Section 212(f) of the INA, which allows the President to suspend the entry of any class of aliens where such entry would be "detrimental to the interests of the United States." EO-2's stated purpose is to protect the United States from terrorist acts perpetrated by foreign nationals. EO-2 imposed temporary bars on the entry of two classes of aliens located outside the United States: (1) foreign nationals from six countries (Iran, Libya, Somalia, Sudan, Syria, and Yemen), for 90 days following the order; and (2) refugees, for 120 days. These entry restrictions, according to the text of EO-2, aim to reduce administrative burdens on executive agencies while they conduct an assessment of current screening procedures for visa applicants and refugees. The restrictions exempt certain categories of aliens from their scope, including LPRs, and are also subject to waiver on a case-by-case basis. A group of plaintiffs—including states, organizations, and individual U.S. citizens and LPRs—contend that EO-2's true purpose is to exclude Muslims from the United States. The plaintiffs argue that the order therefore violates the Establishment Clause of the First Amendment and exceeds the scope of the President's statutory authority. They base the contention of anti-Muslim animus primarily upon statements that President Trump and his advisers made during the 2016 presidential campaign concerning the implementation of a "Muslim ban" on travel to the United States. The U.S. Courts of Appeals for the Fourth and Ninth Circuits upheld district court injunctions against EO-2's entry restrictions in their entirety—the Fourth Circuit on Establishment Clause grounds and the Ninth Circuit on statutory grounds. In contrast, at least one federal district court denied a motion to enjoin EO-2 after concluding that the order was likely lawful. The Supreme Court granted certiorari to hear both the Fourth and Ninth Circuit cases in the 2017 October Term. The Supreme Court also limited the lower court injunctions to allow the government to apply EO-2's entry restrictions against aliens who do not have a "bona fide relationship" to a person or entity within the United States. The Court left the injunctions in place with respect to aliens who have such relationships. Importantly (for the litigation, though not for the underlying issues of immigration law), the Court also drew attention to the issue whether the temporary entry restrictions would expire before the Court could decide the two cases, thereby rendering the cases moot. A subsequent event has brought the mootness issue even more into the forefront. On September 24, 2017, the President issued a proclamation that modified EO-2's 90-day entry restrictions on persons from the six listed countries. The proclamation deleted one country (Sudan) and added three others (Chad, North Korea, and Venezuela) from the list of affected countries; made the restrictions indefinite; and also modified the scope of the restrictions for persons from several of the countries. The proclamation does not appear to alter EO-2's restrictions on refugee entry. The day after the President issued the proclamation, the Supreme Court cancelled the scheduled oral argument in the Travel Ban cases and ordered the parties to submit briefs on whether the proclamation rendered the cases moot. Thus, it seems that the Supreme Court will, at the very least, carefully consider whether the claims in the Travel Ban cases are moot or whether other considerations make a decision on the merits of those claims inappropriate. Although the Travel Ban cases pose novel questions about the scope of the President's power to exclude aliens, some aspects of the litigation thus far have reaffirmed basic principles of the Supreme Court's immigration jurisprudence. First, the crucial distinction in that jurisprudence between LPRs and all other aliens—and to a lesser extent, between aliens physically present in the United States and aliens abroad—had a major impact on the EO-1 litigation and did much to shape the President's revisions to EO-2. EO-1 covered a broader group of aliens than does EO-2. Specifically, EO-1 applied not only to nonresident aliens abroad, but also was understood by reviewing courts to cover LPRs (inside and outside the country) and aliens other than LPRs who were already present in the United States on valid visas. This coverage beyond the core of the exclusion power described in Supreme Court precedent became a focus in the cases about EO-1's lawfulness. Most notably, when the Ninth Circuit upheld the temporary restraining order against EO-1, it emphasized that the order's applicability to LPRs and other aliens already present in the United States likely violated due process. EO-2, which the government crafted with the Ninth Circuit decision in mind, sought to repair this constitutional infirmity by carefully limiting the applicability of its entry restrictions to nonresident aliens only, and to only those nonresident aliens not physically present in the United States and without valid visas. As a result, the due process issues concerning LPRs and physically present nonresident aliens that arose in the EO-1 cases largely fell out of the EO-2 challenges. Second, the contours of the litigation thus far have been influenced by the rule that nonresident aliens outside the United States cannot challenge their exclusion from the United States in federal court. The identities of the plaintiffs in both Travel Ban cases reflect this rule: their ranks include states, U.S. organizations, and U.S. citizens and LPRs, but not any excluded nonresident aliens themselves. At no juncture has the litigation challenged the proposition that such aliens cannot press their own claims with respect to entry. Moreover, the Supreme Court's June 26 per curiam opinion seemed to rely on this proposition as the basis of the "bona fide relationship" test that it adopted to limit the injunctions against EO-2 pending resolution of the Travel Ban cases. The exclusion of aliens who do not have bona fide relationships with persons or entities in the United States, the Court reasoned, could not form the basis of a claim under Mandel . The litigation's conformity thus far with the doctrine against nonresident alien claims for entry has, in turn, given rise to the litigation's major threshold issue: whether the plaintiffs have suffered cognizable injuries from EO-2's entry restrictions sufficient to give them standing to sue. The U.S. government contends, in short, that plaintiffs do not adequately assert violations of their own rights (and therefore do not have standing) because EO-2 affects them only indirectly, through the exclusion of others. Both circuit courts, however, held that certain U.S. citizen and LPR plaintiffs with relatives in the six listed countries have standing based on the prolonged familial separation that EO-2 would likely cause them. This conclusion drew a dissenting opinion in the Fourth Circuit. The contested nature of the standing issue shows the obstacles that U.S.-citizen (or LPR) plaintiffs face in stating claims under Mandel against exclusion orders that do not actually apply to them. In this regard, the government's arguments against standing in the Travel Ban cases echo Justice Scalia's conclusion in Din that the denial of a visa to a nonresident alien does not burden the due process rights of that alien's American spouse. But while the Travel Ban litigation has tracked in some ways the basic tenets of long-standing immigration jurisprudence, it has also produced something unique: a Supreme Court opinion that upholds a measure of relief against the exclusion of nonresident aliens outside the United States, provided those aliens have a "bona fide relationship" with persons or entities within the country. To be sure, the Court did not at all consider the merits of the challenges to EO-2's entry restrictions in its June 26 per curiam decision. Rather, the Court arrived at the "bona fide relationship" rule as the interim measure that, in the Court's view, imposed the most equitable balance between the government's and the plaintiffs' interests pending the outcome of the litigation. Nonetheless, the prospect of a Supreme Court decision upholding—even temporarily, even in part, and even on equitable rather than legal grounds—an injunction against the executive branch's exclusion of nonresident aliens abroad might have struck some immigration law observers as unlikely before the outset of the Travel Ban controversy, particularly in the aftermath of the Din decision. The Establishment Clause of the First Amendment states that "Congress shall make no law respecting an establishment of religion." The Supreme Court's interpretations of this language have given rise to one of the most complex areas of constitutional law, with an array of standards fashioned for discrete categories of government action such as legislative prayer, school prayer, and religious displays on public property. However, the various strains of jurisprudence generally (though not universally) agree on one point: the government violates the Establishment Clause if it undertakes official action with the purpose of favoring or disfavoring a particular religion. The Fourth Circuit and multiple district courts applied this rule to hold that EO-2 likely violates the Establishment Clause because, in the view of these courts, the purpose of the order is to exclude Muslims from the United States. At least one district court, on the other hand, has agreed with the government's position that EO-2 likely does not violate the Establishment Clause. Before considering how the exclusion jurisprudence applies to the constitutional claim against EO-2, one should understand that the Supreme Court could ultimately resolve that claim without applying Mandel or considering the immigration context. Mandel and Din bear upon the Establishment Clause question because they instruct courts to limit the depth of their constitutional inquiry when dealing with executive decisions to exclude aliens. In contrast, the Supreme Court's Establishment Clause jurisprudence concerning government actions unrelated to immigration would appear to allow a much closer level of scrutiny than the exclusion cases. The Establishment Clause jurisprudence has on occasion rejected the government's proffered, secular justifications and invalidated laws or actions based on evidence of other, religiously oriented motives. The plaintiffs in the Travel Ban cases rely heavily on evidence beyond the face of the government's proffered justifications; most notably, they rely on campaign statements as evidence that anti-Muslim animus motivated EO-2. The government, however, has argued throughout the litigation that not even the Establishment Clause cases condone judicial searches for government purpose in campaign discourse. In essence, the government's argument is that EO-2, which does not on its face single out Muslims, survives a stricter level of review than Mandel requires. A Supreme Court decision on Establishment Clause principles, without addressing Mandel , would arguably comport with the Court's previous efforts to keep its pronouncements as narrow as possible when addressing the outer reaches of the political branches' power to exclude aliens. The discussion below analyzes the Establishment Clause claim against EO-2 under the Supreme Court's exclusion jurisprudence. There are three primary questions: (1) whether the Mandel standard governs the constitutional analysis of EO-2; (2) whether Mandel , if it does govern, permits consideration of evidence of government purpose beyond the text of EO-2; and (3) whether extrinsic evidence of anti-Muslim animus, if it can be considered, demonstrates an Establishment Clause violation. The Supreme Court has applied Mandel 's "facially legitimate and bona fide" standard—or a version of that standard adapted to the legislative context—to three different types of constitutional claims: free speech ( Mandel ), equal protection ( Fiallo ), and due process ( Din ). The standard thus appears to apply to all constitutional challenges brought by U.S. persons or entities against executive exercise of the exclusion power. Accordingly, the issue of EO-2's constitutionality under the Establishment Clause appears to boil down to whether the government has supplied a "facially legitimate and bona fide" justification for the order. Agreement as to Mandel 's applicability to EO-2 is not, however, universal. At least two counterarguments exist. First, some courts have described Mandel as governing only challenges to individual visa denials, not broader executive policy. Dissenting judges have pointed out that this argument may be difficult to square with Fiallo , which relied on Mandel in upholding a gender-discriminatory immigration statute. Indeed, Fiallo described its analytical approach to the statute as an effort to apply something approximating the Mandel standard of review to a "broad congressional policy choice." Another argument for why Mandel should not govern the Establishment Clause claim has surfaced in legal commentary. According to some commentators, the Establishment Clause, unlike individual rights such as free speech and equal protection, creates a structural limitation on the scope of government action rather than an individual right against certain forms of government regulation. According to this argument, a religiously discriminatory government exclusion policy effects an establishment of religion as much as a parallel domestic policy would, because the identity of the persons harmed by the policy (aliens or citizens) does not alter the constitutional limitation. In other words, by the terms of the argument, it does not matter for Establishment Clause purposes whether the government hangs a sign stating its religious preferences at the border or in the interior—both statements violate the structural rule of religious neutrality. This argument does not find direct support in any Supreme Court cases. But, on the other hand, the Supreme Court has never actually applied Mandel to an Establishment Clause claim or otherwise considered the extent to which the Establishment Clause may limit the exclusion power. If the Court were inclined to apply closer constitutional scrutiny to EO-2 than it applied in Mandel , Din , and Fiallo , the arguably structural nature of the Establishment Clause guarantee could serve as a basis for distinguishing those cases. Such a distinction would arguably follow the mold of Morales-Santana , which also relied on a distinction not previously considered salient (derivative citizenship statutes versus immigration statutes) in determining not to apply Fiallo . If Mandel does govern the Establishment Clause claim against EO-2, the principal question becomes whether it permits consideration of evidence of the President's purpose beyond the face of EO-2 itself. Most reviewing courts, including those that have ruled that EO-2 likely violates the Establishment Clause, have concluded that the order does not have an expressly discriminatory purpose. The order purports to exclude aliens from countries that are "state sponsor[s] of terrorism, ha[ve] been significantly compromised by terrorist organizations, or contain[] active combat zones." The order does not, according to most courts, purport to exclude Muslims. But the plaintiffs assert that extrinsic evidence shows that during the presidential campaign, then-candidate Donald Trump considered excluding aliens based on their religion, and the courts that have determined that EO-2 likely violates the Establishment Clause have relied heavily upon this extrinsic evidence. The strength of the Establishment Clause claim under Mandel , therefore, appears to turn upon the scope of reviewable evidence. On the one hand, Mandel and Din may be read to provide much support for those who argue that the Court should limit its review to the face of EO-2. Mandel itself instructed courts not to "look behind" the Executive's stated reason for excluding an alien, and it did so in the face of a government justification that the petitioners argued included indications of pretext. Just as the Court declined to scrutinize the Attorney General's explanation that he had denied Mandel's visa because of his prior visa abuse and not because of his political views, the argument goes, so too should the Court decline to probe the express purpose of EO-2. Similarly, in his Din opinion, Justice Kennedy required nothing more of the government than a statutory citation to sustain a visa denial under a terrorism-related ineligibility. Justice Kennedy did not examine the government's evidentiary basis for applying the statute. Because EO-2 likewise cites a statutory source of exclusion power—INA § 212(f)—the government and some jurists contend that EO-2, too, should be sustained without further inquiry against the Establishment Clause challenge. The counterargument, and the analysis that guided the Fourth Circuit decision, rests on the "bona fide" prong of the Mandel test. Because the Fourth Circuit concluded that ample evidence suggests that EO-2's stated purpose is a bad-faith pretext for religious discrimination, the court reasoned that it need not accept that stated purpose. Under this reasoning, upon such an affirmative showing of bad faith, courts must cast aside the deferential Mandel test and apply the same level of constitutional scrutiny they would apply outside of the immigration context. For an Establishment Clause claim such as the one asserted against EO-2, such standard scrutiny encompasses consideration of the "historical context" and the "specific sequence of events" that led to the order's passage. The Fourth Circuit held that those categories of information include statements about a potential "Muslim Ban" that then-candidate Donald Trump made during the 2016 campaign. Dissenting judges and the government have criticized the Fourth Circuit's approach to the "bona fide" prong as circular, because it relies upon evidence beyond the face of EO-2 to make a determination about whether to consider evidence beyond the face of EO-2. The Fourth Circuit majority opinion that employs this analysis does, to some extent, give the impression of addressing the same question twice. Nonetheless, the analysis finds some support in Justice Kennedy's statement in Din that courts should not look beyond the face of the government's proffer "absent an affirmative showing of bad faith." Justice Kennedy did not have occasion to apply that statement of law to fact, and his opinion in Din garnered only two votes. His choice of language, however, might be construed to contemplate judicial consideration of a plaintiff's proffer of extrinsic bad faith evidence, and the Fourth Circuit in fact construed the language this way. On balance, consideration of campaign statements and other extrinsic evidence of EO-2's purpose would certainly exceed the scope of the review that the Supreme Court conducted in Mandel and Din . In those cases, the Court did not probe the government's stated justifications for excluding the aliens in question. The allegations of religious animus in the Travel Ban cases arguably present unique facts, however, and the Supreme Court has yet to clarify what the "bona fide" prong of the Mandel test means in application. If the Court reaches the merits and applies Mandel , the scope of its review will probably depend on whether it determines (1) that a bad faith exception exists to Mandel 's rule against looking behind the government's justification for excluding aliens; and (2) if so, that the Travel Ban case facts trigger the exception. In the Travel Ban cases, the government does not argue that the President has authority to exclude aliens based on their religion. Perhaps for this reason, those reviewing courts that have deemed it appropriate to consider campaign statements and other extrinsic evidence of EO-2's allegedly anti-Muslim purpose have generally held that the order violates the Establishment Clause. In the only example of a case that considered extrinsic evidence but ruled in the government's favor, a federal district court held that the extrinsic evidence did not suffice to show discriminatory purpose. Even there, however, the district court seemed to assume that EO-2 would violate the Establishment Clause if it had a religiously discriminatory purpose. This litigation posture—the absence of any contention that the President may exclude aliens based on religion—creates an interesting contrast with Mandel . There, the unchallenged assumption cut the other way: that Congress had the power to exclude aliens based on their political belief. The executive branch argued that it, too, could exercise congressionally delegated exclusion authority to deny entry based on political belief or for "any reason or no reason." The Mandel Court adopted the "facially legitimate and bona fide" standard to avoid addressing this contention. Thus, Mandel and the Travel Ban cases start from inverted executive branch contentions about the scope of its exclusion power. In Mandel , the executive branch contended that it possessed, through legislative delegation, Congress's uncontested (in that case) power to exclude aliens based on political belief. In the Travel Ban cases, in contrast, the executive branch seems to tacitly concede that it does not have power to exclude based on religion. The upshot of both cases might remain the same, however. The Supreme Court likely will not address the underlying question about the outer limits of the executive power. In Mandel , the Court used the "facially legitimate and bona fide" standard to avoid answering whether the Executive could deny waivers based on political belief. In the Travel Ban cases, the Supreme Court probably will not answer directly whether the executive branch can exclude aliens based on religion, because the executive branch does not argue this point. The statutory arguments against EO-2 boil down to the contention that the entry restrictions set forth in the order exceed the scope of the President's authority to exclude aliens under the INA. On this statutory theory, the Ninth Circuit concluded that EO-2 is likely unlawful, as did three concurring judges in the Fourth Circuit. This section briefly summarizes the three principal statutory arguments against EO-2 and how lower courts have addressed those arguments. The section then analyzes an issue that the Supreme Court might confront in addressing the statutory challenges: identifying the appropriate standard of review. A preliminary point: the statutory and constitutional claims against EO-2 may not operate entirely independently of each other. Through the canon of constitutional avoidance, the Supreme Court's approach to the Establishment Clause claim raised against EO-2 may influence the Court's resolution of the statutory claims. If the Supreme Court entertains serious doubts about EO-2's constitutionality, the Court might assess whether EO-2 violates the underlying statutes under any "fairly possible" interpretation before striking the order down as a violation of the Establishment Clause. The Ninth Circuit appeared to take this approach, although it did not invoke the avoidance canon clearly. One of the Fourth Circuit concurring opinions, in contrast, expressly framed its statutory analysis as a method for avoiding a serious Establishment Clause question. There are three principal arguments raised in the Travel Ban litigation that EO-2 exceeds the scope of the President's statutory authority: 1. The President did not properly invoke his authority under INA § 212(f). That provision gives the President power to exclude "any class of aliens," but only if he finds that the entry of such aliens "would be detrimental to the interests of the United States." EO-2, it is argued, does not evince an adequate finding that the entry of the aliens it seeks to bar would be "detrimental." 2. EO-2's exclusion of citizens of the six listed countries violates INA § 202(a)(1)(A), which prohibits discrimination based on nationality in the issuance of immigrant visas. 3. EO-2's reduction in the FY2017 refugee cap from 110,000 to 50,000 refugees violates INA § 207, which establishes specific procedures—including consultation with Congress—for establishing the annual refugee cap. Of the three arguments, only the first applies to the full scope of EO-2's entry restrictions. The basis of the argument is that INA § 212(f) contains a prerequisite: the President must find that the entry of a class of aliens would be "detrimental" to invoke the exclusion authority that the statute delegates to him. EO-2 attempts to satisfy the prerequisite with findings about the presence of terrorist organizations and conditions of instability within the six restricted countries. The order concludes that such conditions within the identified countries increase the likelihood that "terrorist operatives or sympathizers" could enter the United States from those locations. The order also provides examples of persons implicated in terrorism-related crimes who were admitted to the United States as refugees. The Ninth Circuit, and some of the Fourth Circuit concurring opinions, rejected these justifications as inadequate. The circuit courts concluded that EO-2 does not demonstrate a link between an individual alien's nationality and the alien's propensity to engage in terrorism, and that the order does not explain why current visa and refugee screening procedures do not suffice to address the risk of terrorist entry. The government, for its part, argues that the Ninth Circuit's rejection of the President's articulated justifications for the EO-2 entry restrictions showed an improper failure to defer to the President's national security determinations. The second and third statutory arguments are more limited. The second argument, concerning INA § 202(a)(1)(A), only applies to citizens of the six listed countries who seek entry as immigrants rather than nonimmigrants (i.e., aliens authorized to permanently reside in the United States versus those permitted to remain in the country on a temporary basis). In other words, the argument is that EO-2 violates the INA by denying entry based on nationality to prospective immigrants from the six restricted countries, and that argument would not impact the lawfulness of EO-2's applicability to prospective nonimmigrants from those countries. The third argument, concerning the refugee admissions procedures in INA § 207, applies only to EO-2's reduction in refugee admissions. The two arguments proceed on the premise that specific provisions in the INA limit the scope of the President's exclusion authority under § 212(f), even though § 212(f) does not impose such limitations itself. The Ninth Circuit agreed with this premise, concluding that both § 202(a)(1)(A) and § 207 limit the President's § 212(f) authority—and that EO-2 violates those limitations—because the former two statutes were enacted after § 212(f) and are more specific than § 212(f). Other judges have rejected the § 202(a)(1)(A) argument on the reasoning that its nondiscrimination bar applies only to immigrant visa decisions, not entry restrictions. Put differently, these judges have reasoned that EO-2's denial of entry to immigrants from the six restricted countries based on their nationality does not run afoul of § 202(a)(1)(A)'s prohibition of the denial of visas based on nationality. As for the § 207 argument concerning refugee admissions, the Ninth Circuit's agreement with the argument marks the only judicial consideration of it thus far. In response to both the § 202(a)(1)(A) and the § 207 arguments, the government contends primarily that § 212(f) can and should be interpreted to harmonize with the other two statutes, because § 202(a)(1)(A) does not restrict denials of entry and the § 207 procedures for setting the annual refugee cap do not restrict the President's ability to limit (rather than expand) refugee admissions mid-year. The statutory arguments against EO-2 raise an unresolved question: should the courts defer to the President's evidentiary basis for invoking his exclusion authority under INA § 212(f)? If so, what standard of deference should apply? For the Establishment Clause claims, these questions have reasonably clear answers under existing case law. Mandel and Di n establish that the "facially legitimate and bona fide" standard of review governs constitutional challenges to an alien's exclusion. In contrast, as noted above, the Supreme Court has never explained what standard of review— Mandel or something else—applies to a U.S. person or entity's claim that the exclusion of an alien violates a statute. In reaching its determination that EO-2 likely violates the INA, the Ninth Circuit concluded that Mandel did not govern its analysis of the statutory claims against the order. The conclusion proved significant, as it led the court to apply an exacting standard of review to the government's justifications. The Ninth Circuit determined that EO-2 does not "bridge the gap" between the country conditions it describes (terrorist activity and instability) and the individual aliens from those countries that the order excludes. In other words, according to the Ninth Circuit, the order's use of a broad classification (nationality) to exclude aliens does not match the justification (to prevent terrorist acts) with sufficient precision. This analysis resembles what is known as strict judicial scrutiny in constitutional jurisprudence. It demands much more of the government's justification for its measures than did the level of deference the Supreme Court applied when considering constitutional claims in Mandel and Din . A reviewing court might identify multiple factors to explain why statutory challenges to an alien's exclusion should draw closer scrutiny of government justifications than corresponding constitutional challenges. Perhaps the heightened scrutiny of statutory claims results from the application of constitutional avoidance, which a deferential level of statutory review could hamper. Or, as the Ninth Circuit proposed, perhaps heightened scrutiny should apply in situations where the Executive affirmatively invokes statutory authority to exclude otherwise eligible aliens, as President Trump did in EO-2, as opposed to situations where the Executive declines to invoke statutory waiver authority to admit ineligible aliens, as the Attorney General did in Mandel . The government, for its part, argues that the national security concerns underlying EO-2 require judicial deference to the President's factual basis for invoking § 212(f). Whatever the merit of these or other arguments, the Supreme Court has yet to endorse any of them. The appropriate standard of review for a statutory argument against exclusion remains an open issue. The Travel Ban cases implicate the nucleus of the political branches' immigration power: the power to deny entry to aliens abroad. The cases against EO-2, unlike the first wave of litigation challenging EO-1, concern only the exclusion of aliens physically outside the United States. The cases do not involve aliens at the border or aliens who have entered the country physically. Accordingly, the cases isolate the issue of the scope of the Executive's power to deny entry from the issue of what measures the Executive may lawfully take to carry out the exclusion of an alien already on American soil. The cases, in other words, concern a pure exclusion issue, and they could thus set the stage for a landmark statement from the Supreme Court about the political branches' plenary immigration power. If the plaintiffs win on the merits of their Establishment Clause claim, and to a lesser extent on their statutory claims, their victory would represent a judicial check on executive exercise of the exclusion power unlike any in the Supreme Court's history. That check could come in the form of a distinction between legislative and executive power—i.e., that EO-2 is unlawful because it contravenes the INA—or as a clear holding that U.S. citizens' Establishment Clause rights limit the exclusion of nonresident aliens. A victory for the plaintiffs in the latter form would exceed prior Supreme Court limitations of the plenary power doctrine. On the other hand, if the government wins on the merits under application of Mandel deference, the decision (depending on its reasoning) could stand as a reaffirmation of the exceptional extent of the Executive's power to deny entry to nonresident aliens. A third outcome, however, seems equally viable: that the Supreme Court will not actually decide whether EO-2 exceeds the scope of the President's statutory or constitutional power. The Court could dismiss the government's appeals in the Travel Ban cases as moot or reject the plaintiffs' claims for lack of standing rather than decide them on the merits; or, maybe most in line with its approach in prior exclusion cases, the Court could decide the merits of the plaintiffs' claims in a way that does not require it to define the boundaries of the Executive's power, such as by rejecting the claims under domestic Establishment Clause jurisprudence. In prior exclusion cases concerning the rights of U.S. citizens, the Court has preferred such narrow grounds of decision that do not require a defining statement about if and where the plenary power ends. If the Court adopts this approach or does not decide for other reasons the merits of the Travel Ban cases, the June 26 per curiam decision limiting the Executive's power to exclude aliens with "bona fide relationships" to U.S. persons or entities will remain in the case reporters as a unique example of judicial involvement in exclusion decisions. But because that decision avoids any discussion of the merits of the claims against EO-2, it probably will not itself change how courts review U.S. citizen challenges to the exclusion of nonresident aliens abroad in the future. | The Supreme Court has determined that inherent principles of sovereignty give Congress "plenary power" to regulate immigration. The core of this power—the part that has proven most impervious to judicial review—is the authority to determine which aliens may enter the country and under what conditions. The Court has determined that the executive branch, by extension, has broad authority to enforce laws concerning alien entry mostly free from judicial oversight. Two principles frame the scope of the political branches' power to exclude aliens. First, nonresident aliens abroad cannot challenge exclusion decisions because they do not have constitutional or statutory rights with respect to entry. Second, even when the exclusion of a nonresident alien burdens the constitutional rights of a U.S. citizen, the government need only articulate a "facially legitimate and bona fide" justification to prevail against the citizen's constitutional challenge. The first principle is the foundation of the Supreme Court's immigration jurisprudence, so well established that the Court has not had occasion to apply it directly in recent decades. The second principle, in contrast, has given rise to the Court's modern exclusion jurisprudence. In three important cases since 1972—Kleindienst v. Mandel, Fiallo v. Bell, and the splintered Kerry v. Din—the Court applied the "facially legitimate and bona fide" test to deny relief to U.S. citizens who claimed that the exclusion of certain aliens violated the citizens' constitutional rights. In each case, the Court accepted the government's stated reasons for excluding the aliens without scrutinizing the underlying facts. This deferential standard of review effectively foreclosed the U.S. citizens' constitutional challenges. Nonetheless, the Court refrained in all three cases from deciding whether the power to exclude aliens has any limitations. Particularly with regard to the executive branch, the Court left an unexplored margin at the outer edges of the power. In March 2017, President Trump issued an executive order temporarily barring many nationals of six Muslim-majority countries and all refugees from entering the United States, subject to limited waivers and exemptions. This order replaced an earlier executive order that a federal appellate court had enjoined as likely unconstitutional. Upon challenges brought by U.S. citizens and entities, two federal appellate courts determined that the revised order is likely unlawful, one under the Establishment Clause of the First Amendment and the other under the Immigration and Nationality Act (INA). The Supreme Court agreed to review those cases and, for the meantime, has ruled that the Executive may not apply the revised order to exclude aliens who have a "bona fide relationship" with a U.S. person or entity. In reaching this interim solution, the Supreme Court considered only equitable factors and carefully avoided any discussion of the merits of the constitutional and statutory challenges against the revised order. Even so, the Court's temporary restriction of the executive power to exclude nonresident aliens abroad is remarkable when compared with the Court's earlier immigration jurisprudence. The merits of these so-called "Travel Ban" cases raise significant questions about the extent to which the rights of U.S. citizens limit the executive power to exclude aliens. It seems relatively clear that, under existing jurisprudence, the "facially legitimate and bona fide" standard should govern the Establishment Clause claims against the revised executive order. However, Supreme Court precedent does not clarify whether that standard contains an exception that might permit courts to test the government's proffered justification for an exclusion by examining the underlying facts in particular circumstances. Nor does Supreme Court precedent resolve whether the standard governs U.S. citizens' statutory claims against executive exercise of the exclusion power, or even whether such statutory claims are cognizable. The outcome of the Travel Ban cases would likely turn upon these issues, if the Supreme Court were to decide the cases on the merits rather than on a threshold question such as mootness (a key issue in light of a presidential proclamation modifying the entry restrictions at issue in the cases). |
The U.S. Secret Service (USSS) within the Department of Homeland Security (DHS) has two missions—criminal investigations and protection. Criminal investigation activities encompass financial crimes, identity theft, counterfeiting, computer fraud, and computer-based attacks on the nation's financial, banking, and telecommunications infrastructure. The protection mission is the more publicly visible of the two, covering the President, Vice President, their families, former Presidents, and major candidates for those offices, along with the White House and the Vice President's residence (through the Service's Uniformed Division). Protective duties of the Service also extend to foreign missions (such as embassies, consulates, and foreign dignitary residences) in the District of Columbia and to designated individuals, such as the Homeland Security Secretary and visiting foreign dignitaries. Separate from these specific mandated assignments, USSS is responsible for certain security activities such as National Special Security Events (NSSEs), which include presidential inaugurations, the major party quadrennial national conventions, as well as international conferences and events held in the United States. The most recent congressional action (not including appropriations) on the Service is the Federal Restricted Buildings and Grounds Improvement Act of 2011 ( P.L. 112-98 ), enacted during the 112 th Congress, which amended 18 U.S.C. 1752 and made it a crime for unauthorized individuals to enter a building that is secured by USSS. Congress, arguably, has begun to focus its attention on legislation related to the Service's financial and computer crime investigation mission activities. Legislation in the 113 th Congress includes a House committee-referred bill on cyber privacy security; a House committee-referred bill on information technology security; a Senate committee-referred bill on data security and breaches; and a Senate committee-referred bill on personal data privacy and security. Additionally, the House Oversight and Government Reform Committee held a hearing entitled "White House Perimeter Breach: New Concerns about the Secret Service," on September 30, 2014, which addressed a security breach on September 19 th , where a person gained unauthorized entrance into the White House after climbing the perimeter fence, and previous incidents. The committee inquired if deficient protection procedures, insufficient training, inadequate funding, personnel shortages, or low morale contributed to these security breaches. Later, on the same day as the hearing, it became public knowledge that earlier in the year a private security contractor at a federal facility, while armed, was allowed to share an elevator with President Barack Obama during a site visit, in violation of U.S. Secret Service security protocols. The following day, October 1, 2014, USSS Director Julia Pierson resigned. This report discusses potential policy questions for the upcoming 114 th Congress concerning the Service's mission and organization through an examination of the USSS history and its statutory authorities, mission, and present activities within DHS. The policy questions presented in this report are only considerations, since the Service is widely perceived to be operating and performing its missions effectively for the past 11 years as part of DHS. Additionally, Appendix A provides a list of the direct assaults on and threats to Presidents, Presidents-Elect, and candidates. Appendix B provides a list of statutes addressing USSS activities. Since 1865, as part of the U.S. Treasury Department, USSS has evolved into a federal law enforcement agency with statutory authority to conduct criminal investigations and protect specific federal officials, individuals, and sites. Congress transferred USSS to the Department of Homeland Security (DHS) in 2002 legislation. The original mission of the Service was to investigate the counterfeiting of United States currency. This mission has been expanded throughout the agency's history through presidential, departmental, and congressional action. At times, early in the agency's history, Secret Service agents conducted investigations that were not related to financial system crimes. Examples include the investigation of the Ku Klux Klan in the late 1860s and counter-espionage activities in the United States during World War I. Today, USSS conducts criminal investigations into counterfeiting and financial crimes. Within the investigative mission area is the USSS's forensic services division. USSS forensic services personnel conduct analyses of evidence, some of which includes documents, fingerprints, false identification documents, and credit cards, to assist in USSS investigations. USSS's investigative support is also responsible for developing and implementing a criminal and investigative intelligence program. One of the components of this program is the Criminal Research Specialist Program, which provides intelligence analysis related to infrastructure protection, conducts forensic financial analysis, and provides research and analytical support to USSS criminal investigations. Additionally, in 1994, Congress mandated that USSS provide forensic and technical assistance to the National Center for Missing and Exploited Children. From protecting President Grover Cleveland in 1894 on a part-time basis to the constant protection of President Obama, the USSS history of protection has been directed by unofficial decisions (such as the protection of President Cleveland) and congressional mandate (such as the protection of major presidential candidates). USSS protection activities have expanded over the years as the number of individuals and events requiring USSS protection grows, with only one instance of a specified type of protectee being removed from the authorized list. For the first time, in 2008, USSS protected a spouse of a former President who was also a presidential candidate, and it protected a Vice President who was not running for his political party's nomination. The following are the current individuals authorized USSS protection in 18 U.S.C. Section 3056(a): President, Vice President, President- and Vice President-elect; the immediate families of those listed above; former Presidents and their spouses; former Presidents' children under the age of 16; visiting heads of foreign states or governments; distinguished foreign visitors and official United States representatives on special missions abroad; major presidential and vice presidential candidates, within 120 days of the general presidential elections, their spouses; and former Vice Presidents, their spouses, and their children under the age of 16. USSS protection operations have also evolved over the years. Originally, USSS protection entailed agents being, what could be described as "bodyguards." Now protection includes not only the presence of agents in close proximity to the protectee, but also advance security surveys of locations to be visited, coordination with state and local enforcement entities, and intelligence analysis of present and future threats. The USSS protection mission uses human resources and physical barriers, technology, and a review of critical infrastructures and their vulnerabilities to increase security to meet evolving threats. Statutes also authorize USSS to conduct such other activities as participating in the planning, coordination, and implementation of security operations at special events of national significance, and providing forensic and investigative assistance involving missing or exploited children. In recent years Congress has appropriated approximately $1.6 billion annually for the USSS. The following table provides the Service's FY2013 and FY2014 budget authority. The "Investigation Mission" and "Protection Mission" have distinctive characteristics and histories, and each has been affected by informal decisions and congressional action. Since USSS's transfer to DHS, any statute still in effect authorizing or requiring the Treasury Secretary to perform some function connected to the USSS's previous statutory responsibilities has now been assumed by the DHS Secretary. This report does not detail every law enacted that has affected USSS, but instead attempts to identify congressional actions that addressed the role and responsibility of the Service. Additionally, Appendix B in this report provides a list and brief description of the statutes identified in this report. Due to a plethora of currencies issued by states prior to the establishment of a federal banking system, counterfeiting was a major problem in the United States. In 1806, Congress passed the Enforcement of Counterfeiting Prevention Act, which enabled U.S. marshals and district attorneys to investigate and prosecute counterfeiters. The authority to investigate counterfeiting was later transferred to the Department of Treasury (TREAS) in 1860. In order to regulate U.S. currency and increase sanctions against counterfeiters, Congress passed the National Currency Act in 1863. Also in 1863, the Treasury Secretary directed the Office of the Solicitor of Treasury to assume the department's role in investigating counterfeiting. Counterfeiting continued to be a problem for the federal government throughout the Civil War; and by 1865, between one-third and one-half of all U.S. currency in circulation was counterfeit. As a result of this currency crisis, the Treasury Secretary established the Secret Service Division (SSD), within the Office of the Solicitor of Treasury in 1865. At the July 5, 1865, swearing in of the new chief of the SSD, William P. Wood, Treasury Secretary Hugh McCulloch stated "your main objective is to restore public confidence in the money of the country." SSD's primary responsibility was to investigate counterfeiting, forging, and the altering of United States' currency and securities. The Office of Solicitor of the Treasury administered the SSD until 1879. Statutory recognition was given to SSD in 1882 when the 47 th Congress appropriated funds when it continued to be administered by the Treasury Department, as follows. SECRET SERVICE DIVISION.—For one chief, three thousand five hundred dollars; one chief clerk, two thousand dollars; one clerk of class four; two clerks of class two; one clerk of class one; one clerk at one thousand dollars; and one attendant at six hundred and eighty dollars; in all, twelve thousand nine hundred and eighty dollars. In 1889, SSD's mission was expanded to include espionage activities during the Spanish-American War and World War I. This mission was phased out at the end of each war. In 1894, the Service informally acquired the protection function at the request of President Grover Cleveland. Additionally, the SSD began another task outside the purview of its original mandate: the investigation of land fraud in the western United States in the early 1900s. In the first half of the 20 th Century, Congress continued to authorize the Treasury Secretary to "direct and use" SSD to "detect, arrest, and deliver into custody of the United States marshal having jurisdiction any person or persons violating" counterfeit laws. In 1948, SSD was also authorized to investigate crimes against the Federal Deposit Insurance Corporation, federal land banks, joint-stock land banks, and national farm loan associations. As throughout USSS's history, Congress continued to amend the Service's investigation mission from 1950 to 1984. Some of this continued amending of the Service's mission included funding the USSS for its confiscating and purchasing of counterfeit currency. Due to the increased use of computers and electronic devices in financial crime, Congress, in 1984, authorized USSS to investigate violations related to credit card and computer fraud. In the 1990s, Congress continued to amend laws affecting the investigation, prosecution, and punishment of crimes against United States financial systems. One such amendment authorized USSS investigation of crimes against financial systems by authorizing the Service to conduct civil or criminal investigations of federally insured financial institutions. This investigation jurisdiction was concurrent with the Department of Justice's investigation authority. Another law was the Violent Crime Control and Law Enforcement Act of 1994 ( P.L. 103-322 ), which made international manufacturing, trafficking, and possessing of counterfeit United States currency a crime as if it were committed in the United States. Congress also enacted laws related to telemarketing fraud ( P.L. 105-184 ) and identity theft ( P.L. 105-318 ), both of which are used in committing financial fraud and crime. Following the terrorist attacks of September 11, 2001, Congress enacted the USA PATRIOT Act. Among numerous provisions addressing the protection of the United States financial systems and electronic device crimes, the act contains a provision that authorizes the Service to establish nationwide electronic crime task forces to assist law enforcement, private sector, and academic entities in detecting and suppressing computer-based crimes. In 1894, SSD began to protect President Grover Cleveland at his request on a part-time basis. USSS agents guarded him and his family at their vacation home in the summer of 1894. President William McKinley also received SSD protection during the Spanish-American War and limited protection following the end of the war. There were three SSD agents present when President McKinley was assassinated in Buffalo, NY, but reportedly they were not fully in charge of the protection mission. Following the assassination of President McKinley, in 1901, congressional leadership asked that the SSD protect the President. Five years later Congress, for the first time, appropriated funds for the protection of the President with the passage of the Sundry Civil Expenses Act for 1907 (enacted in 1906). In 1908, SSD's protection mission was expanded to include the President-elect. In that same year, President Theodore Roosevelt transferred a number of SSD agents to the Department of Justice, which served as the foundation for the Federal Bureau of Investigation. Annual congressional authorization of the mandate to protect the President and President-elect began in 1913. During World War I threats against the President began to arrive at the White House, which resulted in a 1917 law making it a crime to threaten the President. Additionally, later that same year, Congress authorized SSD to protect the President's immediate family. In addition to the expansion of the protection of the President and the President's family, the White House Police Force was created in 1922 to secure and patrol the Executive Mansion and grounds in Washington, DC. Initially, the White House Police Force was not supervised or administered by SSD; but rather by the President or his appointed representative. In 1930, however, Congress mandated that the White House Police Force be supervised by the SSD. For the first time, Congress, in 1943, appropriated funding for both the investigation and protection missions. The appropriation was specifically for "suppressing" counterfeiting and "other" crimes; protecting the President, the President-elect, and their immediate families; and providing funding for the White House Police Force. In 1951, Congress permanently authorized the "U.S. Secret Service" to protect the President, his immediate family, the President-elect, and the Vice President—if the Vice President so desired. In 1954, Congress used the title "U.S. Secret Service" in an appropriation act for the first time. Eleven years after permanently authorizing USSS's protection mission, Congress mandated the protection of the Vice President (or the next officer to succeed the President), the Vice President-elect, and each former President "at his request" for "a reasonable period after he leaves office." In 1963, following the assassination of President John F. Kennedy, Congress enacted legislation that authorized protection for Mrs. Jacqueline Kennedy and her children for two years. In 1965, Congress authorized permanent protection for former Presidents and their spouses for the duration of their lives, and protection of their children until age 16. Later that year, Congress increased USSS law enforcement responsibilities by authorizing the Service's agents to make arrests without warrant for crimes committed in their presence. The initial two-year protection of Mrs. Kennedy (a widow of a former President) was not immediately extended in 1965, but rather was deferred until 1967 when Congress authorized protection of former Presidents' widows and minor children until March 1, 1969. This protection became permanent in 1968. USSS's protection mission was furthered expanded in that same year following the assassination of Senator Robert F. Kennedy (a presidential candidate). Congress authorized the Treasury Secretary to determine which presidential and vice presidential candidates should receive USSS protection. An advisory committee was established to assist the Treasury Secretary in determining which candidates could receive protection. The committee included the Speaker of the House of Representatives, the minority leader of the House of Representatives, the Senate majority and minority leaders, and one additional member selected by the committee. Following a decade of expanding USSS's protection mission, Congress further amended this mission, and renamed the White House Police Force as the Executive Protection Service (EPS) in 1970. Congress authorized the USSS Director to administer the EPS's protection of the Executive Mansion and grounds in the District of Columbia (DC); any building with presidential offices; the President and immediate family; foreign diplomatic missions located in the metropolitan DC area; and foreign diplomatic missions located in the United States, its territories, and its possessions—as directed by the President. EPS was renamed the "Secret Service Uniformed Division" in 1977. In 1977, Congress expanded the USSS' existing protection of foreign diplomatic missions, to also protect visiting heads of foreign states, and other distinguished foreign visitors—at the direction of the President. Congress also authorized the President to direct the protection of United States' official representatives on special missions abroad. Additionally, in 1971, Congress established criminal penalties for a person who "knowingly and willfully obstructs, resists, or interferes with an agent of the United States engaged in the performance" of USSS's protection mission. In 1975, Congress expanded the Service's protection mission to include the Vice President's immediate family. Congress further refined the protection mission in the Presidential Protection Assistance Act of 1976 ( P.L. 94 - 524 ) by regulating the number and types of property to be protected by USSS. Also in 1976, Congress further expanded the list of who was eligible for USSS protection by adding presidential and vice presidential candidate spouses. The "protectee" list was again expanded in 1977, when Congress authorized the USSS to continue to protect specified federal officials and their families. In 1982, the list was increased again by Congress with the addition of former Vice Presidents and their spouses for a period to be determined by the President. Temporary residences of the President and Vice President were designated (as determined by the Treasury Secretary) as property that could be protected if occupied in 1982. Congress enacted a consolidated list—from earlier statutes—of individuals authorized USSS protection for the first time in 1984. The new statute amended 18 U.S.C. Section 3056, "Powers, authorities, and duties of United States Secret Service." This was significant, because for the first time, there was a single statutory list that identified all of the Service's protectees. In 1994 legislation, the protection of former Presidents and their spouses was limited to 10 years after the President leaves office. The list of "protectees" has also been affected by presidential directives. As an example, in 1986, the President directed USSS to protect the spouses of visiting heads of foreign states. Any protectee may decline USSS protection except the President, the Vice President, the President-elect, or the Vice President-elect. Also in 1986, the Treasury Police Force was merged into the Secret Service Uniformed Division as part of its protection mission. As the federal government began to address terrorist threats at the end of the 1990s, President William J. Clinton issued Presidential Decision Directive 62 (PDD 62)—"Protection Against Unconventional Threats to the Homeland and Americans Overseas" on May 22, 1998. As described by the White House, PDD 62 established a framework for federal department and agency counter-terrorism programs that addressed the issues of terrorist apprehension and prosecution, increased transportation security, enhanced emergency response, and enhanced cyber security. PDD 62 is said to designate specific federal departments and agencies as the "lead" agencies in the event of terrorist attacks. PDD 62 is said to designate the USSS as the lead agency with the leadership role in the planning, implementation, and coordination of operational security for events of national significance—as designated by the President. On December 19, 2000, President Clinton signed P.L. 106 - 544 , the Presidential Threat Protection Act of 2000, authorizing the USSS—when directed by the President—to plan, coordinate, and implement security operations at special events of national significance. The special events were entitled National Special Security Events. Some events categorized as NSSEs include presidential inaugurations, major international summits held in the United States, major sporting events, and presidential nominating conventions. Among other actions, this act also established the National Threat Assessment Center (NTAC) within USSS. Congress required NTAC to provide assistance to federal, state, and local law enforcement agencies through threat assessment training; consulting on complex threat assessment cases; researching threat assessment and potential targeted violence; promoting standardization of federal, state, and local threat assessments and investigations; and other threat assessment activities, as determined by the DHS Secretary. The most recent congressional action on the Service's protection mission was the enactment of the Federal Restricted Buildings and Grounds Improvement Act of 2011, which amended 18 U.S.C. 17522 and made it a crime for unauthorized individuals to enter a building that is secured by the USSS. In light of the historical information presented above on the evolution of the statutory foundation for the USSS and its present budget authority, Congress might wish to consider the following policy questions, among others. With the Service effectively operating and performing its missions within DHS since 2003, the policy questions presented in this report are potential future considerations. What is the optimum or preferred mission of the USSS and whether the mission should consist of both investigation and protection? Is the current allocation of resources ensuring one or both USSS missions are efficiently achieved? The two USSS missions—investigation and protection—have evolved over 143 years. The original and oldest mission, which began in 1865, is the investigation mission. Statutorily, the protection mission did not begin until 1906. In FY2014, however, the protection mission received approximately 63% of the agency's funding. In FY2014, the protection mission was appropriated approximately $920 million, and the investigation mission was appropriated $368 million. As described earlier in this report, USSS's protection mission employs the majority of the Service's agents and receives a larger share of the agency's resources. Additionally, the majority of congressional action concerning USSS has been related to its protection mission. This difference may be the result of the costs associated with an increase in protecting individuals, events, and facilities. The relevant statutes discussed above illustrate the Service's expanding protection mission which includes what federal officials are authorized, through statute, USSS protection; the role and responsibilities of the Secret Service Uniform Division; and the Service's role in security for NSSEs. While Congress has maintained USSS's role investigating financial crimes, congressional action primarily has addressed, and continues to address, the Service's protection mission. An example of this is Congress's enactment of P.L. 110 - 326 , the Former Vice President Protection Act of 2008, which requires the Service to protect former Vice Presidents, their spouses, and minor children for a period up to six months after leaving office. Another example of congressional interest in the Service's protection mission occurred in the FY2008 Consolidated Appropriations Act, when Congress specifically stated that the USSS could not use any funds to protect any federal department head, except the DHS Secretary, unless the Service is reimbursed. One could argue potential terrorist attacks and possible direct assaults have resulted in an increase in the need for the Service's protection activities. The Service's protection mission has expanded and become more "urgent" due to the increase in terrorist threats and the expanded arsenal of weapons that terrorists could use in an assassination attempt or attacks on facilities. The USSS transfer from the Treasury Department to DHS could be seen as a response to the changing nature of the terrorist threat. The establishment of a single mission, or a distinct primary and secondary mission, for the USSS is one option for Congress in light of this increased terrorist threat. One argument for this is that the majority of the Service's resources are used for its protection mission, and that Congress has raised the issue of the Service's competing missions of protection and investigation. It can be argued, however, that the Service trains its agents in both investigations and protection with no loss of a protectee in the last 52 years. Some have argued, however, that there needs to be an independent examination of the Service's dual mission to evaluate the effectiveness of USSS's training. If there were an evaluation of the Service's two missions, it might be determined that it is ineffective for the USSS to conduct its protection mission and investigate financial crimes. Specifically, in 2012, USSS was engaged in an increased protection workload, which included protection of major presidential candidates, ensuring security for the 2012 presidential nominating conventions, and preparing for the potential transfer of presidential administrations and the January 2013 inauguration. In March 2012, former USSS Director Sullivan stated that USSS candidate protection began in November 2011 when the DHS Secretary, in consultation with the congressional advisory committee, implemented a USSS protection detail for Herman Cain. Governor Mitt Romney, Senator Rick Santorum, and Representative Newt Gingrich also received protection details. This type of increased protection resulted in agents that are normally assigned to investigation missions being assigned to protection detail. From 1865 to the present, USSS has been investigating financial crimes, its only activity for the first three decades, and protecting senior executive branch officials, most notably the President. Recently the Service has increased its efforts in cybersecurity and its protection activities due to certain events, such as the terrorist attacks of September 2001 and the wars in Iraq and Afghanistan. The missions of the Service have evolved and conformed to presidential, departmental, and congressional requirements. Due to evolving technology and tactics used in crimes—including financial, cyber, terrorism, and attempted assassinations—USSS has had to evolve. As the cost of this law enforcement increases, and the number of protectees increases (at least during presidential campaign election years), the Service is continuing to balance and fulfill its two missions. Appendix A. Presidential Death Threats and Direct Assaults Against Presidents Presidential safety is and has been a concern throughout the nation's history. For example, fears of kidnapping and assassination threats to Abraham Lincoln began with his journey to Washington, DC, for the inauguration in 1861. A much more recent example is the breach of Secret Service security at a White House State Dinner on November 24, 2009, where two uninvited guests gained entry to the event. This resulted in a House Homeland Security Committee hearing on December 3, 2009, where the Director of the Secret Service, Mark J. Sullivan, admitted that the breach was a "human error" by Secret Service personnel manning a security checkpoint. At the 2009 hearing, Director Sullivan stated that there has been no increase of death threats to President Obama when compared to death threats against Presidents George W. Bush and William J. Clinton even though some media sources have reported otherwise. In 1917, Congress enacted legislation that made it a crime to threaten the President. CRS does not have access to information on presidential death threats due to the security classification of this information. The extent to which Presidents have been threatened or targeted remains a matter of conjecture. Concern for presidential safety is genuine due to the number of attempted and successful assaults against Presidents. Ten Presidents have been victims of direct assaults by assassins, with four resulting in death. Since the Secret Service started protecting Presidents in 1906, seven assaults have occurred, with one resulting in death (President John F. Kennedy). The following table provides information on assaults against Presidents who were protected by the Secret Service; it does not include information on assaults against Presidents prior to the Service assuming the responsibility of presidential safety. Appendix B. Statutes Addressing U.S. Secret Service Activities | The U.S. Secret Service has two missions—criminal investigations and protection. Criminal investigation activities have expanded since the inception of the Service from a small anti-counterfeiting operation at the end of the Civil War, to now encompassing financial crimes, identity theft, counterfeiting, computer fraud, and computer-based attacks on the nation's financial, banking, and telecommunications infrastructure, among other areas. Protection activities, which have expanded and evolved since the 1890s, include ensuring the safety and security of the President, Vice President, their families, and other identified individuals and locations. In March 2003, the U.S. Secret Service was transferred from the Department of the Treasury to the Department of Homeland Security. Prior to enactment of the Homeland Security Act of 2002 (P.L. 107-296), the U.S. Secret Service had been part of the Treasury Department for over 100 years. Since the September 2001 terrorist attacks, there have been consistent and continuing questions concerning the U.S. Secret Service. Are the two missions of the Service compatible and how should they be prioritized? Is the Department of Homeland Security the most appropriate organizational and administrative location for the Secret Service? These, and other policy issues such as the Secret Service's role in securing presidential inaugurations, have been raised and addressed at different times by Congress and various administrations during the long history of the Service. Additionally, there has been increased interest in the Service due to the inaugural security operations and the protection of President Barack Obama. Some may contend that these and other questions call for renewed attention given the recent increase in demand for the Service's protection function (for example, see P.L. 110-326 enacted by the 110th Congress) and the advent of new technology used in financial crimes. Numerous pieces of legislation related to the Service have been introduced and enacted by the 113th Congress, with all of the enacted legislation being appropriation bills. Introduced in the 113th Congress, H.R. 1121, Cyber Privacy Fortification Act of 2013; H.R. 1468, SECURE IT; S. 1193, Data Security and Breach Notification Act of 2013; and S. 1897, Personal Data Privacy and Security Act of 2014 are related to personal data privacy and security, and confidential informant security. Additionally, the House Oversight and Government Reform Committee held a hearing entitled "White House Perimeter Breach: New Concerns about the Secret Service," on September 30, 2014, which addressed a security breach on September 19th, where a person gained unauthorized entrance into the White House after climbing the perimeter fence, and previous incidents. The committee inquired if deficient protection procedures, insufficient training, inadequate funding, personnel shortages, or low morale contributed to these security breaches. Later, on the same day as the hearing, it became public knowledge that earlier in the year a private security contractor at a federal facility, while armed, was allowed to share an elevator with President Barack Obama during a site visit, in violation of U.S. Secret Service security protocols. The following day, October 1, 2014, USSS Director Julia Pierson resigned. This report discusses these issues and will be updated when congressional or executive branch actions warrant. |
There are more than 9,000 local election jurisdictions in the United States. (3) In most states, they arecounties or major cities, but in some New England and Upper Midwest states, they are smalltownships -- for example, more than 1,800 townships in Wisconsin. (4) Given that diversity and otherdifferences among states -- such as wealth, population, and the role of state election officials --responsibilities and characteristics of LEOs are likely to vary among the states. Nevertheless, somepatterns emerged from the survey. The demographic characteristics of LEOs are unusual for a groupof government officials. According to the survey results, the typical LEO is a whitewoman between 50 and 60 years old who is a high school graduate. She was elected to her currentoffice, works full-time in election administration, has been in the profession for about 10 years, andearns under $50,000 per year. She belongs to a state-level professional organization but not anational 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 thecommunity surveyed. About one-quarter of LEOs are men, about 5% belong to minority groups,40% are college graduates, and 8% have graduate degrees. They range from 24 to 89 years of age,and have served from 1 to 50 years. About one-third were appointed rather than elected to theirposts. Reported salaries range from under $10,000 to more than $120,000. About one-third belongto regional, national, or international professional organizations. The demographic profile of LEOs is unusual, especially for a professional group. While itis possible that some of the above results were statistical artifacts, it is likely that overall they reflectthe demographic characteristics of LEOs in general. If so, those characteristics appear to differ fromthose of other local government employees. For example, according to U.S. Census figures, whilewomen comprise a higher proportion of the local government workforce than men overall, (5) men comprise a higherproportion of local government general and administrative managers. (6) About 20% of those managersbelong to minorities. (7) The causes of those differences are not apparent. The patterns do not appear to be a result ofthe fact that most LEOs are elected, as the demographic characteristics of legislators appear to belargely similar to those for local government managers. (8) Potential policy implications of the demographic characteristicsof LEOs are discussed later in this report. The kinds of voting systems used in the United States have been changing over the past 20years. In particular, the computerization of voting has climbed dramatically during that period. Increasingly, jurisdictions have turned to computer-assisted voting systems -- especially optical scanand direct recording electronic (DRE) systems. In 1980, fewer than one-quarter of jurisdictions usedcomputer-assisted systems, with under 5% using optical scan and DRE systems. In contrast, morethan 75% used computer-assisted systems in 2004, with more than half of those using opticalscan. (9) Over that 20-yearspan, the most dramatic changes have been the seven-fold increase in the use of optical scan byjurisdictions, from about 7% in 1990 to more than 45% in 2004, and the doubling in DRE usebetween the 2000 and 2004 elections, from 10% to 20%. The number of jurisdictions usingpunchcards, lever machines, and hand-counted paper ballots was declining even before theenactment of HAVA. Use of these systems fell by more than half between 1990, when they wereused by more than 80% of jurisdictions, and 2004, with about 30% usage. The major alternativevoting systems in use at present are therefore optical scan and DRE. About half of jurisdictions with optical scan systems use precinctcount. In general, the survey results reflect the patterns found in other studies. (10) However, those studies,unlike the survey, did not distinguish between central-count and precinct-count systems. Thedistinction may be important from a policy perspective because for optical scan voting systems, onlythe precinct-count version provides for detection of improperly marked ballots by machine beforethe ballot is cast, allowing voters to correct mistakes such as overvotes (this is often called second-chance voting ). Central-count systems rely entirely on visual inspection by the voter todetect errors. About half (49.9%) of the jurisdictions surveyed use optical scan voting systems. Ofthose, 44.9% are central-count systems. (11) HAVA promotes but does not require the use of voting machinesthat detect errors. (12) LEOs are highly satisfied with whatever voting systems they areusing now. Most LEOs (more than 85% altogether) reported that they are highlysatisfied with their current voting systems and that the systems performed very well during theNovember 2004 election (more than 90%). There was little variation in the degree of satisfactionwith different kinds of voting systems, but the differences are illuminating: The most highly rated systems were precinct-count optical scan and DREs,which are the most compatible of current systems with the goals and requirements of HAVA. Ratings for these systems were not significantly different from each other. Both precinct-count optical scan and DRE systems were rated significantlyhigher than lever machines, hand-counted paper systems, and central-count optical scan with respectto overall satisfaction. There were no significant differences in the performance ratings of differentsystems for the November 2004 election, except between DREs, which were rated highest, andcentral-count optical scan, which was rated lowest. (13) While generally satisfied with their current systems, LEOs also indicated areas whereimprovements are needed. In rating a set of desired qualities of voting systems and the degree towhich their current voting system has those characteristics, the four features rated highest for boththe current and desired system were accuracy in counting, reliability, security, and ease of use by voters. Current systems were rated lowest in comparison to desired features for prevention of voter errors, ease of use by persons with disabilities, and machine error. Two features were rated higher as characteristics of the current voting system than they were indesirability: speed in vote counting, and cost of acquisition. The characteristics rated lowest for both current and desired systems were impact on different socioeconomic groups, and alternative-language capability. Not surprisingly, users of DREs and precinct-count optical scan systems rated them higherfor prevention of voter error than users of other systems rated theirs. DRE users also rated theirsystems higher than users of other systems did theirs for ease of use by disabled persons and formultiple-language use. Most jurisdictions acquiring new voting systems choose those thathelp voters avoid errors. The length of time that jurisdictions reported using theircurrent voting systems varied widely, from one year or less to more than 200 years. The average is12 years. (14) About onein six jurisdictions reported that they had acquired a new voting system since 2000, and half of thoseobtained DREs, which prevent overvotes and can help voters minimize unintentional undervoting. The remainder chose optical-scan systems, and more than three-quarters of those acquiredprecinct-count versions. About 40% of respondents indicated that they are likely to replace theircurrent voting system within the next five years, with similar proportions as above expecting tochoose DREs, precinct-count, and central-count optical scan systems. Overall, 85% of recentlyacquired or planned voting systems assist voters in preventing or detecting many ballot-markingerrors. LEOs tend to choose new voting systems with similarcharacteristics to what they use at present. LEOs might be expected to choose newvoting systems that behave in a similar manner to those they have been using. In particular,jurisdictions replacing punch-card and hand-counted paper systems might be more likely to chooseoptical scan, which is also paper-based. Those replacing lever machines might be expected tochoose DREs, since neither system uses paper ballots. The survey results support that hypothesis: Lever machine users are four times more likely to switch to DREs than to optical scan. Levermachine users who switch to optical scan systems are five times more likely to choose precinct-countthan central-count, which might be expected, as lever machines are also precinct-count systems. Users of punchcards are more likely to switch to optical scan systems than to DREs and are morelikely to choose precinct-count than central-count. The results for LEOs using hand-counted papersystems are not conclusive but suggest a preference for optical scan over DRE systems. LEOs have more concerns about the security and performance ofvoting systems they are not using themselves. While LEOs tend to be very satisfiedwith the systems that they are using, they have more reservations about other kinds. Average supportfor other systems was substantially less than that for the system in use. Punchcards, lever machines,and hand-counted paper ballots all received negative average ratings from those LEOs not usingthose systems. DREs and the two types of optical scan received positive ratings on average, withprecinct-count rated the highest. Central-count optical scan was rated a bit higher than DREs, whichis perhaps surprising given the finding discussed above that most jurisdictions planning to obtainnew systems expect to adopt either DREs or precinct-count optical scan. This issue was also examined more specifically for DREs and optical scan users. DRE usersrated their systems higher than non-DRE users in all specific performance categories tested --including security, reliability, usability, and cost -- except for multiple-language capability. Thesame patterns held in comparisons of optical-scan users and nonusers. (15) The reasons why nonusersrated alternative-language capability higher than users is not clear. DRE users do not support the use of voter-verifiable paper audittrails (VVPAT), but nonusers do. One of the most striking differences betweenusers and nonusers of DREs is in their attitudes toward the proposal that DREs be required toproduce paper ballots on which voters can verify their choices before the ballot is cast (Fig. 1) -- asystem also called voter-verifiable paper audit trail (VVPAT) . (16) Most DRE users (70%)do not support the use of VVPAT and most do not plan to add them to their voting systems, whereasabout 70% of LEOs not using DREs do support VVPAT. DRE users opposing VVPAT mostcommonly cited risk to voter privacy, printer reliability, and cost as the reasons. While lack of utilitywas not listed as an option, it was written in by 9% of those respondents. However, even thoserespondents (DRE users and nonusers) who expressed support for VVPAT were generally willing(65%) to spend only $300 or less for the feature. Figure 1. Support for Voter-Verified Paper Audit Trails (VVPAT) among LocalElection Officials Who Use DREs and Other Voting Systems Source: Texas A&M University, in coordination with the Congressional Research Service. Both DRE and optical scan users do not generally believe that their voting system softwareis vulnerable to attack by viruses or hackers. They also believe that current state and federalcertification procedures for software and hardware are adequate and that any security concerns withtheir systems can be adequately addressed by good security procedures. For both systems, nonusersare less confident in security and certification and more concerned about software vulnerability. However, they had greater concerns about the vulnerability of DREs than optical scan systems. Table 1. Importance of Different Factors in the Recent andPlanned Acquisition of New Voting Systems by Local Election Jurisdictions Note: Respondents were asked to rate the importance of each factor from 0 (not at all important)to 10 (extremely important). Recent systems are those acquired within the last three years. Plannedsystems are those expected to be acquired within five years. The number reported is the medianresponse. Source: Texas A&M University, in coordination with the Congressional Research Service. HAVA requirements and funding have been a major factor in the adoption of new votingsystems by LEOs. Among the 17% of jurisdictions reporting that they acquired voting systems since2000, about half reported receiving federal funding for that purpose, with about one-third reportingthat most of the funding was from federal sources. About 40% of respondents expect to acquire newsystems within the next five years. HAVA and state requirements and funding were listed as themost important factors in those decisions (Table 1). (17) Concerns about the accuracy or cost of the previous or currentsystems were among the least important factors. Most respondents who plan to replace their currentsystems expect to change all voting machines in the jurisdiction, but 42% anticipate acquiring onenew system per precinct to meet HAVA accessibility requirements. (18) Most LEOs consider themselves familiar with and knowledgeableabout HAVA. The requirements and other provisions of HAVA have substantialimpacts on local jurisdictions, and some requirements, such as provisional balloting, are aimeddirectly at local officials. It would therefore be expected that most local election officials would befamiliar with HAVA provisions, and that is in fact the case. Only 10% of LEOs reported a lack offamiliarity with the act, and more than half consider themselves to be very familiar with itsrequirements. Most LEOs support HAVA provisions. Whenasked about the specific provisions of HAVA, LEOs on average rated each of them positively (Table2), with the highest support given to the provision of federal funding and the lowest to theprovisional voting requirement. However, even with respect to federal funding, there werecomplaints, many relating to a perceived slowness in distribution of funds. LEOs were alsoconcerned that federal requirements would lead to higher operating costs that local jurisdictionswould not be able to afford. The results suggest that support is associated to some degree with ease of implementation,although none of the provisions was rated especially difficult or especially easy to implement onaverage. For example, the two provisions requiring implementation that received the highest levelsof support -- facilitating participation for military or overseas voters, and provision of informationfor voters -- were also rated as the easiest to implement, and provisional voting was considered thesecond most difficult. However, the disability access requirement received a substantially higherlevel of support than the identification requirement for certain first-time voters, even though theformer was considered the most difficult to implement while the latter was among the least difficult. A common remark about the disability requirement was the perception that it is unnecessary oronerous for jurisdictions with small populations. This argument was also made before HAVA wasenacted. Proponents of the accessibility provision counter that the mobility of U.S. society and thepresence of "hidden" disabled persons, as well as other factors, make the uniform application of thisprovision necessary. The creation of the federal Election Assistance Commission (EAC), which has beensomewhat controversial, was seen as an advantage by most LEOs, with only one in seven seeing itas a disadvantage. During the debate on HAVA, some observers argued that the EAC should bepermanent, and others that it should exist only until all requirements payments authorized in the actare distributed. In February 2005, the National Association of Secretaries of State took the positionthat the EAC should be temporary, although that position was tempered in subsequent statements. Provisional voting received the highest percentage of negative assessments, with 35% ofrespondents considering it a disadvantage, and 48% an advantage. It was the only category for whichresponses were strongly polarized, with many LEOs rating it a strong advantage and almost as manya strong disadvantage. It was not possible to determine for this report what factors might accountfor the polarized response. Table 2. Ratings of Individual HAVA Provisions as Advantageor Disadvantage Note: Respondents were asked to rate each provision on a scale of 1 (disadvantage) to 7 (advantage). The disadvantage column lists the percentage who rated a provision at 1, 2, or 3; the neutral columnthe percentage who chose 4; and the advantage column those who chose 5, 6, or 7. Source: Texas A&M University, in coordination with the Congressional Research Service. LEOs believe that HAVA is making some improvements in theelectoral process. The survey asked LEOs to rate the degree to which HAVA hasresulted in improvements in elections in their jurisdictions -- from no improvement to majorimprovement. Only 12% of LEOs responded that it led to no improvement, but only 7% respondedthat it led to major improvement. The average response was halfway between those two extremes. A comparison of how LEOs rated HAVA overall with other characteristics of the officials suggeststhat younger officials who are comfortable with technology and familiar with HAVA tended to besupportive of the legislation. Not surprisingly, those who believe that there is too much federalinvolvement in the election process tended to be less supportive. Less obvious was the finding thatcollege-educated LEOs also tended to be less supportive, although the effect was smaller than forthe other factors . About 23% of respondents provided suggestions for improving HAVA. The threemost common areas for improvement listed were federal funding, registration and voteridentification, and provisional ballots. There has been some debate and uncertainty about the role and influence of voting systemmanufacturers and vendors in the selection of voting systems by local jurisdictions. Some observershave argued that vendors have undue influence in what voting systems jurisdictions choose. Othersbelieve that such concerns are unwarranted. But little has been known of how LEOs view vendorsand their relationships with them. The results of the survey were mixed with respect to theimportance of vendors. LEOs appear to have high trust and confidence in them but do not rate themas being especially influential with respect to decisions about voting systems. LEOs trust and have confidence in the voting system vendors theywork with. Most jurisdictions using computer-assisted voting reported that theyhad interacted with their voting-system vendors within the last four years. (19) More than 90% of LEOsconsidered their voting system vendors responsive and the quality of their goods and services to behigh. They felt equally strongly that the recommendations of those vendors can be trusted. However, about a fifth of respondents thought that vendors are willing to sacrifice security forgreater profit, although 60% disagreed. Also, a quarter felt that vendors provide too many aspectsof election administration. LEOs do not believe that vendors are very influential in decisionsabout acquiring new voting systems. When LEOs were asked what sources ofinformation they relied on with respect to voting systems, state election officials received the highestaverage rating, with about three-quarters of LEOs indicating that they rely on state officials a greatdeal. Next most important were other election officials, followed by the EAC and advocates for thedisabled. About one-third stated that they rely on vendors a great deal, a level similar to that forprofessional associations. Only 2% rated vendors higher than any other source, whereas 20% ratedstate officials highest. Interest groups were rated lower than vendors, and political parties and mediareceived the lowest ratings. When LEOs were asked about the influence of different actors on decisions about votingsystems, the overall pattern of response was similar to that for information sources. Once again,state, local, and federal officials were judged the most influential, (20) and political parties andthe media the least, with vendors in between. An exception was that local nonelected officials wereconsidered less influential on average than vendors. Both voters and advocates for the disabled wererated as more influential on average than vendors. No LEOs rated vendors as more influential thanany other source. In contrast, 12% listed themselves as the most influential. About two-thirds ofLEOs believe that local elected officials should have more influence, about one-third that stateelected officials should, and about half believe that the federal government has too much influence. Fewer than 10% of LEOs believe that there is insufficient oversight of vendors by the federalgovernment and states, but about one in six believe that local governments do not exercise enoughoversight. About half of LEOs believe that the federal government exercises too much oversight ofvendors, about a third believe that states do, and about one in six that local governments do. As with any survey, care needs to be taken in drawing inferences from the results discussedabove. One question that could arise is whether the sample is representative of LEOs as a whole. Steps were taken in the design of the study to minimize the risk that the sample would not berepresentative. For example, simply drawing the sample at random from the nationwide pool ofelection administrators would have resulted in a disproportionately large number of jurisdictionsfrom New England and the upper Midwest, where elections are administered by townships ratherthan counties. (21) Toprevent such regional overrepresentation in the sample, no more than 150 officials were chosen tobe surveyed from each state. For states with fewer than 150 election jurisdictions, all were includedin the sample; for other states, 150 LEOs were chosen at random to be included in the sample. Overall, neither the sample design nor the characteristics of the responses suggest that the results areunrepresentative of the views and characteristics of local election officials. (22) Another potential caution for interpretation relates to the inherent limits of surveys such asthis one. In particular, there is no way to guarantee that the responses of the election officialscorrespond to their actual beliefs. In addition, there is no way to be certain that any particular beliefcorresponds to reality. The question of vendor influence provides an illustration of the possibilityfor disparity. For several reasons, LEOs might be reluctant to rate vendors as having the level ofinfluence on decisions about voting systems that they actually believe is the case. Alternatively, theymight believe that vendors have only modest influence whereas in fact the influence is much greater. The possibility of a disparity is raised in this case because LEOs indicated a very high level of trustand confidence in vendors but indicated that their influence was comparatively minor. A final caution involves how survey results might be used to inform policy decisions. Onthe one hand, the results could be used to support the shaping of policy in directions expressed byLEOs in their responses. In many cases, such policy changes might be appropriate. On the otherhand, it is possible that at least some of those desired changes would not in fact yield the mosteffective or appropriate policies. In such cases, the results might more constructively be used to helppolicymakers identify issues for which improvements in communication and understanding areneeded. The survey results may have policy implications for several issues at the federal, state, andlocal levels of government. Some issues that may be relevant for congressional deliberations arehighlighted below. Election Officials. Many observers havecommented 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 someelection officials, have called for increased professionalism in election administration. Some surveyresults suggest areas of potential professional improvement, such as in education and in professionalinvolvement at the national level. Congress could address this potential need by means such asfacilitating educational and training programs for LEOs and promoting professional certification ofelection officials by entities accredited through the EAC. The seemingly unique demographic characteristics of LEOs as a group of governmentofficials may have other policy implications, but they are not altogether clear. However, someobservers may argue that efforts should be undertaken to ensure that LEOs reflect the diversity ofthe workforce or voting population as a whole, especially with respect to minority representation. Voting Systems. Since the enactment of HAVA,controversy has arisen over whether DRE voting systems are sufficiently secure and reliable. Thesurvey revealed that LEOs who have experience with DREs are very confident in them and do notgenerally support the addition of a voter-verified paper audit trail (VVPAT) to address securityconcerns. However, LEOs using other systems are much less confident in DREs and moresupportive of VVPAT. The strongly dichotomous results suggest that as Congress considers whetherto require the use of VVPAT or similar security mechanisms, it might be useful to determine whetherDRE users are overconfident in the security of their systems or, alternatively, whether nonusers needto be better educated about the reliability and security of DRE systems. (23) The Help America Vote Act (HAVA). Thesurvey results suggest that HAVA is in the process of achieving several of its policy goals. Thegeneral support of HAVA provisions -- including those such as the creation of the EAC and theprovisional ballot requirement that have been somewhat controversial -- implies that LEOs are inagreement with the goals of the act and are active partners in its implementation. The overwhelmingchoice of new voting systems that assist voters in avoiding errors indicates that the HAVA goal ofreducing avoidable voter error is in the process of being met. The areas of concern expressed byLEOs -- such as how to meet the costs of ongoing implementation of HAVA requirements -- raiseissues that Congress may wish to address as it considers HAVA appropriations and reauthorization. The close relationship between LEOs and the vendors of their voting systems seems unlikelyto change as a result of HAVA. However, with the codification by HAVA of the voting systemstandards and certification processes, the influence of the federal government in decisions about newvoting systems might be expected to increase in relation to that of vendors and others. However, theinfluence of state elected officials seems unlikely to decline, especially given the responsibilities thatHAVA places on state governments with respect to election administration. Research Needs. Scientific opinion surveys oflocal election officials are rare, (24) and additional research may be useful to address some of thematters raised by this study. For example, a survey of state election officials might provide usefulinformation and might additionally be helpful in assessing the most appropriate federal role inpromoting 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 adjustingrequirements to fit the needs of smaller jurisdictions. To determine what, if any, such adjustmentswould be appropriate, it may be useful to have specific information on how the needs andcharacteristics of different jurisdictions vary with size -- something that was beyond the scope of thissurvey. It could also be useful to identify how the duties of LEOs vary with size and othercharacteristics of the jurisdiction. In many jurisdictions, election administration is only part of theLEO's job. It is not known to what degree these other responsibilities might affect electionadministration -- negatively or positively. Finally, this survey provided only one snapshot of LEO characteristics and perceptions. Itmight be beneficial to perform similar surveys periodically to identify trends and explore newquestions and issues. | There are more than 9,000 local election jurisdictions in the United States. Local electionofficials (LEOs) are responsible for administering elections in those jurisdictions. LEOs aretherefore critical to the successful implementation of the Help America Vote Act of 2002 (HAVA, P.L. 107-252 ) and state election laws, but there has been little objective information on theperceptions and attitudes of those officials about election reform. This report, which will not beupdated, discusses the results of a recent scientific survey of LEOs. The findings may be useful toCongress in considering funding and possible reauthorization of HAVA. The demographic characteristics of LEOs are unusual for a group of government officials. Almost three-quarters are women, and 5% belong to minority groups. Most do not have a collegedegree, and most were elected to their positions. Some survey results suggest areas of potentialprofessional improvement, such as in education and in professional involvement at the national level. Over the past 20 years, jurisdictions have turned increasingly to computer-assisted votingsystems -- especially optical scan and direct recording electronic (DRE) systems. The mostimportant factors reported by LEOs in the acquisition of new systems are federal and staterequirements and funding. HAVA encourages but does not require systems that detect voter error,but it does require that voting machines be available that are fully accessible to persons withdisabilities. About half of jurisdictions with optical scan systems use central-count, which cannothelp voters to correct mistakes before casting the ballot. However, most jurisdictions acquiring newvoting systems are choosing either precinct-count optical scan or DREs, both of which can helpvoters avoid errors. LEOs are generally highly satisfied with whatever voting systems they are using now. Theyhave less confidence in the performance and security of other systems. DRE users generally opposethe use of voter-verified paper audit trails (VVPAT) for DREs, but users of other systems favor it. This result could mean that users are overconfident in DREs or that nonusers are insufficientlyknowledgeable about them. LEOs also tend to favor new systems that have characteristics similarto what they have been using -- for example, lever machine users tend to favor DREs. LEOs trustthe voting system vendors they work with but do not believe that those vendors are very influentialin decisions about acquiring new voting systems. LEOs consider themselves knowledgeable about and familiar with HAVA. They supportindividual provisions of the act, most strongly for federal funding and least strongly for provisionalballoting. To some extent, provisions rated more difficult to implement receive less support. MostLEOs believe that HAVA has resulted in some improvement in elections in their jurisdictions. Those rating HAVA higher overall tend to be younger, more comfortable with technology, and morefamiliar with the act. The areas for improvement of HAVA most commonly listed are federalfunding and the requirements for registration, voter identification, and provisional balloting. |
Enacted in response to concerns that the United States could lose its historical advantages in scientific and technological innovation, the 2007 America COMPETES Act ( P.L. 110-69 ) sought "to invest in innovation through research and development, and to improve the competitiveness of the United States." Containing eight titles and dozens of provisions affecting at least a half-dozen federal agencies, the principal policy contributions of the America COMPETES Act were the establishment of the doubling path policy for certain federal physical sciences and engineering (PS&E) research accounts and the authorization (or reauthorization) of various federal science, technology, engineering, and mathematics (STEM) education programs. Major provisions of the America COMPETES Act, and its successor, the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ), have expired. Most of the funding authorizations in the America COMPETES Act spanned the three-year period between FY2008 and FY2010. Congress extended these authorizations for a second three-year period—through FY2013—as part of the 2010 reauthorization. Congress has not enacted legislation to authorize funding for COMPETES Acts programs and agencies since then. Bills were introduced, but not enacted, in the 113 th Congress. Legislators in the 114 th Congress have also moved to reauthorize the COMPETES Acts. The America COMPETES Reauthorization Act of 2015 ( H.R. 1806 ) and the America Competes Reauthorization Act of 2015 ( H.R. 1898 ), as well as several stand-alone bills containing selected provisions from these reauthorization measures, have been introduced and, in some cases, passed by the House. In the Senate, Members have introduced a bill called the Energy Title of America COMPETES Reauthorization Act of 2015 ( S. 1398 ). This report provides an overview of the COMPETES Acts for readers seeking background and legislative context. It was written to serve as both a primer and a reference document. It includes a description and legislative history of the acts, a summary of the broad policy debate, and an examination of the implementation status of selected COMPETES-related programs and policies. This report also provides analysis of major bills to reauthorize the COMPETES Acts from the 113 th and 114 th Congresses. For authorized and appropriated funding for COMPETES-related accounts through FY2013, see CRS Report R42779, America COMPETES Acts: FY2008 to FY2013 Funding Tables , by [author name scrubbed]. The contemporary federal conversation about scientific and technological advancement generally centers on concerns about prosperity and security. The possibility that the United States has or could lose its historic strengths in scientific and technological advancement—and therefore has or could lose the prosperity and security attributed to that advancement—has become the central rationale for a portfolio of otherwise disparate federal programs, policies, and activities. Sometimes identified as "innovation" or "competitiveness" policy, these programs, policies, and activities address education, tax, patent, immigration, economic development, research and development, telecommunications, and other policy issues—either alone or in combination—that policymakers perceive as critical to the U.S. scientific and technological enterprise. The 2007 America COMPETES Act ( P.L. 110-69 ) was an example of this type of policymaking. Designed to "invest in innovation through research and development, and to improve the competitiveness of the United States," the law authorized $32.7 billion in appropriations for certain federal PS&E research accounts, STEM education activities, and innovation-related programs and policies between FY2008 and FY2010. In particular, the law established what is commonly referred to as the "doubling path policy" for PS&E research. This policy provided annual increases in authorized funding for the National Science Foundation (NSF), the Scientific and Technical Research and Services (STRS) and Construction of Research Facilities (CRF) accounts at the National Institute of Standards and Technology (NIST), and the Office of Science account at the Department of Energy (DOE)—with the implicit goal of doubling combined funding for these accounts over a seven-year period (from an FY2006 baseline). Some of the STEM education and innovation-related programs and policies authorized by the act include the Math Now program at the Department of Education (ED), the Manufacturing Extension Partnership program at NIST, and the Advanced Research Project Agency-Energy (ARPA-E) at DOE. The America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) reaffirmed the central policy thrusts of the America COMPETES Act. It, too, sought to "invest in innovation through research and development, and to improve the competitiveness of the United States." However, under the reauthorization, funding for the PS&E doubling path accounts grew more slowly—they would have doubled over an 11-year period instead of a 7-year period—and STEM education provisions focused more on college and university-level programs rather than on programs targeting earlier grades. Other provisions in the America COMPETES Reauthorization Act of 2010 allow federal agencies to offer innovation prizes and direct the Department of Commerce (DOC) to establish a new loan guarantee program for manufacturers, as well as a regional innovation program. The reauthorization also repealed certain STEM education program authorizations, particularly those that did not receive appropriations between FY2008 and FY2010 (e.g., Math Now). Overall, the America COMPETES Reauthorization Act of 2010 authorized $45.5 billion in appropriations between FY2011 and FY2013. Congressional debate about the America COMPETES Act and the America COMPETES Reauthorization Act of 2010 was substantively similar. Advocates for the COMPETES Acts argued that additional support for R&D in the physical sciences and engineering, and in STEM education, would lead to innovation and improve U.S. competitiveness. They noted that many experts consider innovation, particularly technological innovation, to be a driving force behind U.S. global economic competitiveness and national prosperity. As such, many observers consider innovation a crucial national asset. Proponents of the acts further asserted that the United States is at risk of losing its innovation advantage. They argued that a combination of external pressures and internal weaknesses threatens the U.S. global position. For example, they noted that changes in the industrial bases and educational attainment rates of rapidly developing countries like China and India have led many analysts to conclude that these countries are able to compete for a growing percentage of the world's high-value jobs and industries. These global changes, advocates asserted, appeared to be accompanied by perceived weaknesses in areas that have long been U.S. strengths. In particular, the acts' proponents raised concerns about federal funding for research in the physical sciences and engineering and about the education and training of U.S. scientists, engineers, and technicians. This case was more fully laid out in the National Academies publication Rising Above the Gathering Storm , which is widely believed to have contributed to the shape and scope of the America COMPETES Act. The argument for, as well as major provisions in, the America COMPETES Act can also be traced to a 2006 proposal by President George W. Bush, known as the American Competitiveness Initiative (ACI). Opposition to the acts tended to fall into three broad categories: (1) questions about fundamental assumptions, (2) preferences for alternative policies or approaches, and (3) cost. For example, some analysts disputed fundamental assumptions driving provisions designed to increase the number of STEM graduates, arguing that there is a lack of evidence of extensive STEM workforce shortages and that the bigger challenge is a dearth of attractive employment opportunities in STEM fields. Other analysts preferred to use regulatory and tax policy tools to achieve the acts' objectives, arguing that direct federal investment in R&D in the physical sciences and engineering and in STEM education could distort markets. Finally, opponents raised concerns about costs, arguing that proposed funding increases were too expensive in light of the federal deficit and debt. The following sections describe enactment of, and selected legislative action related to, the COMPETES Acts. The America COMPETES Act ( H.R. 2272 , then called the 21 st Century Competitiveness Act of 2007) was introduced in the House and referred to the House Committee on Science and Technology on May 10, 2007. As introduced, the bill represented a package of five bills that had previously passed the House: H.R. 362 (10,000 Teachers, 10 Million Minds Science and Math Scholarship Act), H.R. 363 (Sowing the Seeds through Science and Engineering Research Act), H.R. 1867 (National Science Foundation Authorization Act of 2007), H.R. 1868 (Technology Innovation and Manufacturing Stimulation Act of 2007), and H.R. 1068 (To Amend the High-Performance Computing Act of 1991). H.R. 2272 passed the House by voice vote on May 21, 2007. The Senate received H.R. 2272 and on July 19, 2007, struck all language after the enacting clause and substituted the language of S. 761 (America COMPETES Act). The Senate then passed H.R. 2272 , as amended, by unanimous consent. The House and Senate agreed to a conference, and on August 1, 2007, the conferees submitted a conference report ( H.Rept. 110-289 ) containing both the agreed-upon bill text and a joint explanatory statement. In final form, H.R. 2272 (America COMPETES Act) passed by unanimous consent in the Senate and by a vote of 367-57 in the House. The President signed the bill, which became P.L. 110-69 , on August 9, 2007. The America COMPETES Reauthorization Act of 2010 ( H.R. 5116 ) was introduced in the House on April 22, 2010. The bill was referred to the House Committee on Science and Technology, where it was amended and reported ( H.Rept. 111-478 , Part 1). The House passed H.R. 5116 on May 28, 2010, by a vote of 262-150. The Senate received H.R. 5116 and referred it to the Senate Committee on Commerce, Science, and Transportation, which discharged the bill by unanimous consent on December 17, 2010. The full Senate replaced the House-passed language in H.R. 5116 with its version of the bill ( S.Amdt. 4843 ) and passed the bill as amended by unanimous consent on December 17, 2010. H.R. 5116 was returned to the House, which voted 228-130 to agree to the Senate amendment on December 21, 2010. The President signed H.R. 5116 , which became P.L. 111-358 , on December 28, 2010. Overall, neither the America COMPETES Act nor the America COMPETES Reauthorization Act of 2010 were fully funded or implemented. In 2013, the Government Accountability Office (GAO) released a report on implementation of the acts. In that report, GAO found that existing programs with defined (or specific) appropriations authorizations generally continued to operate, though not typically at authorized funding levels. The implementation of new programs was less consistent. According to GAO, the COMPETES Acts established 28 new programs with defined appropriations authorizations. Of these, one new program was fully implemented (ARPA-E) and five new programs were partially implemented as of May 2013. Less is known about the disposition of policy provisions that did not receive a specific funding authorization in the acts. The outcomes of such provisions are typically harder to assess because agencies may not explicitly report all implementation actions. However, insight into agency activities is possible in some cases. The following sections describe the disposition and implementation of selected COMPETES Acts provisions, including those with and without defined funding authorizations. They provide information on (1) the status of the doubling path for physical sciences and engineering research funding, (2) implementation of certain STEM education provisions, and (3) the implementation status of certain other provisions of ongoing interest to Congress, including the ARPA-E, data access, and innovation inducement prize provisions. As discussed in previous sections, the America COMPETES Act and the America COMPETES Reauthorization Act of 2010 authorized a doubling path policy for certain federal PS&E research accounts. Because federal appropriations are distributed to agencies and programs, and not by scientific field, the PS&E doubling effort targeted certain federal agency accounts known to support PS&E research. These accounts included the NSF (total), the STRS and CRF accounts at NIST, and the Office of Science account at the DOE—collectively, the "targeted accounts." For the most part, actual appropriations to the targeted accounts did not reach authorized levels during either of the COMPETES Acts' authorization periods. (See Figure 1 .) Under the America COMPETES Act, combined funding for the targeted accounts was authorized to increase at a compound annual growth rate of 10.4% (between the FY2006 baseline and FY2010, the final year under P.L. 110-69 ). If actual and authorized appropriations had grown at the 10.4% pace, funding for the targeted accounts would have doubled in seven years. That is, combined funding for the targeted accounts would have increased to approximately twice the FY2006 level in FY2013. However, actual appropriations to the targeted accounts over the America COMPETES Act's authorization period increased at a compound annual growth rate of 6.3%. At this pace, funding for the targeted accounts would have doubled in about 11 years. Following the trend in actual appropriations during the first authorization period, the America COMPETES Reauthorization Act of 2010 authorized funding increases at a compound annual growth rate of 6.4% (between the FY2006 baseline and FY2013, the final year under P.L. 111-358 ). If actual and authorized appropriations had grown at this pace, funding for the targeted accounts would have doubled over about an 11-year period. In other words, combined funding for the targeted accounts would have increased to approximately twice the FY2006 level in FY2017. However, actual appropriations over the reauthorization act's authorization period increased at a compound annual growth rate of 3.1%. At this pace, it would take about 22 years for the targeted accounts to double. Policymakers have sought to double funding for various federal research accounts on several occasions. President Ronald Reagan, for example, proposed a doubling of the NSF budget in FY1987. The 2002 NSF authorization ( P.L. 107-368 ) also sought to double funding for the NSF over a five-year period. Neither the Reagan effort nor the 2002 NSF authorization act resulted in a doubling of NSF's budget within the proposed time frames. An effort to double funding for the National Institutes of Health (NIH) resulted in a nearly 100% increase in that research agency's budget. (NIH funding increased from $13.7 billion in FY1998 to $27.1 billion in FY2003.) Implementation of the STEM education provisions from both the America COMPETES Act and the America COMPETES Reauthorization Act of 2010 has been mixed. Certain preexisting programs appear to have continued to operate, while most new programs appear to have been either partially implemented or not implemented at all. The following sections highlight some of the STEM education provisions from the COMPETES Acts and describe agency efforts to implement authorized activities. By budget authority, the largest STEM education account in the COMPETES Acts was the main education account at NSF (called Education and Human Resources or E&HR). Although funding for E&HR did not reach the levels authorized by the COMPETES Acts, it increased by 20% between FY2007 ($696 million), which was the year before the first COMPETES-related authorization for this account, and FY2013 ($835 million), the last authorized year under the COMPETES Acts. STEM education funding at the NSF—the bulk of which is in E&HR—provided about a third of annual federal STEM education funding during the COMPETES Acts' authorization periods. Overall, the federal STEM education effort appears to have changed substantially since the enactment of the America COMPETES Reauthorization Act of 2010. In FY2014 and FY2015, the Obama Administration used the federal budget process to propose significant changes to the federal STEM education portfolio. Although overall funding levels stayed about the same, the number of programs and activities has been significantly reduced. For example, in FY2012 (enacted), the federal STEM education effort was estimated at 229 investments worth about $2.9 billion. A comparable assessment of the federal effort in FY2015 (estimated) was 129 investments, totaling $2.9 billion. It is not clear what impact these changes had, if any, on COMPETES-authorized agencies and programs. In general, the America COMPETES Act ( P.L. 110-69 ) included more kindergarten-to-grade 12 (K-12) education provisions than the America COMPETES Reauthorization Act of 2010. However, many of the K-12 STEM education provisions in the America COMPETES Act were not funded, and several were later repealed by the 2010 reauthorization. Repealed programs include the Pilot Program of Grants to Specialty Schools for Science and Mathematics and Experiential-Based Learning Opportunities at the DOE; as well as the Math Now for Elementary School and Middle School Students Program, Foreign Language Partnership Program, and Mathematics and Science Partnership Bonus Grant at ED. Of the ED programs with defined funding authorizations in the America COMPETES Act, only one appears to have received defined appropriations: Teachers for a Competitive Tomorrow (TCT). TCT received approximately $2.2 million in funding per fiscal year between FY2008 and FY2010. The FY2011 appropriations act ( P.L. 112-10 ) provided no funding for TCT. Congress has not appropriated defined funding for TCT since then. Although Congress did not provide defined appropriations for the education alignment and data systems provisions in the America COMPETES Act—which authorized appropriations of up to $120 million for these activities in FY2008, as well as such sums as may be necessary in FY2009—ED propagated the education data system elements included in P.L. 110-69 , Section 6401, through its Statewide Longitudinal Data System Grant Program. The degree to which DOE implemented its America COMPETES Act-authorized STEM education provisions is not clear. The department has stated that some of its activities were consistent with the law, but these activities are not easily traced to specific provisions in P.L. 110-69 . Further, DOE has terminated some of the activities that it had previously identified as consistent with the America COMPETES Act—such as the DOE Academies Creating Teacher Scientists (DOE ACTS) program. Prior to the program's termination, DOE asserted that the DOE ACTS program was consistent with the Summer Institutes program authorized by the America COMPETES Act (Section 5003). NSF's implementation of America COMPETES Act-authorized STEM education programs was also mixed. The Mathematics and Science Partnership and the Robert Noyce Teacher Scholarship programs—both of which were preexisting programs reauthorized by the America COMPETES Act—continued to operate between FY2008 and FY2013. However, the Hispanic-Serving Institutions and Laboratory Science Pilot programs do not appear to have been implemented. NSF initiated the Professional Science Master's (PSM) program using American Recovery and Reinvestment Act (ARRA) funding in FY2010, but the program does not appear to have received funding since then and GAO reports that the program shut down. NSF asserts that existing programs serve the same or similar functions as the PSM. In general, the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) focused more on postsecondary STEM education and on governance issues than did the America COMPETES Act. Section 101 of the 2010 reauthorization, for example, directed the National Science and Technology Council (NSTC) to establish a Committee on Science, Technology, Engineering, and Math Education (Co-STEM) to survey, coordinate, develop, and implement a strategy for the federal STEM education effort. The NSTC established Co-STEM in February 2011 and has since produced an inventory of federal STEM education programs, a report on its efforts to coordinate the federal STEM education effort, and a five-year strategic plan. In March 2015, the Office of Science and Technology Policy (OSTP) published a progress report describing these and related Co-STEM activities. The progress report included an updated federal STEM education program inventory which provided funding levels for FY2014 (enacted) and FY2015 (requested). NSF mostly implemented provisions from the America COMPETES Reauthorization Act of 2010 that required it to provide 50% of program funds for the Graduate Research Fellowship (GRF) and Integrative Graduate Education and Research Traineeship (IGERT) from the Research and Related Activities (R&RA) account between FY2011 and FY2013. However, it is unclear if NSF treated these programs equally, as the act also required. The annual percentage change in funding for the GRF differed from that of the IGERT for each fiscal year between FY2011 and FY2013. It is unclear if this is what Congress intended when it enacted the equal treatment provisions. With respect to provisions authorizing the STEM Training Grant Program, NSF does not appear to have sought funds in its annual budget justifications to establish this program or to have otherwise implemented this program during the authorization period. The STEM Training Grant Program is widely believed to be both modeled on, and intended to provide federal support for postsecondary replication of, the University of Texas's UTeach program. UTeach, which was launched in 1997, was first funded by NSF in 2000 through the now-defunct Teacher Preparation Program. NSF does not appear to have established a program targeted specifically at UTeach activities and projects, but it funds similar activities through the Robert Noyce Teacher Scholarship and related STEM education programs. The Department of Education has also provided funding for UTeach replication. UTeach Institute administrators anticipate that there will be 44 UTeach programs in 21 states and the District of Columbia beginning in spring 2015. In addition to the doubling path policy and STEM education provisions in the COMPETES Acts, both bills included provisions that sought to address a variety of innovation-related policy issues. The following sections provide information about the implementation status of some of these provisions—including those related to ARPA-E, innovation inducement prizes, and public access to federally funded research. The America COMPETES Act established ARPA-E at the Department of Energy. As enacted, P.L. 110-69 prescribes ARPA-E's administrative structure and leadership; its relationship to other DOE programs; and its responsibilities, reporting requirements, and evaluation. The America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 , Section 904) reauthorized ARPA-E and made certain program changes. As amended, the ARPA-E statute requires the director of ARPA-E to take a number of steps designed to ensure that research projects supported by the agency focus on areas that industry is not likely to undertake. Other provisions in Section 904 address administrative issues (e.g., staff, award authority) and add "research and development (R&D) in advanced manufacturing process and technologies for domestic manufacturing of novel energy technologies" to the list of the director's responsibilities. Section 904 also adds "identifying mechanisms for commercial application of successful energy technology development projects, including through establishment of partnerships between awardees and commercial entities" to the list of staff responsibilities. The DOE has implemented ARPA-E. The agency issued its first open funding solicitation in 2009 using ARRA funds. Congress first provided regular appropriations to ARPA-E in FY2011 ($180 million, actual). The energy agency received $251 million in FY2013, the final year of authorization under COMPETES. ARPA-E asserts that it has funded over 400 energy technology projects since 2009. Some analysts have questioned whether ARPA-E projects have focused on areas that industry is not likely to undertake, as required by Section 904. However, a 2012 GAO report on ARPA-E found that "most ARPA-E-type projects could not be funded solely by private investors." The GAO report also identified 18 of 121 award winners that had received prior private sector investment. According to GAO, the agency took steps to identify and understand how this prior funding related to currently proposed projects and now requires applicants to explain why private investors are not willing to fund their proposals. GAO further determined that 91 of 121 winning projects involved technological concepts that had not been proven in a laboratory setting, noting that the private sector may consider projects too risky to invest in at this stage. GAO recommended that ARPA-E provide guidance with a sample response to assist applicants in providing information on sources of private funding for proposed ARPA-E projects, require that applicants provide letters or other forms of documentation from private investors that explain why investors are not willing to fund the projects proposed to ARPA-E, and use venture capital funding databases to help identify applicants with prior private investors and to help check information applicants provide on their applications. The House Committee on Science, Space, and Technology, Subcommittee on Investigations and Oversight, held a hearing on the above-described GAO findings in January 2012. The majority staff report and Subcommittee's ranking Member appeared to disagree on the extent to which private industry might fund ARPA-E projects. The majority staff report suggested that there may be "many exceptions" to ARPA-E's general practice of funding research that is too risky for private investment. The Subcommittee's ranking Member, on the other hand, reiterated and expressed support for GAO's general conclusions and stated that the exceptions identified in the majority staff report were "cherry-picked." ARPA-E former director, Arun Majumdar, who testified on behalf of ARPA-E at the hearing, generally endorsed GAO's findings and stated Importantly, GAO did not identify a single instance in which private investors would have funded an ARPA-E project within the same, accelerated timeframe (i.e., 3 years or less). This demonstrates that selected projects were appropriate and fulfilled a critical criterion and objective of the agency. It is not clear whether ARPA-E implemented Section 904 provisions relating to R&D in advanced manufacturing process and technologies for the domestic manufacturing of novel energy technologies. Although ARPA-E does not appear to have operated a specific program focused solely on advanced domestic manufacturing during the authorization period, some of its projects seek to develop manufacturing capabilities. ARPA-E's capacity for technology transfer has also been of interest to policymakers. In a 2011 audit, the DOE's Inspector General stated that ARPA-E had not established a systematic approach to ensure that it was meeting the technology transfer and outreach requirement of the COMPETES Act that it spend 2.5% of its budget on technology transfer and outreach activities. The Inspector General also stated that ARPA-E was working to address the auditing office's concerns about its commercialization and technology transfer activities, noting More recently, in the five funding opportunity announcements it issued in April 2011, ARPA-E included a requirement for recipients to spend a minimum of 5 percent of their awards on technology transfer and outreach and to track and report to ARPA-E on such expenditures. Two other external researchers who assessed ARPA-E in 2011 concluded that the agency's program managers "have adopted a 'hands-on' relationship with award recipient" and that they "promote contacts with venture and commercial funding." ARPA-E uses a variety of mechanisms designed to help move technologies into the marketplace. For example, ARPA-E's Technology-to-Market team assists project teams in constructing and implementing their Technology-to-Market plans. The agency also hosts an annual Innovation Summit that is designed to move technologies out of the lab and into the marketplace. At the 2015 ARPA-E summit, the agency announced that 34 projects had received $850 million in follow-on funding from the private sector, after an initial aggregate ARPA-E investment of approximately $135 million. In 2012, the agency joined with NSF to allow its project teams to participate in NSF's Innovation Corps (I-Corps) program. I-Corps program participants form entrepreneurial-academic teams that follow an accelerated version of Stanford University's Lean LaunchPad course (among other I-Corps-specific elements), with the ultimate goal of teaching participants how to identify product opportunities that can emerge from academic research. Although prizes have a long history as innovation inducement tools, some analysts suggest that their use is increasing. The federal government is among the types of entities (including philanthropic organizations and other governmental bodies) that use prizes to induce innovation. Before passage of the America COMPETES Reauthorization Act of 2010, only certain federal agencies had the authority to initiate prize competitions. Section 105 of the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) provided federal agencies with broad authority to carry out programs designed to stimulate innovation through prize competitions. Although the authorization is only five years old, federal agencies' use of innovation inducement prizes authorized under Section 105 is relatively well documented. OSTP has published annual reports on the implementation of Section 105 as required by the America COMPETES Reauthorization Act of 2010. In its May 2014 progress update, OSTP reported that the executive branch was initiating prize competitions under the authority of Section 105 and that it had issued guidance to agencies and created a contract vehicle, as required by the provision. In its April 2015 progress report, OSTP further noted that federal agencies had initiated at least 100 prize competitions at 30 agencies specifically under the authority of Section 105. With the legal authority for federal innovation inducement prizes established for most agencies, and the evidence that agencies are initiating competitions, focus has turned to implementation. OSTP states that prizes have enabled federal agencies to Pay only for success and establish an ambitious goal without having to predict which team or approach is most likely to succeed; Reach beyond the "usual suspects" to increase the number of solvers tackling a problem and to identify novel approaches, without bearing high-levels of risk; Bring out-of-discipline perspectives to bear; and Increase cost-effectiveness to maximize the return on taxpayer dollars. Other observers, examining a large universe of federal innovation inducement prize activities conducted between 2010 and 2014, identified a wide range of still-evolving competition practices and experimentation in federal prize design. They found a mix of desired outcomes and competition goals, as well as "growth in the pursuit of bolder outcomes that require more complex design." They also asserted that the most ambitious prize competition outcomes, which they defined as "market stimulation" and "inspiring transformation," made up a small percentage (2%) of the historical competitions examined. Questions about the design and management of innovation contests appear frequently in the literature on innovation inducement prizes. For example, one study focused on whether (and in what ways) the number of contestants affects the outcome of innovation contests. This study found both positive and negative effects from so-called open innovation contests and suggested that open contests may be most appropriate for problems with a high degree of uncertainty. Another scholar raised questions about the design of innovation inducement competitions, including whether policymakers ought to condition prize payments on a market test (e.g., award the prize only if consumers purchase the technology) and whether prizes can be designed (via pricing conditions) to ensure widespread access to the technologies developed. A third scholar assessed prizes as a policy tool, identifying a wide range of issues for policymakers to consider, such as trade-offs and complementarities between prizes and other innovation policy tools (e.g., patents, grants), as well as prize design considerations and conditions (e.g., rules, outcomes, incentives, deadlines). Several scholars have noted that publicity appears to be a key non-monetary motivation in prize competitions. At least one observer has highlighted the conditions under which prizes may be a uniquely effective tool and suggested best practices for their use. Other observers have sought to provide practical guidance on strategic considerations and tactical guidance in prize design. Analysts who object to government-sponsored inducements (in general) may view prizes as unnecessary, arguing that consumer demand and the potential for profit are sufficiently powerful motivators. Section 103 of the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) directed the National Science and Technology Council (NSTC) to establish an Interagency Public Access Committee to "coordinate federal science agency research and policies related to the dissemination and long-term stewardship of the results of unclassified research, including digital data and peer-reviewed scholarly publications, supported wholly, or in part, by funding from the federal science agencies." According to the NSTC, the council established two working groups pursuant to Section 103. The council published a progress report on the working groups' activities in March 2012. The report stated that the working groups focused on scholarly publications and digital data and that they issued a series of requests for comments to collect ideas about how to facilitate data sharing and public access. Commenters varied in their opinions about how to implement increased access. In February 2013, OSTP Director John P. Holdren issued a government-wide policy memorandum directing each federal agency with over $100 million in annual R&D expenditures to develop a plan to increase public access to the results of research it funds. The memorandum stated that these plans must be consistent with the objectives set out in the memorandum, which were designed to comply with Section 103. As per the memorandum, agencies were to submit draft plans to OSTP within six months—i.e., on or about August 22, 2013—at which point OSTP and the Office of Management and Budget (OMB) would review the draft plans and provide guidance. In a November 13, 2014, letter to congressional appropriators, Director Holdren reported that OSTP and OMB had given final approval to two agency plans (DOE and an unnamed agency) and that other federal agency plans remained in the revise-review stage of the approval process. However, Director Holdren's letter also stated that most agencies would "be releasing their public access plans over the next three months." At least three bills have been introduced to reauthorize selected provisions of the COMPETES Acts in the 114 th Congress: H.R. 1806 , H.R. 1898 , and S. 1398 . Both H.R. 1806 and H.R. 1898 include provisions authorizing activities and appropriations for physical sciences and engineering research, STEM education, and related programs at multiple COMPETES Acts agencies. S. 1398 focuses on the Office of Science and ARPA-E within the Department of Energy. The following sections summarize these bills and highlight some of their provisions. Information about efforts to reauthorize in the 113 th Congress is included in the Appendix . As passed by the House, the America COMPETES Reauthorization Act of 2015 ( H.R. 1806 ) seeks to provide for technological innovation through the prioritization of Federal investment in basic research, fundamental scientific discovery, and development to improve the competitiveness of the United States, and for other purposes. H.R. 1806 would authorize appropriations for NSF, NIST, and the DOE Office of Science and would authorize various research, STEM education, and innovation-related programs and activities (including ARPA-E) at various federal agencies. H.R. 1806 would also authorize appropriations for selected other research activities at the Department of Energy—including electricity delivery and energy reliability R&D, nuclear energy R&D, energy efficiency and renewable energy R&D, and fossil energy R&D. Most of the appropriations authorizations in H.R. 1806 are for two years (FY2016 and FY2017). Although many of the provisions in H.R. 1806 are similar to provisions in H.R. 4186 and H.R. 4869 from the 113 th Congress, the bills are not identical. H.Rept. 114-107 (parts 1 and 2) accompanied H.R. 1806 when it was reported from the House Committee on Science, Space, and Technology on May 8, 2015. The House passed H.R. 1806 , as amended, on May 20, 2015 by a vote of 217-205. Funding for the Targeted Accounts. H.R. 1806 would authorize appropriations to NSF, NIST, and the DOE Office of Science for FY2016 and FY2017. Table 1 provides the FY2014 actual, current, or enacted funding levels as reported by each agency; the FY2015 enacted levels; the Administration's FY2016 request; and the FY2016 and FY2017 authorization levels. Explanatory materials associated with H.R. 1806 do not mention the doubling path policy or targeted accounts; rather, they highlight provisions authorizing year-over-year increases. Accordingly, Table 1 shows the compound annual growth rate (CAGR) in funding for these agencies under H.R. 1806 , treating FY2015 enacted appropriations as the baseline and FY2017 as the final year. STEM Education. Among other things, H.R. 1806 seeks to address governance concerns about the federal STEM education effort. It includes provisions to establish a STEM Education Advisory Panel to advise the President and other policymakers, update the duties of NSTC's Committee on STEM Education, and establish a STEM Education Coordinating Office at the NSF. Additionally, H.R. 1806 contains language that would authorize informal STEM education activities and make changes to the Noyce program, among other things, at NSF. The bill would also clarify that the definition of STEM education includes computer science (for the purposes of the act) and would require NSF to establish the Hispanic-Serving Institutions program that was authorized by the 2007 America COMPETES Act. Other Provisions. Other provisions in H.R. 1806 would provide for coordination of international science and technology partnerships and would establish the position of U.S. Chief Technology Officer within OSTP. The bill also includes provisions to authorize certain Office of Science research programs and activities (e.g., High Energy Physics, Fusion Energy), address various commercialization issues within DOE (e.g., technology transfer, early-stage technology demonstration, participation in I-Corps), and amend the ARPA-E statute. Some of the more intensely debated provisions in H.R. 1806 would authorize appropriations to NSF by directorate (e.g., $832.0 million for Biological Sciences and $150.0 million for Social, Behavioral, and Economic Sciences in FY2016 and FY2017) and would authorize funding below current spending levels for certain DOE and NSF accounts and programs. These accounts include ARPA-E, Energy Efficiency and Renewable Energy, and Biological and Environmental Research within the Office of Science at DOE, as well as the Social, Behavioral, and Economic Sciences and Geosciences directorates at NSF. For example, H.R. 1806 would authorize ARPA-E at $140 million in both FY2016 and FY2017. With the exception of FY2013—when ARPA-E was subject to reductions as a result of certain rescissions and the sequestration process—Congress has funded ARPA-E at about $280 million since FY2012. As introduced, the America Competes Reauthorization Act of 2015 ( H.R. 1898 ) seeks to "provide for investment in innovation through research and development and STEM education, to improve the competitiveness of the United States, and for other purposes." H.R. 1898 would authorize funding for NSF, NIST, and the Office of Science and would authorize or amend various federal STEM education and innovation-related programs, policies, and activities. It is similar, but not identical, to H.R. 4159 from the 113 th Congress. Funding for the Targeted Accounts. H.R. 1898 , as introduced, would authorize appropriations to NSF, NIST, and the Office of Science from FY2016 through FY2020. Table 2 includes FY2014 actual, current, or enacted funding levels (as reported by each agency); the FY2015 enacted levels; the Administration's FY2016 request; and the FY2016 to FY2020 authorization levels. Explanatory materials associated with H.R. 1898 do not mention the doubling path policy or the targeted accounts; rather, they highlight provisions authorizing year-over-year increases for NSF, NIST, and the Office of Science. Accordingly, Table 2 shows the compound annual growth rate (CAGR) for these agencies under H.R. 1898 , treating FY2015 enacted appropriations as the baseline and FY2020 authorized levels as the final year. STEM Education. H.R. 1898 contains a number of STEM education provisions that seek to address governance concerns. Examples include provisions that would establish a government-wide STEM education coordinator within the OSTP and would establish a STEM Education Advisory Panel to advise the President and other policymakers. At NSF, the bill would, among other things, authorize grants (1) to institutions of higher education for undergraduate STEM education reform, (2) to community colleges for advanced manufacturing education, and (3) to unspecified organizations for R&D on the alignment, implementation, impact, and improvement of state-based STEM education standards. Additionally, like H.R. 1806 would authorize informal education activities and amend the Noyce program at NSF. Other Provisions. Other provisions in H.R. 1898 seek to broaden the participation of underrepresented groups in STEM education and employment. These include provisions directing NSF to develop written guidance for institutions of higher education on best practices for identifying cultural or institutional barriers to the recruitment, retention, and promotion of underrepresented populations in STEM degree programs and academic STEM careers. H.R. 1898 also includes provisions to reauthorize the Federal Loan Guarantees for Innovative Technologies in Manufacturing program and directs specified federal science agencies, to the extent practicable, to support federal employee and contractor attendance at scientific and technical conferences. The bill's DOE title would authorize certain Office of Science research programs (e.g., High Energy Physics, Fusion Energy) and would reauthorize and amend the statutory authority for ARPA-E. H.R. 1898 , Title I, Subtitle B, would reauthorize the National Nanotechnology Initiative, while Title I, Subtitle C, would provide for a National Engineering Biology Research and Development program to "advance areas of research at the intersection of the biological, physical, and information sciences and engineering." As introduced, the Energy Title of America COMPETES Reauthorization Act of 2015 ( S. 1398 ) seeks to "extend, improve, and consolidate energy research and development programs." Doubling path policy, revised . As its title indicates, S. 1398 was not designed to be a comprehensive COMPETES reauthorization bill. Rather, it contains only energy-related provisions—including funding authorizations for the Office of Science and ARPA-E. A press release and materials associated with S. 1398 described the bill as putting "us on a path to double basic energy research." The materials treat FY2015 as the baseline year and would set basic energy research on a path to double at a rate of 4% a year over a period of about 18 years. The doubling path policy for basic energy research in S. 1398 includes both the Office of Science and ARPA-E. The doubling path policy in S. 1398 represents an evolution of the doubling path policy in the COMPETES Acts. The COMPETES Acts policy focused on doubling funding for physical sciences and engineering research, while S. 1398 focuses more narrowly on basic energy research. The COMPETES Acts baseline year is FY2006, while the baseline for S. 1398 is FY2015. Additionally, the COMPETES Acts doubling path policy targeted increases at the NSF, certain NIST accounts, and the Office of Science. S. 1398 seeks increases for the Office of Science and ARPA-E. Table 3 shows the compound annual growth rate (CAGR) for the Office of Science and ARPA-E under S. 1398 , treating FY2015 enacted appropriations as the baseline and FY2020 authorized levels as the final year. The table also includes FY2014 current funding levels, FY2015 enacted levels, the Administration's FY2016 request, and FY2016 to FY2020 authorization levels under S. 1398 . Amendments to ARPA-E's statutory authority in S. 1398 would require the director to ensure that (1) activities are coordinated with, and not duplicative of, other DOE efforts; and (2) funding is not provided for projects that might otherwise be independently commercially viable. Other provisions would define certain types of ARPA-E awardee information (including business plans and certain financial information) as privileged and confidential and therefore not subject to disclosure under the Freedom of Information Act (5 U.S.C. 552). STEM Education . S. 1398 includes provisions to repeal many of the remaining DOE STEM education activities authorized by the America COMPETES Act. Specifically, the bill would repeal the Nuclear Science Talent Expansion Program for Institutions of Higher Education, the Hydrocarbon Systems Science Competitiveness Grants for Institutions of Higher Education, and Discovery Science and Engineering Innovation Institutes. These programs were authorized by P.L. 110-69 , Sections 5004, 5005(e), and 5008, respectively. S. 1398 would not repeal Section 5005(d) of P.L. 110-69 , which authorizes Hydrocarbon Systems Science Program Expansion Grants for Institutions of Higher Education. These programs and activities do not appear to have been implemented or received funding. S. 1398 also seeks to repeal certain STEM education provisions from the Department of Energy Science Education Enhancement Act (DOE-SEEA, 42 U.S.C. 7381 et seq.). These provisions were added to the DOE-SEEA by Section 5003 of the America COMPETES Act. The America COMPETES Reauthorization Act of 2010 already repealed three of the six DOE-SEEA STEM education provisions added by that act: 42 U.S.C. 7381h, 7381j, and 7381p. S. 1398 would repeal the remaining three: 42 U.S.C. 7381l, 7381n, and 7381r. These programs and activities do not appear to have been implemented or received funding. S. 1398 would also repeal the appropriations authorizations of three DOE STEM education programs authorized by the America COMPETES Act. (Program authority would remain.) These include the Department of Energy Early Career Awards for Science, Engineering, and Mathematics Researchers (Early Career), Protecting America's Competitive Edge (PACE) Graduate Fellowship Program, and Distinguished Scientist programs. These programs were authorized by the America COMPETES Act, P.L. 110-69 , Sections 5006, 5009, and 5011, respectively. Other STEM education provisions in S. 1398 would consolidate the Early Career and Distinguished Scientist programs, provide $150 million in appropriations authorizations for the consolidated program (each fiscal year between FY2016 and FY2020), and specify that no more than 65% of total consolidated program funds may accrue to either Early Career or Distinguished Scientist activities. In addition to their stated purposes—investing in innovation and improving U.S. competitiveness—the COMPETES Acts have effectively functioned as the primary authorization acts for NIST, the Office of Science, and NSF since FY2008. The acts have also contained a variety of provisions for policy and programs at ARPA-E, OSTP, ED, NASA, the National Oceanic and Atmospheric Administration, the DOC's Economic Development Administration, and GAO. As such, the range of policy issues that may arise during congressional debate about reauthorization of the COMPETES Acts could include a wide variety of issues perceived as relating to innovation or competitiveness, or reauthorization, at any or all of these agencies. However, key questions for Congress may center on the future of the doubling path policy for PS&E research and authorized funding levels for NSF, NIST, and the Office of Science as well as on the disposition and direction of the federal STEM education effort. At least four bills were introduced to reauthorize selected provisions from the COMPETES Acts in the 113 th Congress: H.R. 4159 , H.R. 4186 , H.R. 4869 , and S. 2757 . All of these bills included various policy and fiscal provisions authorizing activities and appropriations for physical sciences and engineering research, STEM education, and related programs at COMPETES Act agencies. The following sections summarize these bills and highlight some of their provisions. H.R. 4159 The America COMPETES Reauthorization Act of 2014 ( H.R. 4159 ) was introduced to "provide for investment in innovation through research and development and STEM education, to improve the competitiveness of the United States, and for other purposes." It would have authorized funding for NSF, NIST, and the Office of Science and would have authorized or amended various federal STEM education and innovation-related programs, policies, and activities. Funding for the Targeted Accounts. H.R. 4159 would have authorized appropriations to NSF, NIST, and the Office of Science from FY2015 through FY2019. Explanatory materials associated with H.R. 4159 do not mention the doubling path policy or the targeted accounts; rather, they highlight provisions authorizing year-over-year increases for NSF, NIST, and the Office of Science. Accordingly, Table A-1 shows the compound annual growth rate for these agencies under H.R. 4159 , treating FY2014 enacted appropriations as the baseline and FY2019 authorized levels (as per H.R. 4159 ) as the final year. For the sake of comparison with the COMPETES Acts, under H.R. 4159 , the compound annual growth rate in authorized funding for just the targeted accounts would have been 4.1% (between the FY2006 baseline and FY2019) or about a 17-year doubling period. STEM Education. H.R. 4159 contained a number of STEM education provisions. Examples include provisions that would have (1) established a government-wide STEM education coordinator within the OSTP and (2) directed OSTP to develop guidance for federal agencies on increasing opportunities for federal scientists and engineers to participate in STEM education activities. At NSF, the bill would have, among other things, authorized grants to institutions of higher education for undergraduate STEM education reform; authorized grants to community colleges for advanced manufacturing education; and authorized grants for R&D on the alignment, implementation, impact, and improvement of state-based STEM education standards. Additionally, H.R. 4159 would have authorized informal education activities and made changes to the Robert Noyce Teacher Scholarship Program (Noyce) program at NSF. Other Provisions. Other provisions in H.R. 4159 sought to broaden the participation of underrepresented groups in STEM education and employment. For example, Section 217 would have directed NSF to develop written guidance for institutions of higher education on best practices for identifying cultural or institutional barriers to the recruitment, retention, and promotion of underrepresented populations in STEM degree programs and academic STEM careers. H.R. 4159 also included provisions to reauthorize the Regional Innovation Program and Federal Loan Guarantees for Innovative Technologies in Manufacturing, which were established by the America COMPETES Reauthorization Act of 2010. The bill's DOE title would have authorized certain Office of Science research programs (e.g., High Energy Physics, Fusion Energy) and would have reauthorized and amended ARPA-E. Section 204 would have created a new Advanced Research Projects Agency-Education (ARPA-ED) at the Department of Education. Legislative Disposition. H.R. 4159 was referred to both the House Committee on Education and the Workforce, as well as the House Committee on Science, Space, and Technology. It was not marked up or enacted. The bill was sponsored by the ranking minority Member of the House Committee on Science, Space, and Technology and co-sponsored by all of the minority Members of that committee. It had no House majority Members as co-sponsors. H.R. 4186 The Frontiers in Innovation, Research, Science, and Technology Act of 2014 ( H.R. 4186 , FIRST Act) was introduced "to provide for investment in innovation through scientific research and development, to improve the competitiveness of the United States, and for other purposes." The act included provisions that would have authorized funding for NSF and NIST, as well as those that would have authorized or amended various federal STEM education and innovation-related programs, policies, and activities. Funding for the Targeted Accounts. The FIRST Act would have authorized appropriations to NSF and NIST for FY2014 and FY2015. In his statement during full committee markup of H.R. 4186 , the Chairman of the House Committee on Science, Space, and Technology did not mention the doubling path policy or targeted accounts, but rather said In a time of tight budgets, this bill authorizes small overall funding increases for the National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST) in Fiscal Year 2015. Accordingly, Table A-2 shows the compound annual growth rate in authorized appropriations for NSF and NIST under the FIRST Act, treating FY2013 actual appropriations as the baseline and FY2015 authorized levels (as per H.R. 4186 ) as the final year. H.R. 4186 would not have authorized funding for the Office of Science. As such, it is not possible to calculate a growth rate for the targeted accounts under H.R. 4186 that would be comparable to the growth rate in funding for the targeted accounts as authorized under the COMPETES Acts' doubling path policy. STEM Education. The FIRST Act included many STEM education provisions, several of which sought to address governance concerns about the federal effort. In particular, the bill would have established a STEM Education Advisory Panel to advise the President and other policymakers on STEM education-related topics. In addition, the bill would have created a federal government-wide STEM Education Coordinating Office at the NSF. Other STEM education provisions in H.R. 4186 would have authorized informal STEM education activities—and made changes to the Noyce program—at NSF. Section 2 of H.R. 4186 would have clarified that the definition of the term "STEM education" included computer science (for the purposes of the act). Other Provisions. Other provisions in the FIRST Act would have authorized and amended certain Networking and Information Technology R&D (NITRD) program provisions, provided for coordination of international science and technology partnerships, and provided for public access to federally funded research and data. The bill also included provisions from the Transfer Act of 2013 ( H.R. 2981 ), which would have amended the Small Business Act to revise and expand (to certain other agencies) an existing proof-of-concept pilot program at the National Institutes of Health. Some of the more intensely debated provisions of the FIRST Act would have provided defined appropriations to NSF by directorate (e.g., $742.9 million for Biological Sciences in FY2014, $150.0 million for Social, Behavioral, and Economic Sciences in FY2015) and would have required NSF to determine (and describe in writing) how each grant it issues serves certain enumerated national interests. Legislative Disposition. H.R. 4186 was not enacted. It was marked up and ordered reported by voice vote from the House Committee on Science, Space, and Technology on May 28, 2014. The bill was sponsored by the Chairman of the Subcommittee on Research and Technology, House Committee on Science, Space, and Technology. It was co-sponsored by Members of the majority (including the chairman of the full committee) and opposed by the ranking minority Member of the full committee. It had no House minority co-sponsors. H.R. 4869 The Department of Energy Research and Development Act of 2014 ( H.R. 4869 , DOE-RDA), would have authorized funding for the Office of Science and other Department of Energy programs in FY2014 and FY2015. Funding for Targeted Accounts. DOE-RDA would have authorized appropriations for the Office of Science in FY2014 and FY2015. In a statement about the bill, the sponsor said funding levels for the Office of Science were "true to the intent of the COMPETES Act legacy." Under DOE-RDA, the compound annual growth rate in authorized appropriations for the Office of Science would have been 7.3%, treating FY2013 actual appropriations as the baseline and FY2015 authorized levels (as per H.R. 4869 ) as the final year. Because DOE-RDA would not have authorized appropriations for the other targeted accounts (e.g., NSF, as well as NIST's STRS and CRF), it is not possible to calculate a growth rate for the targeted accounts under H.R. 4869 that would be comparable to the growth rate in funding for the targeted accounts as authorized under the COMPETES Acts' doubling path policy. Other Provisions. In addition to authorizing overall appropriations for DOE's Office of Science, H.R. 4869 would have authorized certain Office of Science research programs (e.g., High Energy Physics, Fusion Energy); addressed various issues at the national laboratories (e.g., technology transfer, early-stage technology demonstration, etc.); and amended the ARPA-E statute. Additionally, the bill would have authorized certain DOE activities in crosscutting R&D, nuclear energy R&D, energy efficiency and renewable R&D, and fossil energy R&D. Legislation Disposition. H.R. 4869 was not enacted. The Subcommittee on Energy, House Science, Space, and Technology Committee sought to mark up a committee print of DOE-RDA on June 11, 2014; however, the markup was adjourned before full consideration after some of the minority Members expressed concern about process. H.R. 4869 was formally introduced two days later, on June 13, 2014. H.R. 4869 was sponsored by the Chairman of the Subcommittee on Energy, House Committee on Science, Space, and Technology and co-sponsored by Members of the majority, including the chairman of the full committee. It had no House minority co-sponsors. S. 2757 The America COMPETES Reauthorization Act of 2014 ( S. 2757 ) was introduced "to invest in innovation through research and development, to improve the competitiveness of the United States, and for other purposes." S. 2757 differs from the House bill of the same name ( H.R. 4159 ). For example, unlike H.R. 4159 , S. 2757 does not include Office of Science or other Department of Energy provisions. However, both bills would have authorized funding for NSF and NIST and would have authorized or amended various (in some cases, differing) federal STEM education and innovation-related programs, policies, and activities. Funding for the Targeted Accounts. S. 2757 would have authorized appropriations to the NSF and NIST from FY2015 through FY2019. In a press release, the bill's sponsor stated that S. 2757 "builds on the goals and successes" of the COMPETES Acts and that it would authorize "stable and sustained increases" in funding for the NSF and NIST. The press release does not mention the doubling path policy. Accordingly, Table A-3 shows the compound annual growth rate in authorized appropriations for NSF and NIST under S. 2757 , treating FY2014 enacted appropriations as the baseline and FY2019 authorized levels as the final year. S. 2757 would not have authorized funding for the Office of Science. As such, it is not possible to calculate a growth rate for the targeted accounts under S. 2757 that would be comparable to the growth rate in funding for the targeted accounts as authorized under the COMPETES Acts' doubling path policy. STEM Education. Examples of STEM education provisions in the Senate version of the America COMPETES Reauthorization Act of 2014 include Section 102, which would have directed the NSTC Subcommittee on STEM Education to encourage comments from certain stakeholders (e.g., state education agencies, nonprofits) when updating the five-year federal strategic STEM education plan; to consider cross-agency efforts to improve STEM career awareness when implementing and updating the five-year plan; and to develop guidance and best practices for federal agencies on encouraging informal STEM education, among other things. Other STEM education provisions in S. 2757 would have authorized a program for STEM secondary schools at NSF and would have amended and reauthorized the informal STEM education and Noyce programs at NSF. Section 202 directs the National Aeronautics and Space Administration (NASA) to continue providing STEM education and outreach activities and to consider the long-term research and workforce needs of the mission directorates before finalizing any reorganization of NASA education programs. Other Provisions. Other provisions in S. 2757 would have directed OSTP to evaluate "family-responsive" federal science agency programs and policies and to provide guidance to federal science agencies on such policies. Section 511 would have allowed NSF to establish a prize program for educational practices that broaden participation in STEM fields. Other provisions would have directed NSF to maintain its intellectual merit and broader impacts criteria as the basis for evaluating grant proposals and would have authorized the expansion of NSF's Innovation Corps (I-Corps) program to other federal agencies. Section 611 would have reauthorized the Regional Innovation Program at the Department of Commerce; Title IV, Subtitle B would have reauthorized the National Nanotechnology Initiative. Legislative Disposition. S. 2757 was not enacted. It was referred to the Senate Committee on Commerce, Science, and Transportation but was not marked up. S. 2757 was sponsored by the (then retiring) chairman of the Senate Committee on Commerce, Science, and Transportation. It had six Senate majority (and no Senate minority) co-sponsors. | Scientific and technological advancement played a central role in ensuring U.S. prosperity and power in the 20th century. From the first flight of the Wright brothers in 1903 to the creation of Google in the 1990s, U.S. scientific and technological innovations have reshaped the global economy and provided both economic mobility and national security for generations of Americans. Whether the United States will maintain its preeminence over the course of the 21st century is an open question. Some observers assert that U.S. leadership is at risk. They argue that the United States underinvests in physical sciences and engineering (PS&E) research and underperforms in science, technology, engineering, and mathematics (STEM) education. (PS&E research and STEM education are believed to be central pillars in the foundation supporting U.S. scientific and technological achievement.) At the same time, other nations are increasing their commitments to research and education in the STEM fields and, as a result, can compete for a growing percentage of the world's high-value jobs and industries. Concern that the United States has fallen or could fall behind in the global race to innovate propelled passage of the 2007 America COMPETES Act (P.L. 110-69) and its successor, the America COMPETES Reauthorization Act of 2010 (P.L. 111-358). The COMPETES Acts authorized increasing funding for targeted federal accounts that support PS&E research (commonly referred to as the "doubling path policy") and authorized (or reauthorized) certain federal STEM education programs. The acts also established the Advanced Research Projects Agency-Energy (ARPA-E), allowed federal agencies to use prize competitions to spur innovation, and directed the executive branch to coordinate policies providing access to federally funded research—among many other provisions. Neither of the COMPETES Acts has been fully funded or implemented. Actual funding for the targeted PS&E research accounts did not reach authorized levels, and most of the STEM education programs established by the acts were not realized. On the other hand, existing STEM education programs that were reauthorized by the acts generally continued to operate. ARPA-E, which was established by the acts, was implemented and continues to operate. Federal agencies are also using the act's prize authority—at least 100 competitions have been initiated under the authority of P.L. 111-358. Most of the funding authorizations in the COMPETES Acts have expired. Legislation to reauthorize all or portions of the acts was introduced, but not enacted, in the 113th Congress. Legislators have introduced bills to reauthorize all or portions of the acts in the 114th Congress. This report provides an overview of the acts for readers seeking background and legislative context. It serves both as a primer and a reference document, including a description and legislative history of the acts, a summary of the broad policy debate, and an examination of the implementation status of selected COMPETES-related programs and policies. This report also highlights major bills to reauthorize the acts from the 113th and 114th Congresses. For authorized and appropriated funding for COMPETES-related accounts, see CRS Report R42779, America COMPETES Acts: FY2008 to FY2013 Funding Tables, by [author name scrubbed]. |
Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is jointly funded by the federal government and the states. Participation in Medicaid is voluntary for states, though all states, the District of Columbia, and the territories choose to participate. Each state designs and administers its own version of Medicaid under broad federal rules. While states that choose to participate in Medicaid must comply with all federal mandated requirements, state variability is the rule rather than the exception in terms of eligibility levels, covered services, and how those services are reimbursed and delivered. The federal government pays a share of each state's Medicaid expenditures. This report describes the federal medical assistance percentage (FMAP) calculation used to reimburse states for most Medicaid expenditures, and it lists the statutory exceptions to the regular FMAP rate. The federal government's share of most Medicaid service costs is determined by the FMAP rate, which varies by state and is determined by a formula set in statute. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. The FMAP rate is also used in determining the phased-down state contribution ("clawback") for Medicare Part D, the federal share of certain child support enforcement collections, Temporary Assistance for Needy Families (TANF) contingency funds, a portion of the Child Care and Development Fund (CCDF), and foster care and adoption assistance under Title IV-E of the Social Security Act. An enhanced FMAP (E-FMAP) rate is provided for both services and administration under the State Children's Health Insurance Program (CHIP), subject to the availability of funds from a state's federal allotment for CHIP. The E-FMAP rate is calculated by reducing the state share under the regular FMAP rate by 30%. The FMAP formula compares each state's per capita income relative to U.S. per capita income. The formula provides higher reimbursement to states with lower incomes (with a statutory maximum of 83%) and lower reimbursement to states with higher incomes (with a statutory minimum of 50%). The formula for a given state is: FMAP state = 1 - ((Per capita income state ) 2 /(Per capita income U.S. ) 2 * 0.45) The use of the 0.45 factor in the formula is designed to ensure that a state with per capita income equal to the U.S. average receives an FMAP rate of 55% (i.e., state share of 45%). In addition, the formula's squaring of income provides higher FMAP rates to states with below-average incomes (and vice versa, subject to the 50% minimum). The Department of Health & Human Services (HHS) usually publishes FMAP rates for an upcoming fiscal year in the Federal Register during the preceding November. This time lag between announcement and implementation provides an opportunity for states to adjust to FMAP rate changes. The per capita income amounts used to calculate FMAP rates for a given fiscal year are several years old by the time the FMAP rates take effect because, as specified in Section 1905(b) of the Social Security Act, the per capita income amounts used in the FMAP formula are equal to the average of the three most recent calendar years of data available from the Department of Commerce. In its FY2019 FMAP calculations, HHS used state per capita personal income data for 2014, 2015, and 2016 that became available from the Department of Commerce's Bureau of Economic Analysis (BEA) in September 2017. The use of a three-year average helps to moderate fluctuations in a state's FMAP rate over time. BEA revises its most recent estimates of state per capita personal income on an annual basis to incorporate revised and newly available source data on population and income. It also undertakes a comprehensive data revision—reflecting methodological and other changes—every few years that may result in upward and downward revisions to each of the component parts of personal income. These components include the following: earnings (wages and salaries, employer contributions for employee pension and insurance funds, and proprietors' income); dividends, interest, and rent; and personal current transfer receipts (e.g., government social benefits such as Social Security, Medicare, Medicaid, state unemployment insurance). As a result of these annual and comprehensive revisions, it is often the case that the value of a state's per capita personal income for a given year will change over time. For example, the 2014 state per capita personal income data published by BEA in September 2013 (used in the calculation of FY2017 FMAP rates) differed from the 2014 state per capita personal income data published in September 2017 (used in the calculation of FY2019 FMAP rates). It should be noted that the definition of personal income used by BEA is not the same as the definition used for personal income tax purposes. Among other differences, BEA's personal income excludes capital gains (or losses) and includes transfer receipts (e.g., government social benefits), while income for tax purposes includes capital gains (or losses) and excludes most of these transfers. Several factors affect states' FMAP rates. The first is the nature of the state economy and, to the extent possible, a state's ability to respond to economic changes (i.e., downturns or upturns). The impact on a particular state of a national economic downturn or upturn will be related to the structure of the state economy and its business sectors. For example, a national decline in automobile sales, while having an impact on all state economies, will have a larger impact in states that manufacture automobiles as production is reduced and workers are laid off. Second, the FMAP formula relies on per capita personal income in relation to the U.S. average per capita personal income . The national economy is basically the sum of all state economies. As a result, the national response to an economic change is the sum of the state responses to economic change. If more states (or larger states) experience an economic decline, the national economy reflects this decline to some extent. However, the national decline will be lower than some states' declines because the total decline has been offset by states with small decreases or even increases (i.e., states with growing economies). The U.S. per capita personal income, because of this balancing of positive and negative, has only a small percentage change each year. Since the FMAP formula compares state changes in per capita personal income (which can have large changes each year) to the U.S. per capita personal income, this comparison can result in significant state FMAP rate changes. In addition to annual revisions of per capita personal income data, comprehensive revisions undertaken every four to five years may also influence regular FMAP rates (e.g., because of changes in the definition of personal income). The impact on FMAP rates will depend on whether the changes are broad (affecting all states) or more selective (affecting only certain states or industries). Regular FMAP rates for FY2019 (the federal fiscal year that begins on October 1, 2018) were calculated and published November 21, 2017, in the Federal Register . In the Appendix A to this report, Table A-1 shows regular FMAP rates for each of the 50 states and the District of Columbia for FY2014 through FY2019. Figure 1 shows the state distribution of regular FMAP rates for FY2019. Fourteen states are to have the statutory minimum FMAP rate of 50.00%, and Mississippi is to have the highest FMAP rate of 76.39%. As shown in Figure 2 , from FY2018 to FY2019, the regular FMAP rates for 36 states is to change, whereas the regular FMAP rates for the remaining 15 states (including the District of Columbia) is to remain the same. For most of the states experiencing an FMAP rate change from FY2018 to FY2019, the change is to be less than one percentage point. The regular FMAP rate for 14 states is to increase by as much as one percentage point, and the FMAP rate for 12 states is to decrease by as much as one percentage point. For states that are to experience an FMAP rate change greater than one percentage point from FY2018 to FY2019, nine states are to experience an FMAP rate increase of greater than one percentage point. Oklahoma is to have the largest FMAP rate increase of 3.81 percentage points, with the FMAP rate increasing from 58.57% to 62.38% Oregon is the only state that is to experience an FMAP rate decrease of greater than one percentage point, with the FMAP rate decreasing 1.06 percentage points from 63.62% to 62.56%. The District of Columbia's FY2019 FMAP rate was not calculated according to the regular FMAP formula because the FMAP rate for the District of Columbia has been set in statute at 70% since 1998 for the purposes of Title XIX and XXI of the Social Security Act. However, for other purposes, the percentage for the District of Columbia is 50%, unless otherwise specified by law. Although FMAP rates are generally determined by the formula described above, exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. Table 1 lists current exceptions to the FMAP in Medicaid statute and regulations. Past FMAP exceptions are listed in Table B-1 . Some of these exceptions were included in the Social Security Amendments of 1965 (P.L. 89-97), which is the law that enacted the Medicaid program. Other exceptions have been added over the years. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) added a number of exceptions to the FMAP for "newly eligible" individuals, "expansion states," disaster-affected states, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, and home- and community-based attendant services and supports. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures. In FY2019, 13 states are to have the statutory minimum FMAP rate of 50%, and Mississippi is to have the highest FMAP rate of 76.39%. From FY2018 to FY2019, the regular FMAP rates for 36 states is to change, while the regular FMAP rates for the remaining 15 states (including the District of Columbia) is to remain the same. Exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. The ACA added a number of exceptions to the FMAP for "newly eligible" individuals, "expansion states," disaster-affected states, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, and home and community-based attendant services and supports. The federal share of Medicaid expenditures used to be about 57% in a typical year, which meant the state share was about 43%. However, with the exceptions to the FMAP added by the ACA (mainly the "newly eligible" matching rate), the federal share of Medicaid expenditures has increased. In FY2014, the federal share of Medicaid expenditures was 61% on average, and it is estimated to have increased to 63% for FY2015 and FY2016. The average federal share is expected to decrease to 61% by FY2020 as the "newly eligible" matching rate phases down to 90%. Appendix A. FMAP Rates for Medicaid, by State Table A-1 shows regular FY2014-FY2019 FMAP rates calculated according to the formula described in the text of the report (see " How FMAP Rates Are Calculated "). In FY2019, FMAP rates range from 50% (14 states) to 76% (Mississippi). From FY2018 to FY2019, regular FMAP rates are to decrease for 13 states, increase for 23 states, and remain the same for 15 states (including the District of Columbia). Most of the states (14 states) for which the FMAP rates do not change have the statutory minimum FMAP rate of 50%, and the FMAP rate for the District of Columbia is statutorily set at 70%. Appendix B. Past FMAP Rate Exceptions Although FMAP rates are generally determined by the statutory formula described above, Table 1 lists current exceptions that have been added to the Medicaid statute and regulations over the years, and Table B-1 lists past FMAP exceptions. | Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports. Medicaid is jointly funded by the federal government and the states. The federal government's share of most Medicaid expenditures is called the federal medical assistance percentage (FMAP). The remainder is referred to as the state share. Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). FMAP rates have a statutory minimum of 50% and a statutory maximum of 83%. For FY2019, regular FMAP rates range from 50.00% to 76.39%. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. This report describes the FMAP calculation used to reimburse states for most Medicaid expenditures, and it lists the statutory exceptions to the regular FMAP rate. |
(a) In General.âExcept as provided in subsection (b), this title and the amendments made by this title (other than sections 203(a) 203(c), 205, 208, 210, 211, 213, 216, 219, 221, and 222, and the amendments made by those sections) shall cease to have effect on December 31, 2005. (b) Exceptions.âWith respect to any particular foreign intelligence investigation that began before the date on which the provisions referred to in subsection (a) cease to have effect, or with respect to any particular offense or potential offense that began or occurred before the date on which such provisions cease to have effect, such provisions shall continue in effect. P.L. 107-56 , §224, 18 U.S.C. 2510 note (emphasis added). (a) In General.âSection 101(b)(1) of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 180(b)(1) is amended by adding at the end the following new subparagraph: "(C) engages in international terrorism or activities in preparation therefore; or". (b) Sunset.âThe amendment made by subsection (a) shall be subject to the sunset provision in section 224 of P.L. 107-56 (115 Stat. 295), including the exception provided in subsection (b) of such section 224. P.L. 108-458 , §6001, 118 Stat. 3742 (2004). Section 224(a) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (18 U.S.C. 510 note) is amended by striking "December 31, 2005" and inserting "February 3, 2006." P.L. 109-160 , 119 Stat. _____(2005). Section 224(a) of the Uniting and Strengthening American by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 ( P.L. 107-56 ; 115 Stat. 295) is amended by striking "February 3, 2006" and inserting "March 10, 2006." H.R. 4659 , P.L. 109-___, 120 Stat. (2006). Subsection 224(a) of the USA PATRIOT Act (the act) indicates that various sections in Title II of the act are to remain in effect only until March 10, 2006. Subsection 224(b) creates two exceptions for matters that straddle the termination date, one for foreign intelligence investigations and the other for criminal cases. Even a quick reading of section 224 raises a number of questions. What is the substance of the temporary sections that disappear on March 10, 2006? What is the breath of the subsection 224(b) exceptions? What is the fate and impact of amendments to the expiring sections or to related provisions of law, enacted after passage of the act but before March 10, 2006? What is the substance of the sections in Title II that continue on unimpaired by virtue of their inclusion in the "other-than" list of the subsection 224(a)? These questions are among those likely to be asked as twilight approaches. The 9/11 Commission noted the coming sunset, and expressed the belief that as a general matter, "[b]ecause of the concerns regarding the shifting balance of power to the government . . .a full and informed debate on the Patriot Act would be healthy," 9/11 Commission Report , 394 (2004). The expiring sections deal with the power of federal authorities to conduct searches and seizures, generally searches and seizures relating to communications. In most instances, they allow authorities to move more quickly; they reduce the required layers of administrative and judicial approval; they permit searches and seizures of a wider range of targets thus making these tools available earlier in an investigation; and they allow authorities to coordinate their activities. In doing so, they make it more likely that terrorism and crime will be prevented and that terrorists and criminals will be caught and punished. They accomplish these things, however, by easing or removing safeguards designed to protect individual privacy and to prevent government abuse. And so, they increase the risk that government authority will be abused and that the privacy of those who are neither terrorists nor criminals will be invaded. The debate over sunset is a debate of where the balance should be struck. To further complicate the debate, in some instances the expiring sections curtail rather than expand governmental authority; bolster rather than erode the safeguards against governmental overreaching or abuse of authority. The USA PATRIOT Act sections were originally set to sunset on December 31, 2005. By then, both Houses had passed legislation that amended and extended the expiring sections ( H.R. 3199 ) and a conference report resolving their differences had been issued, H.Rept. 109-433 (2005). In order to provider further time for consideration, the expiration date has been extended twice, first until February 3, 2006, P.L. 109-160 (2006), and more recently until March 10, 2006, H.R. 4659 , P.L. 109-____ (2006). Subject to the exceptions of subsection 224(b), the new sections of law and the amendments to existing law, created by the sections of the act that expire on March 10, 2006, will cease to exist after that date. The same is true for any subsequent amendments to the expiring sections. They expire along with their hosts. Pre-existing provisions of law, repealed or amended by the expiring sections, will be revived automatically, unless they themselves have been repealed or amended by intervening legislation (as several have). The impact of subsection 224(b) is somewhat more difficult to discern. It provides two standards: one with respect to "any particular foreign intelligence investigations that began" before sunset and a second with respect to "any particular offense or potential offense that began or occurred" before sunset, P.L. 107-56 , §224, 18 U.S.C. 2510 note. The first seems fairly straightforward. The authority granted by an expiring provision of the act may be exercised after sunset or may continue to be exercised after sunset, with respect to any foreign intelligence investigation initiated before sunset. The second comes with questions. What is a "potential offense"? Does the phrase refer to pre-sunset circumstances whose criminality is determined in a post-sunset investigation? Or does the phrase also include post-crimes that evolved out of pre-sunset circumstances which themselves constituted neither crimes nor elements of a crime? As a general rule, when Congress uses ordinary words, it is presumed to have intended them to have their commonly understood meaning. The word "potential" usually contemplates the incomplete, the unfulfilled, the undeveloped, or the unawakened possibility, rather than the suspected or uncertain possibility. That might suggest the term was intended at least in part to apply to post-sunset crimes that grow out pre-sunset circumstances. Although hardly a term of art, earlier federal courts have used the term to describe possible past offenses in some cases, and to describe possible future offenses in others. Congress in subsection 224(b), however, is not referring to all "potential offenses," but only to those "that began or occurred" before sunset. Offenses occurring entirely after sunset cannot be said to have begun or occurred beforehand. Thus, although it is scarcely beyond debate, Congress appears to have added the term "potential offense" out of an abundance of caution lest the exception be read to extend only to investigations of conduct whose criminality was known prior to sunset but not of pre-sunset conduct whose innocence or criminality was only ultimately determined after sunset. The expiring law enforcement sections of Title II of the USA PATRIOT Act involve three communications-related aspects of federal law: wiretapping; stored electronic communications and communication transaction records; and pen registers and trap and trace devices. Federal law prohibits the interception of telephone, face to face, and electronic communications (wiretapping), subject to certain exceptions including a procedure for judicially supervised law enforcement interceptions, 18 U.S.C. 2510-2520 (Title III). With the approval of senior Justice Department officials, federal law enforcement authorities may apply for a court order approving the use of wiretapping in connection with the investigation of certain serious federal crimes, 18 U.S.C. 2516, 2517, 2518. The orders must be narrowly drawn, of short duration, and based upon probable cause to believe that they will generate evidence relating to the predicate offenses under investigation, id. When the orders expire, those whose communications have been intercepted must be notified, 18 U.S.C. 2518. The procedure for law enforcement access to the content of wire and electronic communications stored with communications providers and to provider transaction records is somewhat less demanding, although it generally requires a court order, warrant, or subpoena, 18 U.S.C. 2701-2702. Pen registers and trap and trace devices surreptitiously capture the identity of the sender and recipient of communications. The procedure for a court order approving law enforcement installation and use of a pen register or a trap and trace device is less demanding still, 18 U.S.C. 3121-3127. Federal courts may authorize wiretappingâthe interception of wire, oral or electronic communicationsâfor law enforcement purposes in connection with the investigation of one or more specifically designated, serious federal crimes (predicate offenses), 18 U.S.C. 2516. Sections 201 and 202 temporarily add crimes to this predicate offense list. Section 202 places felonious violations of 18 U.S.C. 1030 (computer fraud and abuse) on the list; section 201 contributes: 18 U.S.C. 229 (chemical weapons); 2332 (crimes of violence committed against Americans overseas); 2332a (weapons of mass destruction); 2332b (multinational terrorism); 2332d (financial transactions with a country designated a sponsor of terrorism); 2339A (providing material support to a terrorist), and 2339B (providing material support to a terrorist organization). The Administration's request for legislation submitted immediately following the attacks of September 11, 2001 did not include any proposal comparable to either section 201 or section 202, Administration ' s Draft Anti-Terrorism Act of 2001: Hearing Before the House Comm. on the Judiciary (Hearing) , 107 th Cong., 1 st Sess. (2001). Nor can any similar provision be found in the legislation reported out of the House Judiciary Committee, H.Rept. 107-236 (2001). They appear first, and in the language ultimately enacted, in the initial version of S. 1510 , 147 Cong. Rec. S10309 (daily ed. October 4, 2001). They were referred to as among the "number of sensible proposals that should not be controversial," 147 Cong. Rec. S10552 (daily ed. October 11, 2001)(remarks of Senator Leahy), and otherwise seem to have attracted little attention. Sections 201 and 202 expire on March 10, 2006. By operation of subsection 224(b), law enforcement officials may seek a wiretap order in conjunction with an investigation of any of the offenses added to the predicate offense list by sections 201 or 202, as long as the particular offense or potential offense begins or occurs before March 10, 2006. The passing of section 201 will, in all probability, carry with it a subsequent addition to the predicate list. Section 201 makes its additions to the wiretap predicate offense list using these words (emphasis added), "Section 2516(1) of title 18, United States Code, is amended . . . (2) by inserting . . . the following new paragraph: ' (q) any criminal violation section 229 (relating to chemical weapons); or sections 2332, 2332a, 2332b, 2332d, 2339A, or 2339B of this title (relating to terrorism); or'." Again with emphasis added, P.L. 107-197 (Implementation of the International Convention for the Suppression of Terrorist Bombings) subsequently provides that "Section 2516(1)(q) . . . is amended byâ(1) inserting '2332f' after '2332,' and (2) striking 'or 2339B' and inserting '2339B, or 2339C'." 116 Stat. 728 (2002). Thus, section 201 enacts 18 U.S.C. 2516(1)(q); section 201 and therefore 18 U.S.C. 2516(1)(q) expire on March 10, 2006; P.L. 107-197 amends subsection 2516(1)(q); and therefore on the face of things the later amendment expires with the rest of 2516(1)(q). Yet although the language of the statute may indicate that the P.L. 107-197 amendments expire with the rest of subsection 2516(1)(q), the scant legislative history might suggest that Congress intended to add the new crimes, 18 U.S.C. 2332f(bombing public buildings and places) and 2339C (financing terrorism), to the wiretap predicate offense list permanently. The House Judiciary Committee report (there is no Senate report), for instance, notes the addition of the new crimes not only to the wiretap predicate list, but to the list of "Federal crimes of terrorism" in 18 U.S.C. 2332b(g)(5)(B), to the predicate offense list for 18 U.S.C. 2339A (assistance of terrorists), and to the forfeiture predicate list in 18 U.S.C. 981(a)(1)â"This section of the bill, which is not required by the treaty but will assist in Federal enforcement, adds the new 18 U.S.C. §§2332f and 2339C to four existing provisions of law," H.Rept. 107-307 , at 14 (2001). Other than its placement, there is nothing to indicate Congress intended to insert the new crimes temporarily on the wiretap predicate list but permanently on the other lists. The reasons for making the section 224 provisions temporary do not seem to apply to the treaty implementing provisions; the additions were made to implement treaty obligations not root out 9/11 terrorists. On the other hand, the treaty deals with terrorism offenses and the crimes added to subsection 2516(1)(q) are much like those already found there. More importantly, the clearest indication of what Congress means is what it says. It said the treaty-implementing crimes should be added to that portion of the wiretap predicate list that is clearly scheduled to expire. In other instances when called upon to construe a statute in apparent contradiction to its precise language, the courts have been loath to rewrite a statute in the name of statutory construction. At one point, the Justice Department indicated that "several recent wiretap orders have been based on this expanded list of terrorism offenses [authorized by section 201], including one involving a suspected domestic terrorist, who was subsequently charged with unlawfully making an explosive bomb, as well as another involving an individual with suspected ties to Columbian [sic] terrorists," U.S. Department of Justice, Report from the Field: The USA PATRIOT Act at Work (Report) , 26 (July, 2004). An official later testified that the authority under section 201 had been used on four occasions in two cases and that the authority under section 202 had been used twice. One of the section 201 cases "involved an Imperial Wizard of the White Knights of the Ku Klux Klan who attempted to purchase hand grenades for the purpose of bombing abortion clinics and was subsequently convicted of numerous explosives and firearms offenses." The section 202 case involved "a computer fraud investigation that broadened to include drug trafficking." Critics might argue that the authority conveyed by sections 201 and 202 is unnecessary. Federal law would seem to provide ample authority elsewhere for wiretaps in the case of the somewhat specific examples the Department supplied. Drug cases have long been a staple of the federal and state law enforcement wiretapping practices. Federal drug and explosives offenses and conspiracy to violate them are among the existing permanent federal wiretap predicates, 18 U.S.C. 2516(1)(c), (e), (r); 844(d), (e), (f), (g), (h), (i). And it is not clear why wiretaps under the Foreign Intelligence Surveillance Act (FISA) should not be adequate and perhaps even more appropriate with respect to "an individual with suspected ties to Columbian terrorists," 50 U.S.C. 1804, 1805, 1801. Or so critics might contend. Such critics might argue that the statistics published annually by the Administrative Office of the United States Courts confirm that the authority under sections 201 and 202 is little used and little needed. Terrorism offenses are not even designated as one of the major offense categories for which court-authorized interceptions are granted, unlike narcotics (502 orders), racketeering (43), bribery (1), gambling (2), homicide and assault (1), kidnaping (0), theft (0), or loansharking (5), 2003 Wiretap Report , Table 3 (2004), available on January 6, 2005, at http://www.uscourts.gov . Finally, criticsâparticularly those who view law enforcement use of wiretapping with concernâmight argue that the appropriate question is not how many terrorists and criminals have been caught through use of the new authority, but how often and under what circumstances the authority has been used in instances where it proved to be a false trail; where the individuals whose conversations were intercepted proved to have no incriminating ties to terrorists (Colombian or otherwise) or criminal events (past, present or future). Section 201 permits the use of court-supervised wiretaps in cases involving various terrorism offenses; section 202 permits such use in cases of felony computer fraud or abuse. Here and elsewhere the full extent of the "potential offense" sunset exception (224(b)) is unclear. The annual wiretap report suggests this authority has been little used. Section 201 authority has been used in a bomb case and case involving suspected links to Colombian terrorists. Some may feel that alternative, permanent authority could have been used in the two instances where the Justice Department notes section 201 authority has been used. Section 202 authority has been in one case that eventually broadened into a drug trafficking case. Evidence obtained through a court-ordered wiretap for federal law enforcement purposes may be disclosed under limited circumstances (e.g., testimony in judicial proceedings or disclosure to other law enforcement officials for official use), 18 U.S.C. 2517. Prior to the act, there was no explicit authorization for disclosure to intelligence officials. Subsection 203(b) amends federal wiretap law to permit law enforcement officials to disclose wiretap evidence to various federal officials ("law enforcement, intelligence, protective, immigration, national defense [and] national security official[s]") when it involves foreign intelligence, counterintelligence, or foreign intelligence information, 18 U.S.C. 2517(6). Subsection 203(d) authorizes law enforcement officers to share foreign intelligence, counterintelligence, and foreign intelligence information with the same set of federal officials notwithstanding any other legal restriction. The subsections use the same definitions for foreign intelligence, counterintelligence and foreign intelligence information: The term "foreign intelligence information" means: (a) information, whether or not it concerns a United States person, that relates to the ability of the United States to protect againstâ âactual or potential attack or other grave hostile acts of a foreign power or its agent; âsabotage or international terrorism by a foreign power or its agent; or âclandestine intelligence activities by an intelligence service or network of a foreign power or by its agent; or (b) information, whether or not it concerns a United States person, with respect to a foreign power or foreign territory that relates toâ âthe national defense or the security of the United States; or âthe conduct of the foreign affairs of the United States. 18 U.S.C. 2510(19) The term "foreign intelligence" means information relating to the capabilities, intentions, or activities of foreign governments or elements thereof, foreign organizations, or foreign persons, or international terrorist activities. 50 U.S.C. 401a(2). The term "counterintelligence" means information gathered and activities conducted to protect against espionage, other intelligence activities, sabotage, or assassinations conducted by or on behalf of foreign governments or elements thereof, foreign organizations, or foreign persons, or international terrorist activities. 50 U.S.C. 401a(3). Federal law has long permitted wiretap generated information to be shared with law enforcement officers for the performance of their duties, 18 U.S.C. 2517(1) (2000 ed.). The Administration's initial proposal was to expand the definition of "law enforcement officer" to include all federal officers and employees, §103, H.R.â, Hearings at 70. It contended that: At present, 18 U.S.C. §2517(1) generally allows information obtained via wiretap to be disclosed only to the extent that it will assist a criminal investigation. One must obtain a court order to disclose Title III information in non-criminal proceedings. Section 109 [sic] would modify the wiretap statutes to permit the disclosure of Title III-generated information to a non-law enforcement officer for such purposes as furthering an intelligence investigation. This will harmonize Title III standards with those of the Foreign Intelligence Surveillance Act (FISA), which allows such information-sharing. Allowing disclosure under Title III is particularly appropriate given that the requirements for obtaining a Title III surveillance order in general are more stringent than for a FISA order, and because the attendant privacy concerns in either situation are similar and are adequately protected by existing statutory provisions, Id. at 54. A second Administration proposal sought general catch-all authority for criminal investigators to share foreign intelligence information with federal law enforcement, intelligence, protective immigration, customs, and military personnel, notwithstanding any other provision of lawâincluding the specifically mentioned limitations on sharing grand jury and wiretap information, §154, H.R.â, Id. at 74. The Administration's explanation leaned heavily on the value of grand jury disclosure and said nothing of its other Title III sharing request, Id. at 57 (The Administration also proposed a complementary grand jury information sharing measure, §354, H.R.â, Hearings at 86 (text), 62-3(explanation)). Both Houses modified the proposals. The House Judiciary Committee trimmed the Administration's "law enforcement officer" language so that the amendment defined law enforcement officer to include only law enforcement, intelligence, national security and defense, protective and immigration personnel and then only for the purposes of sharing foreign intelligence information, §103, H.R. 2975 , H.Rept. 107-236 , at 5 (2001). It split off the grand jury components from the second proposal, and permitted sharing of grand jury matters only with court approval, §§154, 353, H.R. 2975 , Id. at 8, 30. The Senate, in the approach carried through to enactment, merged the three Administration sections into a single four-part section 203, S. 1510 , 147 Cong. Rec. S10309 (daily ed. October 4, 2001). The first and third subsections (203(a) and 203(c)) dealt with sharing grand jury information and the Attorney General's regulatory authority. The second, subsection 203(b), was limited to the sharing of wiretap produced foreign intelligence information; and the fourth, subsection 203(d), constituted a general residual grant of authority (a "catch-all" or "notwithstanding any other law" provision) for the disclosure to federal law enforcement, intelligence, protective, military and immigration officials of foreign intelligence information unearthed in a criminal investigation. Apparently, at the time of passage it was unclear what legal obstacles subsection 203(d) cleared away. Subsection (a) addressed grand jury secrecy impediments and subsection (c) spoke to Title III wiretap hurdles; what other legal barriers to disclosure did subsection (d) order down? Some were uncertain, but the answer may be of some consequence since another section of the act(sec. 905) requires the Justice Department to disclose to the Director of Central Intelligence any foreign intelligence information uncovered during the course of a criminal investigationâunless otherwise provided by law. The authority for disclosure under subsections 203(b)(wiretap) or 203(d)(catch-all) sunsets on March 10, 2006, unless either the foreign intelligence investigation or crime exception can be claimed. Both subsections list "law enforcement, intelligence, protective, immigration, national defense [and] national security official[s]" as permissible recipients. Yet since subsection 224(b) exempts only foreign intelligence and criminal investigations, the post-March 10, 2006 exceptions might be thought to limit the continued authority of subsections 203(b) and 203(d) to disclosure to law enforcement and intelligence officials and not to allow disclosures to protective, immigration, national defense and national security officials. At most, the extended authority can only apply to disclosures related to criminal or foreign intelligence investigations. The termination of authority under subsection 203(b) may be of little consequence, since (A) the wiretap law's criminal disclosure and use prohibitions, 18 U.S.C. 2511(1)(c), (d), only outlaw the disclosure and use of information gleaned from illegal wiretaps; they say nothing of the disclosure and use for official purposes of information gathered from lawful interceptions; (B) the civil constrains on unlawful disclosure by officials, established in section 223 of the act, likewise expire on March 10, 2006; (C) the wiretap law elsewhere authorizes disclosure of wiretap information to law enforcement officers, 18 U.S.C. 2517(1); and (D) the subsequently-passed Homeland Security Act authorizes disclosure, in separate, permanent subsections, to a wide range of officials particularly when confronted with the more serious foreign intelligence situations, P.L. 107-296 , §896, 116 Stat. 2257 (2002) (18 U.S.C. 2517(7),(8)). The Homeland Security Act's treatment of the general law enforcement disclosure to intelligence authorities found in subsection 203(d) is a bit different. It adopts language much like that which it provides in the wiretap context of subsection 203(b). But rather than placing the amendment in a separate subsection so that it survives the passing of the subsection on March 10, 2006, it embeds the amendment in subsection 203(d) thereby suggesting the amendment is intended to terminate with the rest of subsection 203(d), P.L. 107-296 , §897(a), 116 Stat. 2257 (2002)(50 U.S.C. 403-5d). Justice Department officials have explained that the section 203(b), along with several other sections of the USA PATRIOT Act scheduled to expire, have made it possible for criminal law enforcement and foreign intelligence investigators to share information for the more effective performance of their duties, particularly in terrorism cases. By way of example, they have testified that the authority under section 203(b) has been used to advise federal intelligence officials of "the manner and means by which monies were funneled to Iraq," and efforts to support and supply a foreign terrorist organization. They argue that to allow section 203(b) and other USA PATRIOT Act information sharing provisions to expire would be inconsistent with the information sharing legislation Congress has enacted subsequently. They point particularly to provisions that allow sharing with foreign officials: "Therefore, were section 203(b) allowed to expire, United States law enforcement officers would be allowed to share certain foreign information collected through criminal investigative wiretaps with foreign intelligence services, such as MI-5, but would arguably not be allowed to share that same information with the CIA." The concern with information sharing has always been that law enforcement investigators will call upon foreign intelligence powers in order to avoid the constitutional and other legal safeguards that ordinarily attend the exercise of their own authority. A corresponding concern is that foreign intelligence investigators will likewise call upon law enforcement authority to avoid the safeguards that ordinarily attend their own foreign intelligence authority. At least one Congressional hearing witness has speculated that the availability of section 203 may have led to the use of criminal law enforcement powers for purposes of an "intelligence probe." Others may question whether there are any real consequences of expiration. Other permanent provisions of the wiretap law will continue to allow information sharing with other investigative and law enforcement officials and in terrorism cases with intelligence authorities. The suggestion that information may be shared with MI-5 but not the CIA is bit perplexing. The mantel of "investigative or law enforcement" agency ought to fit American and British intelligence services equally well. Yet it may not be an apt description of either. At an earlier time, the Justice Department had objected to language comparable to subsection (b) allowing the disclosure of wiretap foreign intelligence information to intelligence officials in part because it asserted in the more serious cases it was unnecessary. Justice Department officials have identified a number of instances where law enforcement authorities have shared information with foreign intelligence officials in reliance on section 203(d) including: Information about the organization of a violent jihad training camp including training in basic military skills, explosives, and weapons, as well as a plot to bomb soft targets abroad . . . Travel information and the manner that monies were channeled to members of a criminal conspiracy in Portland who traveled from the United States intending to fight alongside the Taliban. . . Information . . .about the manner and means of [a] terrorist group's logistical support network . . . [D]etails regarding the application forms which permitted attendance at the [terrorist] training camp [overseas]. . . information about the . . . practices, logistical support and targeting information [of an Al-Qaeda] training camp in Afghanistan. Sabin statement , 3-4. It has never been precisely clear exactly what obstacles, if any, section 203(d) cleared away. It is presumably intended to supplement rather than supplant the grand jury and wiretap information sharing provisions that immediately precede it in sections 203(a) and 203(b), but even that is not necessarily the case. Subsection (b) permits the disclosure of wiretap-generated foreign intelligence information to federal law enforcement, intelligence, protective, immigration and military personnel for official use. Permanent authority elsewhere allows for law enforcement sharing. Permanent authority enacted subsequently allows authorities to share information concerning domestic or international terrorism with federal, state, local and foreign officials. A prior Justice Department letter claimed the existence of authority elsewhere to share wiretap generated information in the presence of an overriding national security concern. Subsection (d) permits the disclosure of foreign intelligence information discovered in the course of a federal criminal investigation notwithstanding any legal impediment. It is unclear what if any, legal impediments exist. Section 204 is essentially a technical amendment. Prior wiretap law makes it clear that the general prohibitions against wiretapping, 18 U.S.C. 2511, and against the acquisition of communications records and stored electronic communications, 18 U.S.C. 2701, do not preclude foreign intelligence gathering activities in international or foreign communications systems, 18 U.S.C. 2511(2)(f)(2000 ed.). Section 204 amends the provision to add that the general prohibition against the use of pen registers or trap and trace devices, 18 U.S.C. 3121, is likewise no impediment to such activities, 18 U.S.C. 2511(2)(f). The Administration explained in its request for this section that "This provision clarifies that the collection of foreign intelligence information is governed by foreign intelligence authorities rather than by criminal procedural statutes, as the current statutory scheme envisions," Hearing , at 54. The proposal passed in haec verba from the Administration's draft bill (§104), through the House and Senate bills (§104 and §204 respectively), to the USA PATRIOT Act (§204). The authority under section 204 ends on March 10, 2006 except for investigations relating to offenses or potential offenses begun or occurring before then. The provisions of section 204 have not been substantively amended. Neither of the Justice Department reports mentions section 204. Neither the continuation nor the demise of section 204 seem likely to alter the fact that the general trap and trace device and pen register proscriptions do not preclude the exercise of authority to use trap and trace devices and pen registers to gather foreign intelligence information. - Makes clear that the general trap and trace device and pen register prohibitions do not bar use of FISA authority to use trap and trace devices and pen registers to gather foreign intelligence information. At one time, at least some courts felt that authorities needed a wiretap order rather than a search warrant to seize unretrieved voice mail, United States v. Smith , 155 F.3d 1051 (9 th Cir. 1998). Section 209 treats voice mail like e-mail, subject to seizure under a search warrant rather than a more demanding wiretap order law, 18 U.S.C. 2703. Section 209 likewise passed in large measure unaltered from Administration proposal to enactment. The proposal simply sought to treat voice mail like e-mail: This section enables law enforcement personnel to seize suspected terrorists' voice mail messages pursuant to a search warrant. At present, 18 U.S.C. §2510(1) anomalously defines "wire communication" to include "any electronic storage of such communication," meaning that the government must apply for a Title III wiretap order before it can obtain unopened voice mail messages held by a service provider. The section amends the definition of "wire communication" so that it no longer includes stored communications. It also amends 18 U.S.C. §2703 to specify that the government may use a search warrant (instead of a wiretap order) to compel the production of unopened voice mail, thus harmonizing the rules applicable to stored voice and non-voice (e.g., e-mail) communications. Hearing at 54; see also , H.Rept. 107-236 , at 54. The authority under section 209 ends on March 10, 2006 except for investigations relating to offenses or potential offenses begun or occurring before then. The provisions of section 209 have not been substantively amended. The Justice Department cites the ease and speed with which a warrant can be obtain as the principal virtue of section 209: Investigations of terrorism and other crimes have also long been frustrated by the failure of federal law to permit agents to gain access to voice-mail messages with a search warrant. Prior to the USA PATRIOT Act, federal law required officers to waste critical time and resources going through the burdensome process of obtaining a wiretap order (rather than a search warrant) to obtain unopened voice-mail. This was so despite the fact that authorities could use a search warrant, for example, to obtain messages stored on the suspect's own answering machine. Section 209 of the USA PATRIOT Act has modernized federal law by enabling investigators to access more quickly suspects' voice-mail by using a search warrant. The speed with which voice-mail is seized and searched can often be critical to an investigation because stored voice-mail is regularly deleted by service providers and thus lost forever. Warrants pursuant to section 209 have been used to obtain key evidence in a variety of criminal cases, including voice-mail messages left for those participating in a large-scale ecstasy smuggling ring based in the Netherlands, Report at 22. The Justice Department also reports that "[s]ince passage of the act, such warrants have been used in a variety of criminal cases to obtain key evidence, including voice mail messages left for foreign and domestic terrorists," Myths at §209. And it points out that while the procedure under Title III is more demanding and consequently slower and more burdensome, the warrant procedure necessarily involves a finding of probable cause on evidence presented under oath and found by a neutral magistrate, Id . Critics might suggest that Congress could have supplied consistency of treatment in a different manner. It might have concluded that an ongoing conversation (i.e., one in which communications are being transmitted but have not been received) should be accorded the same level of Title III protection whether it involves a telephone conversation, a face to face conversation, an e-mail conversation, or a voice mail conversation. As it now stands, a telephone conversation is treated differently than an incomplete voice mail conversation. Here and elsewhere, critics might also suggest that information on the utility of the new authority seems somewhat general and fairly skeletal. Here and elsewhere, critics might be concerned with the extent to which the enhancement of government authority heralds a loss of personal privacy. The fact that Title III is only available in connection with the investigation of certain serious crimes while a search warrant is available in connection with any criminal investigation does not seem to be a consideration of any substantial force to either critics or the Justice Department. The section permits use of a search warrant to seize unopened voice mail held by a service provider. Previous requirements of a wiretap order were slow, burdensome, and not compatible with the manner in which unopened, provider-stored e-mail was handled. Critics might suggest that compatibility might have been achieved by expanding wiretap order requirements to cover unopened e-mail. Critics might question the section's continued utility if no more detailed and extensive evidence of successful use is available. Search warrants can be used to secure evidence of any crime; Title III orders are limited to investigations involve serious predicate offenses. Prior law confined the circumstances under which service providers might disclose the particulars of their customers' transaction records or communications without a warrant, court order, or their customers' consent, 18 U.S.C. 2702, 2703 (2000 ed.). Section 212 permitted communications service providers to disclose either customer records or the content of their customers' communications to authorities in any emergency situation that involved an immediate danger of physical injury, P.L. 107-56 , §212(a)(1)(D), 115 Stat. 284-85 (2001). The content provision has been repealed and replaced; the records provision has not, 18 U.S.C. 2702(b)(7), (8), 2702(c)(4). Although with a only fleeting reference to cyber terrorism offered as justification, the proposal for emergency provider disclosure came as part of the original package, §110, H.R.â, Hearing , at 72. The House and Senate proposals contained essentially the same provision, §110, H.R. 2975 , H.Rept. 107-236 , at 6-7; §212, S. 1510 , 147 Cong. Rec. S10311 (daily ed. October 4, 2001). The Homeland Security Act repealed section 212's provision governing content disclosure in emergency situations and recasts it as a separate provision, 18 U.S.C. 2702(b)(7), but said nothing of the emergency disclosure of customer records , 18 U.S.C. 2703(c)(4). As a consequence, the authority to disclose customer records in an emergency situation disappears on March 10, 2006 (except with respect to crimes or potential crimes beginning or occurring before then), but the freestanding emergency content disclosure provision which replaced its section 212 predecessor remains in effect. The Justice Department cites several instances where the authority of section 212 has been used. Although capsulized, its descriptions seem to speak of providers supplying record, rather than content, information: The cooperation of third parties in criminal or terrorist investigations is often crucial to a positive outcome. Third parties, such as telecommunications companies, often can assist law enforcement by providing information in emergency situations. Previous federal law, however, did not expressly allow telecommunications companies to disclose customer records or communications in emergencies. Even if a provider believed that it faced an emergency situation in which lives were at risk, if the provider turned over customer information to the government, it risked, in some circumstances, being sued for money damages. Congress remedied this problem in section 212 of the USA PATRIOT Act by allowing electronic communications service providers to disclose records to the government in situations involving an immediate danger of death or serious physical injury to any person. Section 212 has already amply proved its utility. Examples: Section 212 was used in the investigation of a bomb threat against a school. An anonymous person, claiming to be a student at a high school, posted on the Internet a disturbing death threat . . . The operator of the Internet site initially resisted disclosuring to law enforcement any information. . . Once a prosecutor explained that the USA PATRIOT Act created a new provision allowing for voluntary release of information in emergencies, the owner turned over evidence that led to the timely identification of the individual responsible for the bomb threat. . .. Section 212 was recently used to apprehend quickly an individual threatening to destroy a Texas mosque before he could carry out his threat. . .. Section 212 was invaluable in swiftly resolving a cyber-terrorist [extortion] threat to the South Pole Research Station. . . The hacked computer also controlled the life support systems for the South Pole station that housed 50 scientists "wintering over" during the South Pole's most dangerous season. . .. Section 212 has further proven to be extremely useful in cases involving abducted or missing children. The provision, for instance, was instrumental in quickly rescuing a 13-year-old girl from Western Pennsylvania who had been lured from her home and was being held captive by a 38-year-old man she had met online. . .. Report at 26-7; see also, Myths at §212. None of the examples seem to involve a victim alerting unsuspecting authorities of an intrusion, as the section appears to contemplate; each seems to relate to a case where authorities were aware of the intrusion and the information might have been effectively secured through the use of a search warrant, 18 U.S.C. 2703(c). None of the examples appear to relate to the rationale offered for the proposal's passageâ"protection of our nation's critical infrastructure." Section 212 authorizes service providers in emergency situations to disclose customer communications record information and the content of stored customer communications. Subsequent legislation made the content disclosure but not the record disclosure authority permanent, P.L. 107-296 , 116 Stat. 2157 (2002)(18 U.S.C. 2702(b)(7)). The record disclosure feature has proven useful in several life-threatening situations. The same benefits might be available after sunset through the use of a search warrant. There are apparently no reported instances of the section's use for its intended purposes, protection of the nation's critical infrastructure. Federal wiretap law proscribes the interception of telephone, face to face, or computer conversations, subject to certain narrow exceptions such as the issuance of a wiretap order, the consent of one of the participants in the conversation, or a communications carrier's protection of its property, 18 U.S.C. 2511. Computer service providers occasionally discover that trespassers have established electronic outposts within their systems. Section 217 allows providers to consent to law enforcement interception of communications to and from these outposts, 18 U.S.C. 2511(2)(i). Section 217 reflects the Administration's original request with two exceptions, compare , §106, H.R.â, Hearings at 71, with , §217, 115 Stat. 290-91 (2001). Section 217 excludes from the definition of "computer trespasser," those with contractual access to the computer system in question (notwithstanding the fact they may be exceed their authorization), 18 U.S.C. 2510(21)(B); and limits permissible interceptions to the trespasser's communications within the invaded computer system, 18 U.S.C. 2511(2)(i). The first exception originated in §217 of S. 1510 , as passed by the Senate, 147 Cong. Rec. S10609 (daily ed. October 11, 2001). The second initially appeared in §217 of H.R. 2975 , as passed by the House, 147 Cong. Rec. H6744-745 (daily ed. October 12, 2001). Speaking of the basic proposal, the Administration had stated that: Current law may not allow victims of computer trespassing to request law enforcement assistance in monitoring unauthorized attacks as they occur. Because service providers often lack the expertise, equipment, or financial resources required to monitor attacks themselves as permitted under current law, they often have no way to exercise their rights to protect themselves from unauthorized attackers. Moreover, such attackers can target critical infrastructures and engage in cyber terrorism. To correct this problem, and help to protect national security, the proposed amendments to the wiretap statute would allow victims of computer attacks to authorize persons "acting under color of law" to monitor trespassers on their computer systems in a narrow class of cases. §106, H.R.â, Hearings at 55. The authority under section 217 expires on March 10, 2006. There have been no amendments relevant to section 217 since its passage and the sunset exceptions for ongoing intelligence investigations or for investigations of earlier crimes seem likely to be of limited application here. The exception, however, applies "with respect to any . . . potential offense that began or occurred before" March 10, 2006. In this context, "potential offenses" may refer those crimes for which preparation but not completion predates March 10, 2006; for example, computer trespassing with an eye to launching a denial of service attack at some future date. On the other hand, in such cases the initial crime of intrusion will have occurred prior sunset, a fact that would seem to permit post-sunset exercise of the section's authority. The House Judiciary Committee had recommended expansion of the good faith defense to civil liability for computer system operators who sought to take advantage of section 217, §105(3), H.R. 2975 , H.Rept. 107-236 , at 5, 56 (2001). The recommendation was not included in the act, §217, P.L. 107-56 , 115 Stat. 291 (2001). The Homeland Security Act, however, added it as a permanent amendment to 18 U.S.C. 2520(d)(3), §225(e), P.L. 107-296 , 116 Stat. 2157 (2002). The Justice Department's post-enactment comments relating to section 217 tend to describe its reach rather than its use: The USA PATRIOT Act also empowered Internet service providers and others to enlist the help of law enforcement to monitor the activities of hackers who unlawfully access their computer networks. Section 217 of the Actallows victims of computer attacks by cyber-terrorists and others to ask law enforcement officers to monitor trespassers on their systems. Section 217 thus places cyber-intruders on the same footing as physical intruders: hacking victims can seek law-enforcement assistance to combat hackers just as burglary victims can invite police officers into their homes to catch burglars. Report at 28. The Department's comments in Myths are more expansive and do include a general statement of use: The law has always recognized the right of landowners to ask law enforcement to help expel people who illegally trespass on their property. Section 217 made the law technology-neutral, placing cyber-intruders on the same footing as physical intruders. Now, hacking victims can seek law-enforcement assistance to combat hackers, just as burglary victims have been able to invite officers into their homes to catch burglars. Prior to the enactment of the USA PATRIOT Act, the law prohibited computer service providers from sharing with law enforcement that hackers had broken into their systems. Computer operators are not required to involve law enforcement if they detect trespassers on their systems. Section 217 simply gives them the option of doing so. Section 217 preserves the privacy of law-abiding computer users. Officers cannot agree to help a computer owner unless (1) they are engaged in a lawful investigation; (2) there is reason to believe that the communications will be relevant to that investigation; and (3) their activities will not acquire the communications of non-hackers. This provision has played a key role in a number of terrorist investigations, national-security cases, and investigations of other serious crimes. Section 217 is extremely helpful when computer hackers launch massive denial of service attacks - which are designed to shut down individual websites, computer networks, or even the entire Internet. The definition of computer trespasser does not include an individual who has a contractual relationship with the service provider. Thus, for example, America Online could not ask law enforcement to help monitor a hacking attack on its system that was initiated by one of its own subscribers. Myths , at §217 (emphasis added). The section's solution does not seem to match the statement of the problem it was purportedly designed to address. It does not remove intruders or prevent their entry; it merely permits eavesdropping on them while they are trespassing. There is no clear explanation by word or example of why this is preferable or effective. The Department indicated during oversight hearings that authority under the section had been use "comparatively rarely." They have subsequently offered its use in an identify theft investigation by way of example. Some critics have expressed the concern that the provision might be used to circumvent the safeguards and oversight that attends Title III wiretaps. Section 217 permits federal authorities to intercept an intruder's communications within an invaded computer system. It requires consent of the system operator, a law enforcement investigation, a reasonable belief that the communications are relevant to the investigation, and limits interception to the intruder's communications. Statements of support have leaned heavily on descriptions of the authority rather than examples of its use. The Justice Department has stated that the authority has been used "comparatively rarely." The solution does not seem to match the problem. Section 217 does not authorize removal of computer hackers bent on denial of service attacks nor does it prevent or punish trespassers; instead it eavesdrops on their communications. Before the act, federal authorities could gain access to a communications service provider's customer records and the content of their electronic communications either through the use of a search warrant or in some instances a court order, 18 U.S.C. 2703. Certainly in the case of the search warrant and arguable in the case of the court order, the warrant or order could only be issued in the judicial district in which it was to be executed, F.R.Crim.P. 41; 18 U.S.C. 3127 (2000 ed.). Federal authorities found this inconvenient and sometimes frustrating where the criminal investigation was conducted in one district and the communications provider was located in another, H.Rept. 107-236 , at 57. Section 220 addresses the difficulty by authorizing the court in the district where the crime occurred to issue search warrants or orders to be served anywhere in the country for access to electronic communications content and customer record information (which by virtue of section 209, discussed above, now includes content and records of voice, e-mail, and other electronic communications), 18 U.S.C. 2703, 3127. But for the addition of a technical conforming amendment, section 220 passed untouched through the legislative process from request to presidential signature. The justification for the proposals was rather straightforward: Current law requires the government to use a search warrant to compel a provider to disclose unopened e-mail. 18 U.S.C. §2703(a). Because Federal Rule of Criminal Procedure 41 requires that the "property" to be obtained "be within the district" of the issuing court, however, the rule may not allow the issuance of §2703(a) warrants for e-mail located in other districts. Thus, for example, where an investigator in Boston is seeking electronic e-mail in the Yahoo! account of a suspected terrorist, he may need to coordinate with agents, prosecutors, and judges in the Northern District of California, none of whom have any other involvement in the investigation. This electronic communications information can be critical in establishing relationships, motives, means, and plans of terrorists. Moreover, it is equally relevant to cyber-incidents in which a terrorist motive has not (but may well be) identified. Finally, even cases that require the quickest response (kidnaping, threats, or other dangers to public safety or the economy) may rest on evidence gathered under §2703(a). To further public safety, this section accordingly authorizes courts with jurisdiction over investigations to compel evidence directly, without requiring the intervention of their counterparts in other districts where major Internet service providers are located. §108, H.R.â, Hearings , at 55. The authority under section 220 terminates on March 10, 2006 except with respect to earlier crimes or potential crimes. Section 219, however, appears to mitigate the impact of section 220's expiration in certain terrorism cases. Section 219 is not subject to the sunset provision. It provides for at least nation-wide, and perhaps world-wide, service of federal search and arrest warrants in cases of international or domestic terrorism as defined in 18 U.S.C. 2331. The Justice Department asserts that section 220 has proven beneficial in a number of criminal cases, some involving charges of terrorism. In section 220 . . . Congress adapted federal law to changing technology by allowing courts to order the release of stored communications through a search warrant valid in another specified judicial district. The enhanced ability to obtain this information efficiently has proved invaluable in several terrorism investigations, such as the Virginia Jihad and the "shoebomber" cases . . . as well as time-sensitive criminal investigations, such as [one] involving a dangerous fugitive . . .. In addition to allowing law enforcement to gain access to information quickly in time-sensitive investigations, Congress also significantly improved the Justice Department's ability to mount large-scale child pornography investigations by including section 220 in the USA PATRIOT Act. The ability to obtain search warrants in the jurisdiction of a child pornography investigation rather than in the jurisdiction of the Internet service provider is critical to the success of a complex, multi-jurisdictional child pornography case. . .. Section 220 has also dramatically reduced the administrative burdens in judicial districts that are home to large Internet service providers. Report at 20-1. The Attorney General has expressed the view that "It is imperative that section 220 be renewed; allowing the provision to expire would delay many time-sensitive investigations and result in the inefficient use of investigators', prosecutors', and judges' time." Critics might suggest that the principal objection to section 220 is that it makes it expensive and inconvenient for service providers to contest or request modification of orders directed to them from district courts throughout the country. For the Justice Department with United States Attorneys Offices throughout the country, by way of contrast, the burden is simply a matter of resource allocation, it might be argued. Some may feel that the section allows the Justice Department to forum shop should the federal courts in the home districts of large providers prove sympathetic to the burdens such orders impose upon the providers. They might also contend that expiration arrives with little loss in terrorism cases since section 219 of the act which does not expire allows for nation-wide service of search warrants in terrorism cases. Section 220 authorizes nation-wide execution of search warrants and court orders for customer communications records and the content of stored customer communications. A search warrant must ordinarily be executed in the judicial district in which it is issued except in terrorism cases. The Justice Department asserts that the authority has proven useful in serious terrorism and other criminal cases. The section makes it more difficult for large communications service providers to seek modification of burdensome disclosure orders; instead of being able to contest a warrant or order within their home federal district they must challenge in whatever district throughout the country the warrant or order originated. Section 219 which does not expire permits nation-wide service of search warrants in terrorism cases. Unrelated to section 223, federal law imposes criminal penalties for illegal wiretapping, 18 U.S.C. 2511, unlawful access to store communications (e.g., e-mail or voice mail), or illegally using a pen register or trap and trace device, 18 U.S.C. 3121. Except with respect to pen registers and trap and trace devices, the same misconduct also triggers civil liability, 18 U.S.C. 2520, 2707. There is a comparable set of provisions imposing criminal and civil liability for FISA surveillance and physical search violations, 50 U.S.C. 1809, 1810, 1827, 1828. Although the federal wiretap statute outlaws use or disclosure of unlawfull y intercepted communications, 18 U.S.C. 2511(1)(c), (d), and describes narrow circumstances under which communications intercepted under a court order may be used or disclosed, 18 U.S.C. 2517, without more, it does not expose to civil or criminal liability those who disclose or use communications lawfully intercepted under a court order. Section 223 confirms the authority of agency heads to discipline federal officers and employees for willful or intentional violations of federal wiretap or stored communications law, 18 U.S.C. 2520(f), 2707(d). It also imposes civil liability for any willful use or disclosure of information beyond that authorized by those two statutory schemes, 18 U.S.C. 2520(g), 2707(g). Finally, the section creates a cause of action against the United States for the benefit of victims of willful violations of federal wiretap law, the stored communications proscriptions, or the FISA requirements relating to surveillance, physical searches or the use or installation of pen registers or trap and trace devices, 18 U.S.C. 2712. Section 223 was not among those requested by the Administration, H.R.â, Hearings , at 67-90. Nor does it appear in S. 1510 as passed by the Senate, 147 Cong. Rec. S10604-630 (daily ed. October 11, 2001). It comes instead from the House Committee on the Judiciary where it was added to H.R. 2975 as §161, H.Rept. 107-236 , at 10-13, 305-13. As the section's sponsor explained: So what the amendment does is as follows: First, it says that wherever we gather information, whether it is pen register, trace and trap or wiretap or whatever, wiretap under one statute, wiretap under FISA, if information gained during the surveillance is inappropriately released, if it winds up on the White House desk and somebody leaks it, if J. Edgar Hoover tells bad stories about you, then you have a right to go in under the Federal Tort Claims Act as the aggrieved party and sue. . .. It also then says that if someone goes in and wins the lawsuit against the government because surveilled information has been inappropriately leaked, the head of that bureau or agency either must initiate disciplinary proceedings against the leaker or explain in writing . . . that wasn't done. H.Rept. 107-236 , at 311 (remarks of Representative Frank). There have been no amendments to section 223. The precise application of the sunset provision and its exceptions to the cause of action created in section 223 appears somewhat uncertain. Reading only the language of termination and before considering the exception, any cause of action created by section 223 seems to expire on March 10, 2006. This could mean either that no suit (pending or merely actionable) survives thereafter, or alternatively that pending suits survive but none may be filed thereafter, or that regardless of when it is filed any cause of action will only survive with respect to matters occurring prior to that date. Under some circumstances the demise of a cause of action deprives the courts of subject matter jurisdiction. Longstanding Supreme Court precedent holds that "when a law conferring jurisdiction is repealed without any reservation as to pending cases, all cases fall with the law." Taking the exception into consideration, the language on its face seems to say that section 223 continues in effect "with respect to any particular foreign intelligence investigation that began before [March 10, 2006], or with respect to any particular offense or potential offense that began or occurred before" March 10, 2006; that is, a cause of action arising out of foreign intelligence investigation initiated before the date of expiration or out of a criminal investigation of conduct occurring before the date survivesâregardless of when the conduct giving rise to the cause of action occurred. On the other hand, subsection 224(b) may speak only to investigations not to causes of action. It may be that the exception is intended to do no more than extend investigative powers conveyed by other expiring sections of the act. The exceptions may be calculated to do no more than to avoid cutting off investigations pending as of March 10, 2006. Although the language seems to point more strongly to a different conclusion, this view is compatible with the general rule that authority to sue the United States should be narrowly construed. The Justice Department reports that "[t]here have been no administrative disciplinary proceedings or civil actions initiated under section 223 of the actfor unauthorized disclosure of intercepts," Myths at §223. Critics of the section might argue that the prospect of disciplinary action might serve as a disincentive to information sharing. The Attorney General has urged Congress to make this section permanent. Section 223 creates a cause of action against the United States for official willful violations of Title III or FISA, 18 U.S.C. 2712; amends individual civil liability provisions of Title III for official unlawful disclosure or use, 18 U.S.C. 2520(g), 2707(g); confirms disciplinary authority of agencies officials over violations of the Title III or FISA, 18 U.S.C. 2520(f), 2707(d). There have been no disciplinary proceedings initiated or civil actions filed under section 223. The Attorney General has urged Congress to make section 223 permanent. Section 223 might serve as a disincentive to information sharing. Federal law affords foreign intelligence officials authority comparable to that enjoyed by law enforcement officials in some respects. There is a rough comparability between surveillance (wiretap) authority under the FISA and under Title III, compare , 50 U.S.C. 1801-1811, with , 18 U.S.C. 2510-2522; there is a rough comparability between FISA physical search authority and search warrant authority in a law enforcement context, compare , 50 U.S.C. 1821-1829, with , F.R.Crim.P. 41; and there is a rough comparability between FISA trap and trace or pen register orders and their law enforcement counterparts, compare , 18 U.S.C. 3121-3127, with , 50 U.S.C. 1841-1846. There are, however, significant differences. One of the most perplexing aspects of the law in the post-9/11 universe is the relationship of the statutory procedures and prohibitions governing wiretap and related investigative tools in the criminal law enforcement world (Title III et al.) to those in the foreign intelligence world (FISA). Title III and its auxiliaries are focused on crime (probable cause to believe that predicate offense has, is or will occur; relevancy to a criminal investigation) whether the offender is an American or not; FISA is focused on foreign powers and the agents of foreign powers (probable cause to believe that the target is a foreign power or an officer, employee, spy, saboteur, or terrorist acting on behalf of a foreign power) whether criminal activity is involved or not. The difficulty flows from the fact that an international terrorist may appropriately be the target of a order under Title III et al., or FISA, or both. Section 206 authorizes assistance for the installation and use of multi-point FISA wiretaps, 50 U.S.C. 1805(c)(2)(B). Prior to the act, a FISA wiretap order could include directions that a specifically identified communications carrier, landlord, or other individual assist in the execution of the order, 50 U.S.C. 1805(c)(2)(B) (2000 ed.). Section 206 amends FISA to permit a general command for assistance where the target of the surveillance has taken steps to thwart the identification of any specific person by "rapidly changing hotel accommodations, cell phones, Internet accounts, etc, just prior to important meetings or communications." The law enforcement wiretap statute has a similar provision for law enforcement orders, 18 U.S.C. 2518(4). The Administration's original request observed that: This provision expands the obligations of third parties to furnish assistance to the government under FISA. Under current FISA provisions, the government can seek information and assistance from common carriers, landlords, custodians and other persons specified in court-ordered surveillance. Section 152 would amend FISA to expand existing authority to allow, "in circumstances where the Court finds that the actions of the target of the application may have the effect of thwarting the identification of a specified person" that a common carrier, landlord, custodian or other persons not specified in the Court's order be required to furnish the applicant information and technical assistance necessary to accomplish electronic surveillance in a manner that will protect its secrecy and produce a minimum of interference with the services that such person is providing to the target of electronic surveillance. This would enhance the FBI's ability to monitor international terrorists and intelligence officers who are trained to thwart surveillance by rapidly changing hotel accommodations, cell phones, Internet accounts, etc., just prior to important meetings or communications. Under the current law, the government would have to return to the FISA Court for an order that named the new carrier, landlord, etc., before effecting surveillance. Under the proposed amendment, the FBI could simply present the newly discovered carrier, landlord, custodian or other person with a generic order issued by the Court and could then effect FISA coverage as soon as technically feasible. §152, H.R.â, Hearings at 56. The proposal passed through the legislative process unchanged, see , §152, H.R. 2975 , H.Rept. 107-236 at 8, 59-60; §206, S. 1510 , 147 Cong. Rec. S10607 (daily ed. October 11, 2001). The subsection 224(b) exceptions provisions seem rather obviously applicable. The authority continues in effect after March 10, 2006, with respect to any foreign intelligence investigation initiated prior to that time. There have been no amendments related to section 206 since its enactment. A subsequent amendment (which does not sunset) to a different FISA section, however, permits roving surveillance by requiring a FISA order to identify the location and facilities subject to surveillance only if they are known at the time of the application, P.L. 107-108 , 115 Stat. 1402 (2001)(50 U.S.C. 1805(c)(1)(B)). The Justice Department's Report describes section 206 and offers a hypothetical by way of justification: Since 1986, law enforcement officials have been able to obtain multiple-point wiretaps to keep pace with drug dealers and mobsters who, for example, frequently switch cell phones to evade surveillance. Prior to enactment of the USA PATRIOT Act, such authority was not available under FISA for cases involving terrorists. Section 206 of the act, however, now permits officers in international terrorism investigations to obtain a court order that applies to the suspect, rather than a particular phone or phone company. This new authority has put investigators in a better position to avoid unnecessary cat-and-mouse games with terrorists, who are trained to thwart surveillance. While particular examples of the use of multiple-point wiretaps pursuant to section 206 remain classified, the following hypothetical illustrates the utility of this authority. Suppose, for example, the investigators become aware of an al Qaeda plot to launch a bomb attack. Investigators also discover a recent cellular telephone number for the suspected bomber, for which they immediately obtain a FISA surveillance order. When they attempt to begin surveillance of the suspect, however, they discover that he has changed cellular telephone numbers and providers in order to thwart surveillance. Because of section 206, in cases where the subject's actions may have the effect of thwarting the identification of a service provider, investigators can now obtain a FISA multiple-point surveillance order and immediately serve it on the suspected bomber's new cellular provider, allowing undercover agents to monitor his new cellular telephone number immediately. Without section 206, however, investigators in such cases would be forced to waste valuable time returning to the FISA court just to obtain a new order containing the new provider's name. Report at 22-3. Critics claim section 206 is too sweeping; places unfair burdens upon those called upon to provide assistance; and might raise constitutional concerns. Section 206 permits roving FISA surveillance orders; orders need not specifically identify individuals ordered to assist where targets take actions to thwart specific individuals, 50 U.S.C. 1805(c)(2)(B). Comparable authority has existed under Title III (18 U.S.C. 2518(4)) for some time. Critics claim the provision is too sweeping, perhaps constitutionally so. A subsequent amendment (which does not sunset) permits roving surveillance by requiring a FISA order to identify the location and facilities subject to surveillance only if they are known , P.L. 107-108 , 115 Stat. 1402 (2001)(50 U.S.C. 1805(c)(1)(B)). Under FISA before passage of the act, FISA wiretap orders with the agent of a foreign power as their target had a maximum duration of 90 days, and could be extended in 90 day increments, 50 U.S.C. 1805(e)(2000 ed.). FISA physical search orders and extensions were good for no more than 45 days (but up to one year if a foreign power was the target), 50 U.S.C. 1824(d)(2000 ed.). Section 207 amends the time lines. FISA wiretap orders relating to the agent of foreign power may remain in effect for up to 120 days and may be extended at one year intervals, 50 U.S.C. 1805(e). As a general rule, FISA physical search orders and extensions may be authorized for 90 days (unless they target a foreign power), but orders with an agent of a foreign power as their target may be issued for up to 120 days with extensions for up to one year, 50 U.S.C. 1824(d). As is often and understandably the case where FISA is the subject, the Administration's statement accompanying its request here is a bit cryptic: This section reforms a critical aspect of the Foreign Intelligence Surveillance Act (FISA). It will enable the Foreign Intelligence Surveillance Court (FISC), which presides over applications made by the U.S. government under FISA, to authorize the search and surveillance in the U.S. of officers and employees of foreign powers and foreign members of international terrorist groups for up to a year. Currently, the FISC may only authorize such searches and surveillance for up to 45 days and 90 days, respectively. The proposed change would bring the authorization period in line with that allowed for search and surveillance of the foreign establishments for which the foreign officers and employees work. The proposed change would have no effect on electronic surveillance of U.S. citizens or permanent resident aliens. §151, H.R.â, Hearings at 51; see also , H.Rept. 107-236 at 59. The Senate scaled back the Administration's request to extend the duration of orders and extensions relating to foreign agents from one year to 120 days, but with extensions for up to one year in the case of agents who are foreign nationals (not U.S. persons), §207, S. 1510 , 147 Cong. Rec. S10607 (daily ed. October 11, 2001). The Senate view ultimately prevailed, §207, P.L. 107-56 , 115 Stat. 282 (2001). The provisions of section 207 have not been amended. They would appear to remain available for use with respect to any foreign intelligence investigation predating March 10, 2006, but otherwise to expire on that date. The Justice Department apparently views section 207 as a matter of expediency and administrative efficiency: The USA PATRIOT Act has also improved the effectiveness of FISA. Under FISA, a federal court . . . reviews Department requests for physical searches and electronic surveillance of foreign powers and their agents. Under prior law, the Department could only conduct FISA searches of agents of foreign powers for periods lasting up to 45 days prior to having to seek renewal of such authority from the court. That limitation required federal authorities to waste valuable time and resources by frequently renewing court orders, even when there was no question about the legal sufficiency of a particular case. Section 207 of the USA PATRIOT Act now permits the FISC to authorize physical searches of certain agents of foreign powers (including U.S. persons) for 90 days, and authorizes longer periods of searches and electronic surveillance for certain categories of foreign powers and non-U.S. persons who are agents of foreign powers. In particular for foreign governments and other foreign powers, non-U.S. person officers or employees of certain foreign powers, and non-U.S. person members of international terrorist groups, initial orders authorizing searches and surveillance may be for periods of 120 days, and renewal orders may extend for periods of one year. While the details of FISA operations are classified, the FISC has authorized 90-day and year-long surveillance of foreign powers and their agents pursuant to section 207 of the USA PATRIOT Act. Therefore, the Acthas not only provided additional time to government investigators targeting potential terrorist activity, it has also helped the government and the FISC to focus their efforts on more significant and complicated terrorism-related cases. Report at 17. Under FISA before passage of the act, FISA wiretap orders with the agent of a foreign power as their target had a maximum duration of 90 days, and could be extended in 90 day increments, 50 U.S.C. 1805(e)(2000 ed.). FISA physical search orders and extensions were good for no more than 45 days (but up to one year if a foreign power was the target), 50 U.S.C. 1824(d)(2000 ed.). Section 207 amends the time lines. FISA wiretap orders relating to the agent of foreign power may remain in effect for up to 120 days and may be extended at one year intervals, 50 U.S.C. 1805(e). As a general rule, FISA physical search orders and extensions may be authorized for 90 days (unless they target a foreign power), but orders with an agent of a foreign power as their target may be issued for up to 120 days with extensions for up to one year, 50 U.S.C. 1824(d). This section essentially deals with the regularity of judicial supervision. The Deputy Attorney General has pointed out that the section saved the Office of Intelligence Policy and Review approximately 60,000 hours of attorney time in processing applications, an estimate that does include time that might have had to be expended by FBI agents and attorneys. Critics might argue more not less supervision is appropriate given the increased use of FISA and of the FISA court's remarkably outspoken criticism of the accuracy, candor and sufficiency of presentations to the court. Section 207 extends the permissible duration of FISA surveillance and physical search orders and extensions, 50 U.S.C. 1805(e), 1824(d). The Justice Department sees section 207 as a time saver that allows for more productive allocation of Department and judicial resources. Critics might argue more not less judicial supervision is called for. Section 214 makes several adjustments in the FISA pen register/trap and trace device procedures. FISA once permitted applications for a FISA pen register or trap and trace device order for telephone communications in order to acquire information relevant to a foreign intelligence or international terrorism investigation and upon the additional certification that the communications monitored would likely be either (1) those of an international terrorist or spy ("individual . . . engaged in international terrorism or clandestine intelligence activities that . . . involve a violation of [U.S.] criminal laws") or (2) those of a foreign power or its agent relating to the criminal activities of an international terrorist or spy, 50 U.S.C. 1842(a)(1), (c)(2), (c)(3), (i)(2000 ed.). Section 214 opens the FISA pen register/trap and trace device procedure to both wire and electronic communications (e.g., telephone, e-mail, Internet communications), 50 U.S.C. 1842(d)(2)(A). It drops the requirement that the communications be those of international terrorists or spies or be related to their activities, 50 U.S.C. 1842(c)(2). It adds the caveat that any investigation of a U.S. person for which a order is secured "to protect against international terrorism or clandestine intelligence activities" may not be conducted based solely on activities protected by the first amendment to the Constitution, 50 U.S.C. 1842(a)(1), (c)(2). It adds this same caveat with respect to emergency FISA pen register or trap and trace device use, 50 U.S.C. 1843(a),(b)(1). The Administration's original request sought to make pen register and trap and trace device procedures more compatible: When added to FISA two years ago, the pen register/trap and trace section was intended to mirror the criminal pen/trap authority defined in 18 U.S.C. §3123. The FISA authority differs from the criminal authority in that it requires, in addition to a showing of relevance, an additional factual showing that the communications device has been used to contact an "agent of a foreign power" engaged in international terrorism or clandestine intelligence activities. This has the effect of making the FISA pen/trap authority much more difficult to obtain. In fact, the process of obtaining FISA pen/trap authority is only slightly less burdensome than the process for obtaining full electronic surveillance authority under FISA. This stands in stark contrast to the criminal pen/trap authority, which can be obtained quickly from a local court, on the basis of a certification that the information to be obtained is relevant to an ongoing investigation. The amendment simply eliminates the "agent of a foreign power" prong from the predication, and thus makes the FISA authority more closely track the criminal authority. §155, H.R.â, Hearings at 57; see also , §155, H.R. 2975 , H.Rept. 107-236 at 61. The Senate added the instruction that denies pen register/trap and trace device authority in the case of an investigation predicated entirely upon its target's exercise of first amendment rights, §214, S. 1510 , 147 Cong. Rec. S10608 (daily ed. October 11, 2001). Except for on-going investigations, the FISA pen register/trap and trace device provisions revert to form on March 10, 2006. No relevant amendments have been enacted since passage of the act. The streamlined authority apparently has been used in the investigation of suspected al Qaeda agents in this country: The USA PATRIOT Act also has updated federal pen-trap law under FISA by making the legal requirements for obtaining court permission for pen/trap orders in international terrorism investigations more similar to the standards that apply in ordinary criminal cases. Previously, FISA-authorized pen/trap orders were available in terrorism investigations only if the suspect was, or was communicating with an "agent of a foreign power." FISA thus prevented officials from using pen/trap devices in many settings that might have revealed information relevant to a foreign intelligence investigation. Under section 214 of the act, however, the government now can obtain a pen/trap order when the information likely to be obtained is foreign intelligence information or is relevant to investigations intended to protect against international terrorism or "clandestine intelligence activities." While specific examples of the use of pen/trap devices pursuant to section 214 remain classified, the Department has utilized section 214 on several occasions in international terrorism investigations, including investigations of suspected al Qaeda operatives in the United States, and the streamlined pen/trap authority has made it easier to identify additional subjects in terrorism investigations. Report , at 25-6. Critics might argue that streamlining the FISA pen register/trap and trace device procedure is particularly ill-advised. First, the procedure is already subject to a minimum of judicial supervision; orders are issued upon the FBI's certification of relevance not upon the court's finding of relevance; unlike wiretap orders, there is no requirement that the targets of the order be notified after the order expires unless the results are to be used as evidence in official proceedings; unlike comparable orders in the criminal sphere, there is no requirement of a subsequent report to the court of the particulars of execution; criminal orders call for judicial re-examination every 60 days, FISA orders every 90 days. Second, the nature and extent of the expanded authority is substantial. Where orders once permitted authorities to monitor the identification of parties to telephone conversations over particular instruments, they now permit authorities to monitor Internet use. Third, in terrorism cases officials presumable enjoy adequate law enforcement authority under section 216 of the act which does not expire. Some critics find the section disquieting for constitutional reasons. Section 214 recasts FISA pen register/trap & trace order procedures so that they apply to electronic (e-mail and other Internet communications as well as to telephone communications), 50 U.S.C. 1842. The change is comparable in some respects to a similar enlargement for law enforcement in §216 which does not expire, 18 U.S.C. 3123(b), 3127(4)). The section precludes exercise of emergency authority or issuance in connection with an investigation based solely on the exercise of first amendment rights. The section is constitutionally permissible, but requires a court order nonetheless and is first amendment sensitive. Critics might argue that the expansion to cover Internet use is dramatic; that the FISA expansion lacks some of the safeguards found in its law enforcement counterparts; and that in terrorism cases the authority available to law enforcement officials under section 216 of the act which does not expire should be sufficient. FISA originally authorized a FISA court order (in a terrorism investigation or an effort to gather foreign intelligence information) for FBI access to the business records of hotels, motels, car and truck rental agencies, and storage rental facilities, 50 U.S.C. 1862 (2000 ed.). An application for such an order had to assert that there were "specific and articulable facts giving reason to believe that the person to whom the records pertain [was] a foreign or an agent of a foreign power," 50 U.S.C. 1862(b)(2)(2000 ed.). Section 215 expands the authority to include not only business records but any tangible item regardless of the business or individual holding the item and upon the simple assertions that the records are sought in an effort to obtain foreign intelligence (not based solely on the first amendment protected activities of a U.S. person) or in a terrorism investigation, 50 U.S.C. 1861. Section 215 began as a request for administrative subpoena authority to replace a more narrowly drawn FISA procedure: The "business records" section of FISA (50 U.S.C. §§ 1861 and 1862) requires a formal pleading to the Court and the signature of a FISA judge (or magistrate). In practice, this makes the authority unavailable for most investigative contexts. The time and difficulty involved in getting such pleadings before the Court usually outweighs the importance of the business records sought. Since its enactment, the authority has been sought less than five times. This section would delete the old authority and replace it with a general "administrative subpoena" authority for documents and records. This authority, modeled on the administrative subpoena authority available to drug investigators pursuant to Title 21, allows the Attorney General to compel protection of such records upon a finding that the information is relevant. §156, H.R.â, Hearings , at 57. The House Judiciary Committee converted the request into an amendment of the earlier FISA procedure. In doing so it preserved at least a modicum of judicial supervision while acceding to the Administration's request for more expansive authority. Section 215 expires on March 10, 2006, except with respect to on-going foreign intelligence investigations, at which point the law reverts to the hotel-motel-car-rental business records procedure that the predates the act. There are no subsequent amendments to the act or to FISA that alter the consequences of that reversion, but the impact of expiration may be mitigated by changes in the law governing "national security letters" that provide access to a wider range of business records after sunset. Provisions in the Right to Financial Privacy Act, the Fair Credit Reporting Act, and chapter 121 of title 18 of the United States Code, authorize the FBI when investigating international terrorism or clandestine intelligence activities to request access to business records held by banks, credit report agencies, and communications carriers, 12 U.S.C. 3414, 15 U.S.C. 1681, 18 U.S.C. 2709. Section 374 of the 2004 intelligence authorization act amends the Right to Financial Privacy Act to give the FBI access to business records held not only by banks, but by credit card companies, car dealers, real estate agencies, stock brokers, jewelers, and certain other business occasionally marked by large cash transactions, P.L. 108-177 , 117 Stat.2628 (2003) (amending 12 U.S.C. 3414 to the make the definition of "financial institution" found in 31 U.S.C. 5312 applicable). Section 215 has been among the more hotly debated sections of the act. Librarians and library associations have been among its more vocal critics. The Justice Department has responded that: The library habits of ordinary Americans are of no interest to those conducting terrorism investigations. However, historically terrorists and spies have used libraries to plan and carry out activities that threaten our national security . . . Obtaining business records is a long-standing law enforcement tactic. Ordinary grand juries for years have issued subpoenas to all manner of businesses, including libraries and bookstores, for records relevant to criminal inquiries. . .. Section 215 authorized the FISA court to issue similar orders in national security investigations. It contains a number of safeguards that protect civil liberties. Section 215 requires FBI agents to get a court order. . . Section 215 has a narrow scope. . . It cannot be used to investigate ordinary crimes, or even domestic terrorism. Section 215 preserves First Amendment rights. . .. Section 215 provides for congressional oversight. Myths at §215. Section 215 authority appears to have been relatively little used. Justice Department officials have testified that 35 orders have been issued under section 215 authority, none of which involved library, book store, medical, or gun sale records. At the same time they argue against the creation of a safe haven in public services that terrorists have been known to use. Critics decry the section's expansion beyond agents of a foreign power as well as its secrecy provisions. They also question its constitutionality. Section 215 provides access to tangible items under the Foreign Intelligence Surveillance Act (FISA), 50 U.S.C. 1861, by authorizing ex parte FISA court orders in foreign intelligence (as amended), international terrorism, and clandestine intelligence cases. It reverts at sunset to the vehicle rental, transportation, storage rental, and housing accommodation business records pertaining to foreign power or agent, 50 U.S.C. 1861, 1862 (2000 ed.). Other legislation expanding the definition of financial institution for national security letter purposes, P.L. 108-177 , 117 Stat. 2628 (2003)(12 U.S.C. 3414) might be thought to compensate for reduced authority upon reversion. Grand juries can subpoena the same material with fewer restrictions or protections; section 215 FISA orders demand senior official and judicial approval, explicit first amendment adherence, and Congressional reporting. In many instances the same material is available using national security letter (nsl) authority. It is only to be used in serious national security cases. The authority had been used in 35 instances as of March 30, 2005. The section produces an environment of abuse through its elimination of safeguards (limited to third parties; requires neither probable cause nor "articulable facts;" and need not be limited to items relating to the target of the investigation) and through its use of a procedure that already carries reduced safeguards (use of a secret court, which does not weigh the evidence; and one-way gag orders of unknown breath and duration). At one time, applications for a FISA wiretap or physical search order were required to certify that "the" purpose for seeking the order was to obtain foreign intelligence information, 50 U.S.C. 1804(a)(7)(B), 1823(a)(7)(B)(2000 ed.). This, and FISA's minimization requirements, among other things, led to the view that FISA required a wall of separation between law enforcement and intelligence investigations. Section 218 was designed to promote greater cooperation and information sharing among criminal and foreign intelligence investigators, to remove the "wall" that had been administratively constructed between. It does so by authorizing FISA wiretap or physical search order applications even if the acquisition of foreign intelligence information is no more than a "significant" reason for the application, 50 U.S.C.1804(a)(7)(B), 1823(a)(7)(B). The FISA review court concluded that this standard permits applications where intelligence information collection supplies some measurable reason for the application and that the provision passes constitutional muster, In re Sealed Case , 310 F.3d 717, 735-46 (F.I.S.Ct.Rev. 2002). The Supreme Court has held that the assertion of the President's national security powers will not excuse the failure to comply with the Fourth Amendment's warrant requirements during the course of an investigation of domestic terrorists, United States v. United States District Court (Keith) , 407 U.S. 297, 314-21 (1972). The Court expressly declined to address or express any opinion with regard to "the issues which may be involved with respect to activities of foreign powers or their agents," Id. at 321-22. Nor would the Court hold that standards and procedures similar those of Title III need necessarily have to be duplicated in such cases, Id. at 22. Prior to Keith , "[f]or decades Presidents had claimed inherent power to conduct warrantless electronic surveillance in order to gather foreign intelligence in the interests of national security," ACLU v. Barr , 952, F.2d 457, 460 (D.C. Cir. 1991). Following Keith , when defendants in criminal proceedings raised constitutional challenges the lower federal courts in at least three circuits "sustained the President's power to conduct warrantless electronic surveillance for the primary purpose of gathering foreign intelligence information, Id. at 461(emphasis added). After Congress enacted FISA, several courts used this "primary purpose" language to respond to the arguments of criminal defendants who challenged the FISA "the purpose" certification and who argued that FISA had been used solely to avoid the more stringent Title III requirements demanded in a criminal investigation. In the aftermath of 9/11, the Administration sought to change the "the purpose" certification requirement to a "a purpose" certification requirement, §153, H.R.â, Hearing , at 74. Its explanation was concise, "Current law requires that FISA be used only where foreign intelligence gathering is the sole or primary purpose of the investigation. This section will clarify that the certification of a FISA request is supportable where foreign intelligence gathering is 'a' purpose of the investigation. This change would eliminate the current need continually to evaluate the relative weight of criminal and intelligence purposes, and would facilitate information sharing between law enforcement and foreign intelligence authorities which is critical to the success of anti-terrorism efforts," Hearing at 56-7. Both House and Senate bills substituted the final language, "a significant purpose," §153, H.R. 2975 , H.Rept. 107-236 , at 8; §218, S. 1510 , 147 Cong. Rec. S10313 (daily ed. October 4, 2001). The House Judiciary Committee characterized the change as "a compromise between current law and what the Administration has proposed," H.Rept. 107-236 , at 60, and the FISA review court concluded that the change "imposed a requirement that the government have a measurable foreign intelligence purpose, other than just criminal prosecution of even foreign intelligence crimes," In re Sealed Case ,310 F.3d 717, 735 (F.I.S.Ct.Rev. 2002). Section 218 sunsets on March 10, 2006 except with respect to foreign intelligence investigations initiated before that date. Whether the wall of separation between criminal and foreign intelligence investigations will be or must be reconstructed at that point is unclear at best. Section 504 of the act(which does not sunset) adds language to the FISA wiretap and physical search schemes calling for continued cooperation and declaring cooperation no bar to the certification in a FISA application of an intelligence-gathering purpose, 50 U.S.C. 1806(k), 1825(k). Moreover, the Department of Justice and the FISA review court now appear to doubt that FISA prior to passage of the act required such a wall of separation. Thus, the expiration of section 218 may not require reconstruction of the wall, although applications for FISA wiretap or search orders would once again have to certify that foreign intelligence gathering constituted "the" purpose for the application. Section 218 is perhaps the most fundamental of the changes accomplished by the expiring sections of the act. Therefore it is not surprising that the Justice Department's defense of the section is both extensive and explicit: The USA PATRIOT Act authorizes government agencies to share intelligence so that a complete mosaic of information can be compiled to understand better what terrorists might be planning and to prevent attacks. Prior law, as interpreted and implemented, had the effect of sharply limiting the ability of law enforcement and intelligence officers to share information, which severely hampered terrorism investigators' ability to connect the dots. However, the USA PATRIOT Act, along with changes in Attorney General Guidelines and Foreign Intelligence Surveillance Act (FISA) court procedures, brought down this wall separating intelligence from law enforcement and greatly enhanced foreign intelligence information sharing among federal law enforcement and national security personnel, intelligence agencies, and other entities entrusted with protecting the nation from acts of terrorism. This increased ability to share information has been invaluable to the conduct of terrorism investigations and has directly led to the disruption of terrorist plots and numerous arrests, prosecutions, and convictions in terrorism cases. The recent investigation and prosecution of members of an al Qaeda cell in Lackawanna, New York illustrates the benefits of the increased information sharing brought about by the USA PATRIOT Act. This case involved several residents of Lackawanna, who traveled to Afghanistan in 2001 to receive training at an al Qaeda-affiliated camp near Kandahar. The investigation of the "Lackawanna Six" began during the summer of 2001, when the FBI received an anonymous letter indicating that these six individuals and others might be involved in criminal activity and associating with foreign terrorists. The FBI concluded that existing law required the creation of two separate investigations in order to retain the option of using FISA: a criminal investigation of possible drug crimes and an intelligence investigation related to terrorist threats. Over the ensuing months, two squads carried on these two separate investigations simultaneously, and there were times when the intelligence officers and the law enforcement agents concluded that they could not be in the same room during briefings to discuss their respective investigation with each other. The USA PATRIOT Act, however, took down the "wall" separating these two investigations by making clear that the sharing of case-sensitive information between these two groups was allowed. As a result of key information shared by intelligence investigators, law enforcement agents were able to learn that an individual mentioned in the anonymous letter was an agent of al Qaeda. Further information shared between intelligence and law enforcement personnel then dramatically expedited the investigation of the Lackawanna Six and allowed charges to be filed against these individuals. Five of the Lackawanna Six pleaded guilty to providing material support to al Qaeda, and the sixth pleaded guilty to conducting transactions unlawfully with al Qaeda. These individuals were then sentenced to prison terms ranging from seven to ten years. Before the passage of the USA PATRIOT Act, applications for orders authorizing electronic surveillance or physical searches under FISA had to include a certification from a high-ranking Executive Branch official that the purpose of the surveillance or search was to gather foreign intelligence information. As interpreted by the courts and later the Justice Department, this requirement meant that the primary purpose of the collection had to be to obtain foreign intelligence information rather than evidence of a crime. Over the years, the prevailing interpretation and implementation of the primary purpose standard had the effect of limiting coordination and information sharing between intelligence and law enforcement personnel. Because the courts evaluated the government's purpose for using FISA at least in part by examining the nature and extent of such coordination, the more coordination that occurred, the most likely courts would find that law enforcement, rather than foreign intelligence, had become the primary purpose of the surveillance or search. * * * In recent testimony before the Senate Judiciary Committee, Patrick Fitzgerald, U.S. Attorney for the Northern District of Illinois, recounted from personal experience how this "wall' between law enforcement and intelligence personnel operated in practice: I was on a prosecution team in New York that began a criminal investigation of Usama Bin Laden in early 1996. The teamâprosecutors and the FBI agents assigned to the criminal caseâhad access to a number of sources. We could talk to citizens. We could talk to local police officers. We could talk to other U.S. Government agencies. We could talk to foreign police officers. Even foreign intelligence personnel. And foreign citizens. And we did all those things as often as we could. We could even talk to al Qaeda membersâand we did. We actually called several members and associates of al Qaeda to testify before a grand jury in New York. And we even debriefed al Qaeda members overseas who agreed to become cooperating witnesses. But there was one group of people we were not permitted to talk to. Who? The FBI agents across the street from us in lower Manhattan assigned to a parallel intelligence investigation of Usama Bin Laden and al Qaeda. We could not learn what information they had gathered. That was the "wall." The USA PATRIOT Act brought down the "wall" separating intelligence officers from law enforcement agents. . .. Section 218 of the USA PATRIOT Act eliminated the "primary purpose" requirement. . .. The Department has moved aggressively to implement sections 218 and 504 of the USA PATRIOT Act and bring down "the wall." These efforts to increase coordination and information sharing between intelligence and law enforcement officers, which were made possible by the USA PATRIOT Act, have yielded extraordinary dividends by enabling the Department to open numerous criminal investigations, disrupt terrorist plots, bring numerous criminal charges, and convict numerous individuals in terrorism cases. Examples: The removal of the "wall" separating intelligence and law enforcement personnel played a critical role in the Department's successful dismantling of a Portland, Oregon terror cell, popularly known as the "Portland Seven." Members of this terror cell had attempted to travel to Afghanistan in 2001 and 2002 to take up arms with the Taliban and al Qaeda against United States and coalition forces fighting there. . .. [A]t least one member of the cell [Battle] had contemplated attacking Jewish schools or synagogues and had even cased such buildings to select a target for such an attack. By the time investigators received this information from the undercover informant, they had suspected that a number of other persons . . . had been involved in the Afghanistan conspiracy. But while several of these other individuals had returned to the United States from their unsuccessful attempts to reach Afghanistan, investigators did not yet have sufficient evidence to arrest them. Before the USA PATRIOT Act, prosecutors would have faced a dilemma in deciding whether to arrest Battle immediately. If prosecutors had failed to act, lives could have been lost through a domestic terrorist attack. But if prosecutors had arrested Battle in order to prevent a potential attack, the other suspects in the investigation would have undoubtedly scattered or attempted to cover up their crimes. Because of sections 218 and 504 . . . it was clear that the FBI agents could conduct FISA surveillance of Battle to detect whether he had received orders from an international terrorist group to reinstate the domestic attack plan on Jewish targets and keep prosecutors informed as to what they were learning. This gave prosecutors the confidence not to arrest Battle prematurely while they continued to gather evidence on the other members o the cell. Ultimately, prosecutors were able to collect sufficient evidence to charge seven defendants and then to secure convictions and prison sentences ranging from three to eighteen years for the six defendants taken into custody. Charges against the seventh defendant were dismissed after he was killed in Pakistan by Pakistani troops. . .. Without sections 218 and 504 of the USA PATRIOT Act, however, this case like would have been referred to as the "Portland One" rather than the "Portland Seven." The Department shared information pursuant to sections 218 and 504 before indicting Sami Al-Arian and several co-conspirators on charges related to their involvement with the Palestinian Islamic Jihad (PIJ). PIJ is alleged to be one the world's most violent terrorist outfits. . .. In this case, sections 218 and 504 . . . enabled prosecutors to consider all evidence against Al-Arian and his co-conspirators, including evidence obtained pursuant to FISA that provided the necessary factual support for the criminal case. By considering the intelligence and law enforcement information together, prosecutors were able to create a complete history for the case and put each piece of evidence in its proper context. . . Prosecutors and investigators also used information shared pursuant to sections 218 and 504 . . . in investigating the defendant in the so-called "Virginia Jihad" case . . . The information sharing between intelligence and law enforcement personnel made possible by sections 218 and 504 . . . was useful in the investigation of two Yemeni citizens . . . who were charged last year with conspiring to provide material support to al Qaeda and HAMAS. . . The Department used sections 218 and 504 to gain access to intelligence, which facilitated the indictment of Enaam Arnaout, the Executive Director of the Illinois-based Benevolence International Foundation(BIF). . . Arnaout ultimately pleaded guilty to a racketeering charge, admitting that he diverted thousands of dollars from BIF to support Islamic military groups in Bosnia and Chechnya. He was sentenced to over 11 years in prison. The broader information sharing and coordination made possible by sections 218 and 504 . . . assisted the prosecution in San Diego of several persons involved in an al Qaeda drugs-for-weapons plot, which culminated in several guilty pleas. Two defendants admitted that they conspired to distribute approximately five metric tons of hashish and 600 kilograms of heroin originating in Pakistan to undercover United States law enforcement officials. Additionally, they admitted that they conspired to receive, as partial payment for the drugs, four "Stinger" anti-aircraft missiles that they then intended to sell to the Taliban. . . Sections 218 and 504 were critical in the successful prosecution of Khaled Abdel Latif Dumeisi, who was convicted . . . of illegally acting as an agent of the former government of Iraq. . . During this investigation, intelligence officers conducting surveillance of Dumeisi pursuant to FISA coordinated and shared information with law enforcement agents and prosecutors investigating Dumeisi for possible violations of criminal law. Because of this coordination, law enforcement agents and prosecutors learned from intelligence officers of an incriminating telephone conversation that took place in April 2003 between Dumeisi and a co-conspirator. This phone conversation corroborated other evidence that Dumeisi was acting as an agent of the Iraqi government and provided a compelling piece of evidence at Dumeisi's trial. Report , at 2-8. The absence of the wall has stimulated concerns that the cooperation between law enforcement and intelligence officials creates the risk that coordination could be used to evade the restricting safeguards the law imposed upon each. The FISA appellate court found no Fourth Amendment infirmity in section 218: Even without taking into account the President's inherent constitutional authority to conduct warrantless foreign intelligence surveillance, we think the procedures and government showings required under FISA, if they do not meet the minimum Fourth Amendment warrant standards, certainly come close. We, therefore, believe firmly . . . that FISA as amended [by section 218] is constitutional because the surveillances it authorizes are reasonable. In re Sealed Case , 310 F.3d 717, 746 (F.I.S.Ct.Rev. 2002). Yet "commentators have reached differing conclusions regarding the In re Sealed Case court's Fourth Amendment holding. The court's Fourth Amendment analysis has been criticized for 'resting on shaky and previously unexplored ground' and reach[ing] the wrong conclusion under Fourth Amendment principles and precedent." By virtue of section 218 FISA surveillance or physical search applications need only certify that foreign intelligence gathering is a "significant" purpose for seeking the order rather than "the" purpose, 50 U.S.C. 1804(a)(7)(B), 1823(a)(7)(B). The section makes it clear that a "wall" between FBI criminal and intelligence investigators is unnecessary. Section 504 (50 U.S.C. 1806(k); 1825(k))(law enforcement cooperation does not preclude purpose certification) which does not expire may be sufficient to prevent reconstruction of the wall. In re Sealed Case , 310 F.3d 717 (F.I.S.Ct.Rev. 2002) suggests that even prior to the USA PATRIOT Act the wall was neither constitutionally nor statutorily required. Facially, FISA procedure for issuance of a surveillance order seems more demanding than Title III (law enforcement wiretaps) but more accommodating after issuance. Use of FISA has increased dramatically over the years; Title III seems to be seldom used in terrorism cases (mostly used in drug trafficking cases). The existence of the wall is like trying to do one jigsaw puzzle on two separate tables. The wall prevented effective communication and cooperation in terrorism cases; removal has been beneficial. The wall was designed to guarantee that law enforcement and intelligence officer would honor the limitations placed upon their respective wiretapping and search warrant authority. Section 223 is discussed above. Federal wiretap law immunizes those who assist in the execution of a law enforcement interception order, 18 U.S.C. 2511(2)(a), FISA supplies a similar immunity for those who assist in the execution of a FISA pen register or trap and trace device order, 50 U.S.C. 1842(f). On its face, section 225 seems to grant immunity to anyone who complies with a FISA orderâsurveillance (wiretap), physical search, pen register/trap and trace device, or access to tangible itemsâthat is, providing a grant of immunity for compliance with an order under the entire Act. It may be, however, the immunity is only available for compliance with a FISA surveillance order; hence, the reference to a FISA wiretap in the caption, and the subsection's placement in 50 U.S.C. 1805 which relates to the issuance of FISA wiretap orders and which empowers the court to order a "common carrier, landlord, custodian, or other specified person" to furnish "all information, facilities, or technical assistance" for execution of a surveillance order. Section 225 came late to the legislative process. It cannot be found in the Administration request, Hearings , at 67-90, or in S. 1501 as passed by the Senate, 147 Cong. Rec. S10604-630 (daily ed. October 11, 2001), or in H.R. 2975 as passed by the House, 147 Cong. Rec. H6726-758 (daily ed. October 12, 2001). It first appears at the eleventh hour in H.R. 3162 , 147 Cong. Rec. H7166 (daily ed. October 23, 2001). The section-by-section analysis that accompanied consideration of the bill simply states, "Provides immunity from civil liability from subscribers, tenants, etc. for entities that comply with FISA wiretap orders," 147 Cong. Rec. H7198 (daily ed. October 23, 2001). Except for assistance provided with respect to investigations begun beforehand, section 225 immunity disappears on March 10, 2006. As with the expiring "cause of action"clauses of section 223, the expiring "no cause of action" clauses of section 225, may be subject to a number of interpretations. If the sunset exception in section 224(b) does no more than continue pending investigations in place, then it is no more likely to preserve a grant of immunity than to grant a cause of action. Conversely, both a cause of action and immunity from liability arising out of an investigation might be thought to survive because they can be characterized as matters "[w]ith respect to any particular foreign intelligence investigation" or "with respect to any particular offense or potential offense" began or occurring before March 10, 2006. In the absence of an explicit enforcement device, explicit immunity provisions encourage communications providers and other third parties to cooperate in the execution of a FISA order. On the other hand, immunity from civil liability removes one of the principal incentives for a third party addressed in a FISA order to petition the court to quash or modify the order. Justice Department officials have argued that the assistance of providers can be critical to the timely execution of an order; that comparable immunity has long existed for assistance in the execution of a court ordered law enforcement wiretap; and that the authority has been effectively used at least once by an FBI field office in an espionage investigation. Critics might question why recourse to a FISA wiretap order was necessary when law enforcement wiretap ordersâwhich afford immunity to assisting communications providersâare available for espionage investigations, 18 U.S.C. 2516. Section 225 establishes immunity for assistance in the execution of a FISA surveillance order, and perhaps for compliance with any FISA order, 50 U.S.C. 1805(h). It encourages cooperation and discourages court challenges. As noted at the outset, section 6006 of the Intelligence Reform and Terrorism Prevention Act of 2004, P.L. 108-458 , 118 Stat. 3742 (2004), (a) amends the definition of "agent of a foreign power" for FISA purposes to include a foreign national who is preparing for or engaging in international terrorism, and (b) makes the sunset provisions of section 224 applicable to the amendment. FISA makes agents of a foreign power the appropriate targets for FISA surveillance and physical search orders, 18 U.S.C. 1805, 1824. The definition of agents of a foreign power already included individuals preparing for or engaging in international terrorism for or on behalf of a foreign power , 50 U.S.C. 1801(b)(2)(C). Section 6001 excuses the need to show that the illicit activity is being conducted at the behest or benefit of a foreign powerâas long as the target is not an American (not a U.S. person). The language of section 6001 is identical to that of section 1 of S. 113 , as passed by the Senate, 149 Cong. Rec. S5899 (daily ed. May 8, 2003); S.Rept. 108-40 (2003). On the House side, the Judiciary Committee report on H.R. 10 had recommended a comparable provision in the form of a presumption, H.Rept. 108-724 , Pt. 5, at 34,170-1 (2004). Similar legislative proposals had been considered during the 107 th Congress, see e.g. , S. 2586 and S. 2659 , Amendments to the Foreign Intelligence Surveillance Act: Hearing Before the Senate Select Comm. on Intelligence , 107 th Cong., 2d Sess. (2002). The Senate report explains the rationale for the section as it appeared in S. 113 : The purpose of S. 113 is to amend the Foreign Intelligence Surveillance Act of 1978 (FISA) . . . to permit surveillance of so-called "lone wolf" foreign terrorists. S. 113 would allow a FISA warrant to issue upon probable cause that a non-United States person is engaged in or preparing for international terrorism, without requiring a special showing that the non-United States person also is affiliated with a foreign power. By eliminating the requirement of a foreign-power link for FISA warrants in such cases, S. 113 would allow U.S. intelligence agencies to monitor foreign terrorists who, though not affiliated with a group or government, pose a serious threat to the people of the United States. In light of the significant risk of devastating attacks that can be carried out by non-United States persons acting alone, individual terrorists must be monitored and stopped, regardless of whether they operate in coordination with other individuals or organizations," S.Rept. 108-40 at 2. Section 6001 explicitly embraces the sunset exception found in section 224(b). Thus, the amendment in section 6001 continues to apply after March 10, 2006 with respect to any particular foreign intelligence investigation begun prior to that date. At first blush, there might be some question of whether a provision, that declares that agents of a foreign power need not be agents of a foreign power, is sufficient to come within Keith case reservations concerning the fourth amendment's application in terrorism cases. The multi-national definition of "international terrorism" and the limitation of the section's amendment to foreign nationals may suffice, but the question seems to have troubled some, but not all, of the witnesses who testified regarding similar legislation in the 107 th Congress. Some Members of the Senate Judiciary Committee also suggested that section's rationale might have to be reenforced if it is to be reauthorized. Section 6001 amends the FISA definition of "agent of a foreign power" to include a foreign national who is preparing for or engaging in international terrorism thereby excusing the need to show that the illicit activity is being conducted at the behest or benefit of a foreign powerâas long as the target is not an American (not a U.S. person). Although Justice Department believes the section is constitutional, there might be some question of whether defining an agent of a foreign power as one who need not be an agent of foreign power comes within Keith reservations for agents of a foreign power. Subsection 224(a) cites several sections and subsections of Title II that are not subject to its declaration of sunset. They are: section 203(a)(authority to share grand jury information) (permitting the disclosure of matters occurring before a federal grand juryâthat involve foreign intelligence or counterintelligence or foreign intelligence informationâto federal law enforcement, intelligence, protective, immigration, national defense, or national security officials), F.R.Crim.P. 6(e)(3)(D); section 203(c)(procedures) (directing the Attorney General to establish procedures for the disclosures authorized in section 203(a)[grand jury matters] and 203(b)[relating to similar disclosure of information secured through the execution of a court order authorizing the interception of wire, oral or electronic communications for law enforcement purposes] that identify a "United States person"), 18 U.S.C. 2517 note; section 205 (employment of translators by the Federal Bureau of Investigation) (authorizing the Federal Bureau of Investigation (FBI) to expedite the hiring of translators to support counterterrorism investigations and operations), 28 U.S.C. 532 note; section 208 (designation of judges) (authorizing the expansion of the FISA court from 7 to 11 judges and insisting that at least 3 of the judges reside within 20 miles of the District of Columbia), 50 U.S.C. 1803; section 210 (scope of subpoenas for records of electronic communications) (expands the authority for subpoenas directing communications service providers to disclose customer-identifying information to include information concerning customer payment sources (e.g., credit card or bank account), 18 U.S.C. 2703; section 211 (clarification of scope) (makes it clear that when cable companies provide Internet or other communications services they are subject to the same law enforcement access procedures that apply to other communications service providers and not to the cable provider procedures that require customer notification when law enforcement access is to be afforded), 47 U.S.C. 551; section 213 (authority for delaying notice of the execution of a warrant) (authorizes sneak and peek warrants, i.e., warrants that call for delayed notification of their execution for a reasonable period if notification would have adverse consequences and that only permit the seizure of tangible property when reasonably necessary), 18 U.S.C. 3103a(b); section 216 (modification of authorities relating to the use of pen registers and trap and trace devices) ((1) modifies the pen register/trap and trace device procedureâthe procedure for court orders authorizing law enforcement installation and use of pen registers or trap and trace devices (essentially surreptitious caller id devices that identify only the source and destination of telephone calls)âto apply to electronic communications (e.g., e-mail addresses and Internet URL's); and (2) permits execution of the orders anywhere within the United States, rather than only in the judicial district in which the order is issued), 18 U.S.C. 3121, 3123; section 219 (single-jurisdiction search warrants for terrorism) (amends the Federal Rules of Criminal Procedure to permit magistrates in terrorism cases to issue search and arrest warrants to be executed outside of the judicial district in which they are sitting), F.R.Crim.P. 41(b)(3); section 221 (trade sanctions) (makes it clear that the Trade Sanctions Reform and Export Enhancement Act does not limit the application of criminal and civil sanctions available for violation of various anti-terrorism provisions), 22 U.S.C. 7210; and section 222 (assistance to law enforcement agencies) (confirms that those who help law enforcement authorities execute an order approving the installation and use of trap and trace devices or pen registers are entitled to reasonable reimbursement and that nothing in the act is intended to impose technical obligations or requirements upon them), 18 U.S.C. 3124 note. | Several sections of Title II of the USA PATRIOT Act (the act) and one section of the Intelligence Reform and Terrorism Prevention Act each relating to enhanced foreign intelligence and law enforcement surveillance authority were to expire on December 31, 2005; their expiration date has been postponed until March 10, 2006. The authority remains in effect only with respect to foreign intelligence investigations begun before sunset or to offenses or potential offense begun or occurring before that date. Aside from the fact there may be some disagreement of whether a "potential offense" is a suspected crime, and/or an incomplete crime, and/or a future crime, after March 10, 2006 the law reverts to its previous form unless it has been amended or extended in the interim. The consequences of sunset are not the same for every expiring section. In some instances the temporary provision has been replaced with a permanent one; in some, other provisions have been made temporary by attachment to an expiring section; in still others, the apparent impact of termination has been mitigated by related provisions either in the act or elsewhere. The temporary provisions are: sections 201 (wiretapping in terrorism cases), 202 (wiretapping in computer fraud and abuse felony cases), 203(b) (sharing wiretap information), 203(d) (sharing foreign intelligence information), 204 (Foreign Intelligence Surveillance Act (FISA) pen register/trap & trace exceptions), 206 (roving FISA wiretaps), 207 (duration of FISA surveillance of non-United States persons who are agents of a foreign power), 209 (seizure of voice-mail messages pursuant to warrants), 212 (emergency disclosure of electronic surveillance), 214 (FISA pen register/ trap and trace authority), 215 (FISA access to tangible items), 217 (interception of computer trespasser communications), 218 (purpose for FISA orders), 220 (nationwide service of search warrants for electronic evidence), 223 (civil liability and discipline for privacy violations), and 225 (provider immunity for FISA wiretap assistance); and in the Intelligence Reform and Terrorism Prevention Act, section 6001 ("lone wolf" FISA orders). The unimpaired provisions of Title II are: sections 203(a)(sharing grand jury information), 203(c)(procedures for grand jury and wiretap information sharing that identifies U.S. persons), 205 (employment of translators by the Federal Bureau of Investigation), 208 (adding 3 judges to FISA court), 210 (access to payment source information from communications providers), 211 (communications services by cable companies), 213 (sneak and peek warrants), 216 (law enforcement pen register/ trap and trace changes), 219 (single-jurisdiction search warrants for terrorism), 221 (trade sanctions), and 222 (provider assistance to law enforcement agencies). This report is available in an abridged version (without its footnotes, chart, and most of its citations to authority) as CRS Report RS21704, USA PATRIOT Act Sunset: A Sketch . Related reports include CRS Report RL33239, USA PATRIOT Improvement and Reauthorization Act of 2005 (H.R. 3199): Section-by-Section Analysis of the Conference Bill , and CRS Report RS22348, USA PATRIOT Improvement and Reauthorization Act of 2005 (H.R. 3199): A Brief Look ). |
The CLEAN Energy Act of 2007 ( H.R. 6 ) was introduced by the House Democratic leadership to revise certain tax and royalty policies for oil and natural gas and to use the resulting revenue to support a reserve for energy efficiency and renewable energy. The bill is one of several introduced on behalf of the Democratic leadership in the House as part of its "100 hours" package of legislative initiatives conducted early in the 110 th Congress. Title I proposes to repeal certain oil and natural gas tax subsidies, and use the resulting revenue stream to support the reserve. According to the Congressional Budget Office (CBO), the provisions in Title I would make about $7.7 billion available for the reserve over the 10-year period from 2008 through 2017. H.R. 6 came to the House floor for debate on January 18, 2007. In the floor debate, opponents argued that the reduction in oil and natural gas incentives would dampen production, cause job losses, and lead to higher prices for gasoline and other fuels. Opponents also complained that the proposal for the Reserve does not identify specific policies and programs that would receive funding. Proponents of the bill counterargued that record profits show that the oil and natural gas incentives were not needed. They also contended that the language that would create the Reserve would allow it to be used to support a variety of research and development (R&D), deployment, tax incentives, and other measures for renewables and energy efficiency, and that the specifics would evolve as legislative proposals come forth to draw resources from the Reserve. The bill passed the House on January 18 by a vote of 264-123. The Energy Policy Act of 2005 ( P.L. 109-58 ), enacted on August 8, 2005, expanded some of the existing tax subsidies for the oil and gas industry and created several new ones. The oil and gas tax incentives in EPACT05 were added on top of several existing special tax subsidies for oil and gas. The industry also benefits from provisions of current tax law that are not strictly tax subsidies (or tax expenditures) but that nevertheless provide advantages for and reduce effective tax rates of the oil and gas industry. The remainder of this report discusses these tax provisions in detail. The first section, below, discusses the origin and evolution of the oil and gas tax subsidies that were incorporated into the 2005 act. The second section summarizes each of the oil and gas tax subsidy provisions in the 2005 energy act and reports its corresponding revenue loss estimate. Section three describes other oil and gas tax subsidies, those that existed before EPACT05 and were generally not affected by it. The final section describes several tax provisions that benefit the oil and gas industry; these are not tax subsidies per se—they are not considered to be tax expenditures—but are deemed by some observers to confer excessive (or unfair) benefits for the industry. Tax incentives for oil and gas supply have historically been an integral (if not the primary) component of the nation's energy policy. The domestic oil and gas industry was granted three tax code preferences, or subsidies: (1) expensing of intangible drilling costs (IDCs) and dry hole costs, introduced in 1916; (2) the percentage depletion allowance, first enacted in 1926 (coal was added in 1932); and (3) capital gains treatment of the sale of oil and gas properties. These tax subsidies reduced marginal effective tax rates in the oil and gas industries, reduced production costs, and increased investments in locating reserves (increased exploration). They also led to more profitable production, some acceleration of oil and gas production, and more rapid depletion of energy resources than would otherwise occur. Partially in response to tax incentives, but also due to the low cost of discovering and developing the huge new resource base, there were discoveries during the 1930s of vast reserves in Texas, which led to a period of overproduction of oil and gas and concomitant declines in prices, which led to demand to prorationing under the Texas Railroad Commission. Beginning in the 1970s and through much of the 1990s, energy tax policy shifted away from fossil fuel supply and moved toward energy conservation through both energy efficiency and the development of alternative and renewable fuels. However, rising and repeated spikes in petroleum prices that began around 2000 and were repeated over the next six years (combined with high and spiking natural gas prices, an electricity crisis, and blackouts) caused policymakers to focus on increasing energy production and supply of many diverse energy sources, including oil and gas. The tax incentives for the oil and gas industry in the EPACT05 originated in the106 th Congress's effort in 1999 to help the ailing domestic oil and gas producing industry, particularly small producers, deal with depressed oil prices. This situation fostered proposals for economic relief through the tax code, particularly for small independent drillers and producers. Proposals focused mainly on production tax credits for marginal or stripper well oil, but they also included carry-back provisions for net operating losses, and other fossil fuel supply provisions. Subsequent comprehensive energy policy legislation, including H.R. 4 in the107 th Congress, proposed an expanded list of oil and gas tax incentives. The energy tax breaks in this bill (the Securing America's Future Energy Act of 2001, as approved by the House on August 1, 2001) were larger in terms of tax revenue loss than any other comprehensive energy policy legislation proposed during this period. They also were larger than those proposed in EPACT05: $33.5 billion of energy tax cuts, compared with the $14.5 billion loss eventually enacted under P.L. 109-58 . Interest in incentives and subsidies was boosted by the belief that much of the crisis was caused by insufficient domestic production capacity and supply. All the early bills appeared to be weighted more toward stimulating the supply of conventional fuels, including capital investment incentives to stimulate production and transportation of oil and gas. These proposals were further repackaged and expanded into the first broadly based energy bills and comprehensive energy policy legislation, such as H.R. 6 in the 109 th , that evolved further and ultimately became EPACT05. The House approved the conference report on July 28, 2005, and the Senate on July 29, 2005, clearing it for the President's signature on August 8 ( P.L. 109-58 ). The 2005 act became law at a time of very high prices for crude oil, petroleum products, and natural gas, and record oil and gas industry profits. This engendered the enmity of the general public and congressional proposals to (1) revoke the incentives enacted under the 2005 act; (2) repeal or pare back the historical, but extant, tax subsidies and other tax advantages; and (3) impose sizeable new taxes on the industry such as a windfall profit tax. Public and congressional outcry did lead to a paring back of one of the tax subsidies liberalized in the 2005 act: two-year amortization, rather than capitalization, of geological and geophysical (G&G) activity costs, including those associated with abandoned wells (dry holes). This exploration subsidy was the largest upstream tax subsidy (as opposed to a "downstream" or a refinery subsidy), in terms of federal revenue loss, enacted under the 2005 act, although it was and still is a relatively small tax subsidy. The Tax Increase Prevention and Reconciliation Act ( P.L. 109-222 ), signed into law in May 2006, reduced the value of the subsidy by raising the amortization period for major integrated oil companies from two years to five years, still faster than the capitalization treatment before the 2005 act, but slower than the treatment under that act. Independent (nonintegrated) oil companies may continue to amortize all G&G costs over two years. This relatively minor cutback has not muted the calls for rolling back oil and gas tax subsidies, as petroleum prices (and industry profits) remain somewhat high, particularly those of the biggest oil and gas companies. On September 1, 2006, the House Democratic leadership reportedly sent a letter to the House Speaker proposing a rollback of all of the 2005 energy act tax subsidies. On October 25, 2006, then-House Democratic Leader Nancy Pelosi, urged the Congress to repeal those tax breaks. Many bills were introduced in the 109 th Congress to pare back or repeal the oil and gas industry tax subsidies and other loopholes. Many of the bills focused on the oil and gas exploration and development (E&D) subsidy—expensing of intangible drilling costs (IDCs). This subsidy, which has been in existence since the early days of the income tax, is available to integrated and independent oil and gas companies, both large and small alike. It is an exploration and development incentive, which allows the immediate tax write-off of what economically are capital costs, that is, the costs of creating a capital asset (the oil and gas well). On September 18, 2006, Senators Wyden and Bennett introduced a bill ( S. 3908 ) to give consumers a discount on the purchase of more fuel efficient vehicles that would have been paid for by reducing the IDCs deduction for major integrated oil companies. Comprehensive energy legislation ( S. 2829 ) unveiled by Senate Democrats on May 17, 2006, would have not only eliminated expensing of IDCs, but would have also reduced several other tax benefits (or loopholes) to the oil and gas industry (such the foreign tax credits). The latter are not subsidies (or tax expenditures) in the strict sense of special tax measures unavailable generally, but as discussed below, some consider these unnecessary tax benefits nonetheless. H.R. 5234 focused on repealing three of the seven fossil fuel tax provisions in the 2005 act: temporary expensing of equipment costs for crude oil refining, the small refiner exception to percentage depletion, and the amortization of geological and geophysical (G&G) costs. H.R. 5218 would have denied oil and gas companies the new domestic manufacturing deduction under IRC § 199. There is speculation that in the 110 th Congress, the Democratic leadership in both the House and Senate will begin to examine these breaks more closely, particularly because many of their legislative priorities (such as cutting back the increasingly heavy burden of the alternative minimum tax) will have to be paid for. EPACT05 included a plethora of spending, tax, and deregulatory incentives to stimulate the production of conventional and unconventional oil and natural gas, such as gas from Alaska, deep water oil and gas in the outer continental shelf, and oil from marginal wells or private and federal lands. These incentives include tax breaks, royalty relief, streamlined permitting procedures, and other measures. The tax incentives include approximately $14.5 billion over 11 years of incentives to both stimulate domestic production and distribution of fossil fuels and reduce the demand for these fuels through energy efficiency and production of alternative and renewable fuels. Title XIII, subtitle B, of EPACT05 includes the tax incentives for fossil fuel supply—for production, transportation, and distribution—of oil and gas, as well as capital incentives for expanded refinery capacity. The subtitle does not include coal supply incentives, which are subsumed in the electricity infrastructure subtitle. Although many of the oil and gas tax incentives in EPACT05 are production tax credits and other such "upstream" production incentives, some are capital incentives for natural gas infrastructure (accelerated depreciation of natural gas pipelines). In total, the tax incentives alone are worth about $2.6 billion over 11 years to the industry (an average of about $250 million a year in tax breaks). Subtitle B, thus, applies specifically to the oil and gas industry, including the refinery industry, for increased supply incentives. Tax incentives are provided—again mostly by liberalization of existing tax code provisions. The incentives are both production incentives (i.e., tax benefits are based on quantities of oil and gas) and capital incentives (i.e., tax benefits are based on magnitude of capital investment, such as pipelines). Both unconventional and conventional oil and gas supply are targeted for tax cuts. Firms engaged in the exploration and development (E&D) of oil and gas incur a variety of costs prior to actual extraction. The tax treatment of these "upstream" E&D costs differs depending on the specific type of activity and depending on whether they are incurred by an integrated or nonintegrated (i.e., independent) producer. An independent producer is defined by Internal Revenue Code (IRC) § 613A(d), as described below. E&D costs may be generally categorized as four types. First, there are the geological and geophysical costs (G&G). These are exploratory costs (such as for seismic surveys) associated with determining the precise location and potential size of a mineral deposit. A second type of cost is the mineral acquisition or lease rights expenses—the costs of buying or leasing the land under which deposits are thought to exist—such as lease bonuses. If a property is considered prospective for containing economically recoverable deposits of oil or gas, the firm drills exploratory (and, if successful, subsequently development) wells to ascertain the magnitude of the deposits. These activities have associated various types of drilling costs. Tangible drilling costs, the third type of E&D costs, are amounts paid for tangible drilling and nondrilling equipment such as drilling rigs, casings, valves, pipelines, and other tangible machinery and equipment that have a salvage value. Finally, there are intangible drilling costs, or IDCs as they are frequently called. IDCs are amounts paid by the lease operator for fuel, labor, repairs to drilling equipment, materials, hauling, and supplies. They are expenditures incident to and necessary for the drilling of wells and preparing a site for production of oil and gas. For example, roads may have to be constructed to move in derricks and other types of drilling equipment; often a camp may have to be built with residences to house employees. The power for the equipment and the water supplies are also IDCs. IDCs also may include the cost to operators of any exploratory drilling or development work done by contractors under any form of contract, including a turnkey contract. In general, as noted above, prior to EPACT05, all four types of costs—G&G costs, mineral rights, tangible equipment, and intangible drilling costs—associated with a dry hole were expensable (i.e., deductible in the year in which the well was determined to be dry). Under the 2005 act, both integrated and independent producers were required to amortize the G&G component of the dry hole costs over two years. This reduced the incentive for G&Gs associated with a dry hole but increased the incentive for G&Gs associated with most successful wells. This provision became effective for G&G amounts paid or incurred in taxable years beginning after the date of enactment. Two-year amortization of G&G costs is still allowed for independent producers, but as a result of a provision in the Tax Increase Prevention and Reconciliation Act ( P.L. 109-222 , enacted in May 2006), integrated producers must now amortize such costs over five years. Amortization means that the costs are deducted evenly—the same absolute dollars are taken as deductions every year over a specified period of time, in this case two or five years. It is also called straight-line depreciation. Firms that extract oil, gas, or other minerals are permitted a deduction to recover their capital investment in a mineral reserve, which depreciates due to physical and economic depletion or exhaustion as the mineral is recovered (IRC § 611). Depletion, like depreciation, is a form of capital recovery: an asset, the mineral reserve itself, is being expended to produce income. Under the income tax, such a loss in value or cost is deductible. There are two methods of calculating this deduction: cost depletion and percentage depletion. Cost depletion allows for the recovery of the actual capital investment—the costs of discovering, purchasing, and developing a mineral reserve. Each year, and over the period during which the reserve produces income, the taxpayer deducts a portion of the adjusted basis (original capital investment less previous deductions) equal to the fraction of the estimated remaining recoverable reserves that have been extracted and sold. Under this method, the total deductions cannot exceed the original capital investment. Under percentage depletion, the deduction for recovery of capital investment is a fixed percentage as set by law of the "gross income" (i.e., revenue) from the sale of the mineral. Under this method, total deductions typically exceed, despite the limitations, the capital invested to acquire and develop the reserve. IRC § 613 states that mineral producers must claim the higher of cost or percentage depletion. The percentage depletion rate for oil and gas is 15% and is limited to average daily production of 1,000 barrels of oil, or its equivalent in gas. For producers of both oil and gas, the limit applies on a combined basis. For example, an oil-producing company with 2006 oil production of 100,000 barrels and natural gas production of 1.2 billion cubic feet (the statutory equivalent of 200,000 barrels of oil) has average daily production of 821.92 barrels (300,000 ÷ 365 days). Percentage depletion is not available to integrated major oil companies; it is available only for independent producers and royalty owners. Beginning in 1990, the percentage depletion rate was raised on production from marginal wells—oil from stripper wells (those producing no more than 15 barrels per day, on average) and heavy oil. This rate starts at 15% and increases by one percentage point for each whole $1 that the reference price of oil for the previous calendar year is less than $20 per barrel (subject to a maximum rate of 25%). This higher rate is also limited to independent producers and royalty owners, and for up to 1,000 barrels, determined as before on a combined basis (including non-marginal production). Small independents operate nearly 400,000 small stripper wells in about 28 states, about 78% of the nearly 510,000 producing wells in the United States. Output from stripper wells represented about 16% of total domestic production (about 850,000 barrels per day) in the United States in 2004. The percentage depletion deduction is limited to 65% of the taxable income from all properties for each producer. A second limitation, the 100% net-income limitation, which applied to each individual property rather than to all the properties, was retroactively suspended for oil and gas production from marginal wells by the Working Families Tax Relief Act of 2004 ( P.L. 108-311 ) through December 31, 2005. The 100% net-income limitation also had been suspended from 1998 to 2003. The difference between percentage depletion and cost depletion is considered a subsidy. It was once a tax preference item for purposes of the alternative minimum tax, but this was repealed by the Energy Policy Act of 1992 ( P.L. 102-486 ). The percentage depletion allowance is available for other types of fuel minerals, at rates ranging from 10% (coal, lignite) to 22% (uranium), and for mined hard rock minerals. The rate for regulated natural gas and gas sold under a fixed contract is 22%; the rate for geo-pressurized methane gas is 10%. Oil shale and geothermal deposits qualify for a 15% allowance. The net-income limitation to percentage depletion for coal and other fuels is 50%, compared with 100% for oil and gas. Under code section 291, percentage depletion on coal mined by corporations is reduced by 20% of the excess of percentage over cost depletion. For purposes of percentage depletion, before EPACT05, an independent oil producer was one that, on any given day, (1) did not refine more than 50,000 barrels of oil and (2) did not have a retail operation grossing more than $5 million a year (IRC § 613A[d]). EPACT05 raised the 50,000 barrel daily limit to 75,000. In addition, the act changed the refinery limitation from actual daily production to average daily production for the taxable year. Accordingly, the average daily refinery runs for the taxable year may not exceed 75,000 barrels. For this purpose, the taxpayer would calculate average daily refinery runs by dividing total refinery runs for the taxable year by the total number of days in the taxable year. This is effective for taxable years ending after the date of enactment. For purposes of determining the depreciation deduction, EPACT05 established a 15-year recovery period for natural gas distribution lines. Prior to this amendment, natural gas distribution lines were assigned a 20-year recovery period. This provisions is effective for property, the original use of which begins with the taxpayer after April 11, 2005, which is placed in service after April 11, 2005, and before January 1, 2011, and does not apply to property subject to a binding contract on or before April 11, 2005. Before the enactment of EPACT05, depreciation rules (the Modified Accelerated Cost Recovery System, MACRS) required oil refinery assets to be depreciated over 10 years using the double declining balance method. Under the 2005 act, refineries are allowed to irrevocably elect to expense 50% of the cost of qualified refinery property, with no limitation on the amount of the deduction. This provision was enacted to increase investments in existing refineries so as to increase petroleum product output and reduce prices. The expensing deduction is allowed in the taxable year in which the refinery is placed in service. The remaining 50% of the cost remains eligible for regular cost recovery provisions. To qualify for the deduction (1) original use of the property must commence with the taxpayer; (2)(a) construction must be pursuant to a binding construction contract entered into after June 14, 2005, and before January 1, 2008, (b) in the case of self-constructed property, construction began after June 14, 2005, and before January 1, 2008, or (c) the refinery is placed in service before January 1, 2008; (3) the property must be placed in service before January 1, 2012; (4) the property must meet certain production capacity requirements if it is an addition to an existing refinery; and (5) the property must meet all applicable environmental laws when placed in service. Certain types of refineries, including asphalt plants, are not eligible for the deduction, and there is a special rule for sale-leasebacks of qualifying refineries. If the owner of the refinery is a cooperative, it may elect to allocate all or a part of the deduction to the cooperative owners, allocated on the basis of ownership interests. This provision is effective for qualifying refineries placed in service after date of enactment (i.e., it became effective on August 9, 2005). EPACT05 creates a safe harbor exception to the general rule that tax-exempt, bond-financed prepayments violate the tax code's arbitrage restrictions. The term investment-type property does not include a prepayment under a qualified natural gas supply contract. The act also provides that such prepayments are not treated as private loans for purposes of the private business tests. Thus, a prepayment financed with tax-exempt bond proceeds for the purpose of obtaining a supply of natural gas for service area customers of a governmental utility would not be treated as the acquisition of investment-type property. The safe harbor provisions do not apply if the utility engages in intentional acts to render (1) the volume of natural gas covered by the prepayment to be in excess of that needed for retail natural gas consumption and (2) the amount of natural gas that is needed to fuel transportation of the natural gas to the governmental utility. This provision is effective for obligations issued after date of enactment. Under tax law prior to the enactment of EPACT05, the recovery period for natural gas gathering lines could be either 7 or 15 years, depending on whether they were classified as production or transportation equipment. Several court cases reflected the ambiguous tax treatment. Natural gas pipelines had a recovery period of 15 years, whereas natural gas distribution lines had a recovery period of 20 years (which, as noted above, was reduced to 15 years). EPACT05 assigned natural gas gathering lines a seven-year recovery period for MACRS depreciation deductions. EPACT05 defined a natural gas gathering line as the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission (FERC) or used to deliver natural gas from the well-head or common point to the point at which the gas first reaches (1) a gas processing plant, (2) an interconnection with an interstate transmission line, (3) an interconnection with an intrastate transmission pipeline, or (4) a direct connection with a local distribution company, a gas storage facility, or an industrial consumer. Also, the act requires that the original use of the property begin with the taxpayer. This provision became effective for property placed in service after April 11, 2005, excluding property with respect to which the taxpayer or related party had a binding acquisition contract on or before April 11, 2005. IRC § 45H allows a small refiner to claim a tax credit for the production of low-sulfur diesel fuel that is in compliance with Environmental Protection Agency (EPA) sulfur regulations (the Highway Diesel Fuel Sulfur Control Requirements). The credit is $2.10 per barrel of low-sulfur diesel fuel produced; it is limited to 25% of the capital costs incurred by the refiner to produce the low-sulfur diesel fuel. The 25% limit is phased out proportionately as a refiner's capacity increases from 155,000 to 205,000 barrels per day. Section 179B allows a small refiner to also claim a current year tax deduction (i.e., expensing), in lieu of depreciation, for up to 75% of the capital costs incurred in producing low-sulfur diesel fuel that is in compliance with EPA sulfur regulations. This incentive is also prorated for refining capacity between 155,000 and 205,000 barrels per day. The taxpayer's basis in the property that receives the exemption is reduced by the amount of the production tax credit. In the case of a refinery organized as a cooperative, both the credit and the expensing deduction may be passed through to patrons. For both incentives, a small business refiner is a taxpayer who (1) is in the business of refining petroleum products, (2) employs not more than 1,500 employees directly in refining, and (3) has less than 205,000 barrels per day (averaged over the year) of total refining capacity. The incentives took effect retroactively beginning on January 1, 2003. EPACT05 provided that cooperative refineries that qualify for § 179B expensing of capital costs incurred in complying with EPA sulfur regulations could elect to allocate all or part of the deduction to their owners, determined on the basis of their ownership interests. The election is made on an annual basis and is irrevocable once made. The provision became effective as if included in § 338(a) of the American Jobs Creation Act of 2004, which introduced the tax credit. Section 45K of the Internal Revenue Code (IRC) provides for a production tax credit of $3 per barrel of oil-equivalent (in 1979 dollars) for certain types of liquid, gaseous, and solid fuels produced from selected types of alternative energy sources (so-called "non-conventional fuels") and sold to unrelated parties. The full credit is available if oil prices fall below $23.50 per barrel (in 1979 dollars); the credit is phased out as oil prices rise above $23.50 (in 1979 dollars) over a $6 range (i.e., the inflation-adjusted $23.50 plus $6). Both the credit and the phase-out ranges are adjusted for inflation (multiplied by an inflation adjustment factor) since 1979. With an inflation adjustment factor of 2.264 (meaning that prices, as measured by the Gross Domestic Product deflator, have more than doubled since 1979), the credit for 2005 production was $6.79 per barrel of oil equivalent, which is the amount of the qualifying fuel that has a British Thermal Unit (Btu) content of 5.8 million. The credit for gaseous fuels was $1.23 per thousand cubic feet (mcf). The credit for tight sands gas is not indexed to inflation; it is fixed at the 1979 level of $3 per barrel of oil equivalent (about $0.50 per mcf). In 2005, the reference price of oil, which was $50.76 per barrel, still below the inflation adjustment phase-out threshold oil price of $53.20 for 2005 ($23.50 multiplied by 2.264), the full credit of $6.56 per barrel of equivalent was available for qualifying fuels. Qualifying fuels include synthetic fuels (liquid, gaseous, and solid) produced from coal, and gas produced from either geopressurized brine, Devonian shale, tight formations, or biomass. To qualify for the credit, synthetic fuels from coal must undergo a significant chemical transformation, defined as a measurable and reproducible change in the chemical bonding of the initial components. In most cases, producers apply a liquid bonding agent to the coal or coal waste (coal fines), such as diesel fuel emulsions, pine tar, or latex, to produce a solid synthetic fuel. The coke made from coal and used as a feedstock, or raw material, in steel-making operations also qualifies as a synthetic fuel, as does the breeze (small pieces of coke) and the coke gas (produced during the coking process). Depending on the precise Btu content of these synfuels, the § 45K tax credit could be as high as $26 per ton or more, which is a significant fraction of the market price of coal. Qualifying fuels must be produced within the United States. The credit for coke and coke gas is also $3 per barrel of oil equivalent and is also adjusted for inflation, but the credit is set to a base year of 2004, making the nominal unadjusted tax credit less than for other fuels. The section 45K credit for gas produced from biomass, and synthetic fuels produced from coal or lignite, is available through December 31, 2007, provided that the production facility was placed in service before July 1, 1998, pursuant to a binding contract entered into before January 1, 1997. The credit for coke and coke gas is available through December 31, 2009, for plants placed in service before January 1, 1992, and after June 30, 1998. The section 45K credit used to apply to oil produced from shale or tar sands, and coalbed methane (a colorless and odorless natural gas that permeates coal seams and that is virtually identical to conventional natural gas). However, the credit for these fuels terminated on December 31, 2002 (and the facilities had to have been placed in service, or wells drilled, by December 31, 1992). The section 45K credit is part of the general business credit. It is not claimed separately; it is added together with several other business credits and is also subject to the limitations of that credit. The section 45K credit is offset (or reduced) by certain other types of government subsidies that a taxpayer may benefit from: government grants, subsidized or tax-exempt financing, energy investment credits, and the enhanced oil recovery tax credit that may be claimed with respect to such projects. Finally, the credit is nonrefundable and cannot be used to offset a taxpayer's alternative minimum tax liability. Any unused section 45K credits generally may not be carried forward or back to another taxable year. (However, under the minimum tax section 53, a taxpayer receives a credit for prior-year minimum tax liability to the extent that a section 45K credit is disallowed as a result of the operation of the alternative minimum tax.) The Energy Policy Act of 2005 made several amendments to the section 45K tax credit. First, the credit's provisions were moved from § 29 of the tax code to new § 45K. Before this, this credit was commonly known as the "section 29 credit." Second, the credit was made available for qualified facilities that produce coke or coke gas that were placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010. Coke and coke gas produced and sold during the period beginning on the later of January 1, 2006, or the date the facility is placed in service, and ending on the date which is four years after such period begins, are eligible for the production credit, but at a reduced rate and only for a limited quantity of fuel. The tax credit for coke and coke gas is $3.00 per barrel of oil equivalent, but the credit is indexed for inflation starting with a 2004 base year, compared with a 1979 base year for other fuels. A facility producing coke or coke gas and receiving a tax credit under the previous § 29 rules is not eligible to claim the credit under the new section 45K. The new provision also requires that the amount of credit-eligible coke produced not exceed an average barrel-of-oil equivalent of 4,000 barrels per day. Third, the 2005 act provided that with respect to the IRS moratorium on taxpayer-specific guidance concerning the credit, the IRS should consider issuing rulings and guidance on an expedited basis to those taxpayers who had pending ruling requests at the time that the IRS implemented the moratorium. Finally, the 2005 legislation made the general business limitations applicable to the tax credit. Any unused credits can be carried back one year and forward 20 years, except that the credit cannot be carried back to a taxable year ending before January 1, 2006. These new rules were made effective for fuel produced and sold after December 31, 2005, in taxable years ending after that date. Table 1 shows the revenue effects of the tax provisions in EPACT05, organized by type of incentive. These are the original revenue effects estimated for EPACT05, signed into law on August 8, 2005, by the Joint Committee on Taxation (JCT). Because of changes to energy prices, energy markets, and general economic conditions, revenue loss estimates of the same provisions calculated today would most likely differ from those original estimates. JCT's estimated revenue losses were projected over an 11-year time frame, from FY2005 to FY2015. The total revenue losses are reported in two ways: the absolute dollar value of tax cuts over 11 years, and the percentage distribution of total revenue losses by type of incentive. Each of the seven tax subsidies for the oil and gas industry are shown separately, as well as the aggregate for upstream (exploration, development, and production) operations and downstream operations (refining and transportation/distribution). Also, for perspective, the oil and gas tax revenue losses are compared with those for other industries and with the tax subsidies for energy efficiency and alternative/renewable fuels. The JCT estimates that the 2005 act provides about $2.6 billion in tax cuts for the oil and gas industry as a whole over 11 years, comprising about $1.1 billion for upstream operations and $1.5 billion for downstream, or refining and distribution, operations. For energy conservation and efficiency, the 2005 act provides about $1.3 billion, including a deduction for energy-efficient commercial property, fuel cells, and micro-turbines. Renewables incentives include a two-year extension of the tax code § 45 credit, renewable energy bonds, and business credits for solar. The total renewable tax subsidies in EPACT05 were about $4.5 billion. Although the above oil and gas tax subsidies may not be justified based on economic theory, and considering the high oil and gas prices over much of the policy period, they are not large when measured relative to the industries' gross product, which measures in the hundreds of billions of dollars. Another misconception is that industry was the beneficiary of many and significant tax breaks before these provisions were enacted. The industry did benefit historically from significant tax subsidies; however, most of these had been either eliminated or pared back since the 1970s. Subtitle F of EPACT05 describes the four tax increases or revenue offsets. Two of the tax increases—modification of the § 197 amortization, and an increase in the excise taxes on tires—are negligible, raising taxes by just under an estimated $200 million over 11 years. However, the other two are sizeable tax increases for the oil and gas industry: reinstatement of the Oil Spill Liability Trust Fund and extension of the Leaking Underground Storage Tank (LUST) trust fund rate, which would be expanded to all fuels. The total oil and gas industry tax increases are roughly $2.8 billion over 11 years, for a net increase in taxes on the industry of about $200 million, according to the JCT estimates. However, because the oil spill liability tax and the Leaking Underground Storage Tank financing taxes are excise taxes on oil and petroleum products, and are imposed on oil refineries, the net effect of the 2005 act on the oil and gas refinery sector was a tax increase of about $1.3 billion over 11 years. The Energy Policy Act of 2005 expanded some (but not all) of the preexisting tax subsidies for oil and gas and introduced several new ones. Thus, some of the recent proposals to roll back tax subsidies to oil and gas focus on the subsidies that were in effect before the 2005 act, and which continue be in effect. A list of the preexisting federal tax subsidies (incentives) available for the U.S. oil and gas industry—those in effect before EPACT05 and still in effect today—(and their corresponding revenue loss estimates) appears in Table 2 . The corresponding revenue losses, as estimated by the JCT in its latest tax expenditures compendium, appear in the last column. Note that the table defines tax subsidies or incentives targeted for the oil and gas industry as those that are due to provisions in the tax law that apply only to this industry and not to others. This discussion has so far excluded current-law tax provisions and incentives that may apply to non-oil and gas businesses but that may also confer tax benefits to the oil and gas industry. There are numerous such provisions in the tax code, which some have called loopholes—they are not strictly considered to be tax expenditures. A complete listing of them is beyond the scope of this report; however, four examples, which have been under discussion as possible revenue raisers, follow to illustrate the point. For example, the current system of depreciation generally allows the writeoff of equipment and structures somewhat faster than would be the case under both general accounting principles and economic theory; the JCT treats the excess of depreciation deductions over the alternative depreciation system as a tax subsidy (or tax expenditure). In FY2006, the JCT estimates that the aggregate economy-wide revenue loss from this accelerated depreciation deduction (including the expensing under IRC § 179) is $6.7 billion. A certain, but unknown, fraction of this revenue loss or tax benefit accrues to the domestic oil and gas industry, but separate estimates are unavailable. A second example is the deduction for domestic production (or manufacturing) activities under IRC § 199, which, as noted above is the target of H.R. 5218 (109 th Congress). Enacted under the American Jobs Creation Act of 2004 ( P.L. 108-357 , also known as the JOBS bill), the domestic production deduction (IRC § 199) generally allows taxpayers to receive a deduction based on qualified production activities income resulting from domestic production. The deduction is 3% of income for 2006, rising to 6% between 2007 and 2009, and 9% thereafter; it is subject to a limit of 50% of the wages paid that are allocable to domestic production during the taxable year. The revenue impact of this provision is anticipated by the JCT to be a loss of $4.8 billion of federal revenue in FY2007, and $76 billion over the first 10 years of its life. A certain (as yet unknown) fraction of the tax benefits from the deduction will accrue to the domestic oil and gas industry. The deduction applies to oil and gas or any primary product thereof, provided that such product was "manufactured, produced, or extracted in whole or in significant part in the United States." Recently, the JCT estimated the revenues that would be gained by repealing this deduction for the domestic oil and gas industry at about $0.2 billion in FY2007, and about $2 billion from FY2007-FY2012. A third example concerns the "last-in/first-out" (LIFO) system of inventory accounting under IRC § 472. This method values the goods sold as the most recent inventory purchase. During a period of rising prices, this method of inventory accounting increases production costs and reduces taxable income and tax liabilities. A provision in the Senate version of H.R. 4297 (109 th Congress) would have eliminated a portion of the tax benefits from LIFO inventory accounting for major integrated oil companies with gross receipts in excess of $1 billion. Under threat of presidential veto, this provision, which would have increased taxes on such companies by an estimated $3.5 billion in FY2006, was deleted from the final law, the Tax Increase Prevention and Reconciliation Act of 2006 ( P.L. 109-222 ). A fourth example is the foreign tax credit, which is a federal tax credit against U.S. tax liabilities for income taxes paid to foreign countries. This section of the tax code is intended to prevent the double taxation of foreign source income (income earned abroad by U.S. residents and corporations). However, many countries in which domestic U.S. oil companies conduct business (either through branches or foreign subsidiaries) impose levies that are not strictly considered to be creditable income taxes, which may have the effect of going beyond prevention of double taxation of foreign source income—it may actually lead to a reduction of taxes on domestic source income. A provision in the Senate version of H.R. 4297 (109 th Congress) would have denied the foreign tax credit, under certain conditions, for major integrated oil companies with gross receipts in excess of $1 billion. The foreign tax credit would have been denied in the event that the foreign levy was assessed in exchange for an economic benefit provided by the foreign jurisdiction to the domestic oil company and if the foreign jurisdiction did not generally impose an income tax. This provision, which would have increased taxes on such companies by an estimated $0.8 billion over the 10-year period from FY2006 to FY2015, was deleted from the final law, the Tax Increase Prevention and Reconciliation Act of 2006 ( P.L. 109-222 ). Finally, Table 2 excludes targeted taxes that impose special tax liabilities on the domestic oil and gas industry—taxes that are not imposed on other industries. These would include taxes such as the motor fuels excise taxes (e.g., the 18.4¢ per gallon tax on gasoline, the 24.4¢ per gallon tax on diesel) and the oil spill liability trust fund excise tax, which imposes a $0.05 per barrel tax on every barrel of crude oil refined domestically. These taxes are imposed on refiners, although under normal (and stable) market conditions they are shifted forward (or passed through the distribution and retailing chain) and largely paid by consumers. The motor fuels excise taxes (including the Leaking Underground Storage Tank Trust Fund Tax) represent a tax liability—the amount of revenues collected by the federal government—of about $36 billion in FY2006; revenues collected from the oil spill liability excise tax are estimated by the JCT at $0.150 billion. | The CLEAN Energy Act of 2007 (H.R. 6) was introduced by the House Democratic leadership to revise certain tax and royalty policies for oil and natural gas and to use the resulting revenue to support a reserve for energy efficiency and renewable energy. Title I proposes to repeal certain oil and natural gas tax subsidies, and use the resulting revenue stream to support the reserve. The Congressional Budget Office (CBO) estimates that Title I would repeal about $7.7 billion in oil and gas tax subsidies over the 10-year period from 2008 through 2017. In House floor debate, opponents argued that the cut in oil and natural gas subsidies would dampen production, cause job losses, and lead to higher prices for gasoline and other fuels. Proponents counterargued that record profits show that the oil and natural gas subsidies were not needed. The bill passed the House on January 18 by a vote of 264-123. This report presents a detailed review of oil and gas tax subsidies, including those targeted for repeal by H.R. 6. The Energy Policy Act of 2005 (EPACT05, P.L. 109-58) included several oil and gas tax incentives, providing about $2.6 billion of tax cuts for the oil and gas industry. In addition, EPACT05 provided for $2.9 billion of tax increases on the oil and gas industry, for a net tax increase on the industry of nearly $300 million over 11 years. Energy tax increases comprise the oil spill liability tax and the Leaking Underground Storage Tank financing rate, both of which are imposed on oil refineries. If these taxes are subtracted from the tax subsidies, the oil and gas refinery and distribution sector received a net tax increase of $1,356 million ($2,857 million minus $1,501 million). EPACT05 was approved and signed into law at a time of very high petroleum and natural gas prices and record oil industry profits. The House approved the conference report on July 28, 2005, and the Senate on July 29, 2005, clearing it for the President's signature on August 8 (P.L. 109-58). However, the tax sections originated in the106th Congress, with its effort in 1999 to help the ailing domestic oil and gas producing industry, particularly small producers, deal with depressed oil prices. Subsequent price spikes prompted concern about insufficient domestic energy production capacity and supply. All the early bills appeared to be weighted more toward stimulating the supply of conventional fuels, including capital investment incentives to stimulate production and transportation of oil and gas. In addition to the tax subsidies enacted under EPACT05, the U.S. oil and gas industry qualifies for several other targeted tax subsidies (FY2006 revenue loss estimates appear in parenthesis): (1) percentage depletion allowance ($1 billion); (2) expensing of intangible drilling costs for successful wells and non-geological and geophysical costs for dry holes, including the exemption from the passive loss limitation rules that apply to all other industries ($1.1 billion); (3) a tax credit for small refiners of low-sulfur diesel fuel that complies with Environmental Protection Agency (EPA) sulfur regulations ($ 50 million); (4) the enhanced oil recovery tax credit ($0); and (5) marginal oil and gas production tax credits ($0). |
Over the course of three days in late September 2008, all three of Japan's major parties will hold leadership elections. The largest opposition party, the Democratic Party of Japan (DPJ) will go first, on September 21. Current party head Ichiro Ozawa, who is completing his two-year term as president, is running unopposed. The following day, the ruling Liberal Democratic Party (LDP) will hold its internal election, with the winner set to assume Japan's premiership by virtue of the LDP's majority in the Lower House, the more powerful of Japan's two parliamentary chambers. As discussed in more detail below, five LDP members have declared their candidacy. Finally, on September 23, the LDP's coalition partner, New Komeito, will hold its election, with incumbent Akihiro Ota widely expected to stay on. In late September or early October, the new prime minister is expected to dissolve the chamber and schedule an early general election for early November in order to renew the ruling party's mandate. By law, the Lower House election does not need to be held until September 2009. Various polls indicate that the race is likely to be competitive. Both the LDP and the DPJ's approval ratings generally are in the 20-30% range. Most observers predict that the LDP-led coalition is unlikely to maintain its two-thirds majority in the Lower House, which would deprive the LDP of its ability to override vetoes by the DPJ-led Upper House and potentially usher in a new era for Japanese politics. The economy is expected to be the major policy issue of the anticipated general election. Specifically, debate is expected to focus on four inter-related items: whether and how to revive Japan's sputtering economy, how to support Japan's social security system as it copes with the strain of a rapidly ageing society, whether and when to raise the consumption tax rate from its current level of 5%, and how aggressively to pursue structural economic reforms such as those championed by former Prime Minister Junichiro Koizumi, who served from 2001-2006. Hanging over all these questions is Japan's high level of government debt; the country's debt-to-GDP ratio is the highest among the world's industrialized countries. Thus far, five candidates have announced their intention to run for the LDP's presidency. Taro Aso (67 years old) is widely considered to be the front-runner. A former Foreign Minister and current Secretary General of the LDP, he is by far Japan's most popular politician. To temporarily reinvigorate the economy, he has emphasized the need to increase government spending, much as Tokyo did during the 1990s, and has said that raising the consumption tax should be postponed until the economy revives. Aso is known as a foreign policy hawk. He has strongly advocated revising the "peace clause" (Article 9) of the Japanese constitution to allow Japan to more easily deploy its Self-Defense Forces overseas. During his stint as Foreign Minister (2005-2006), he and then-Prime Minister Shinzo Abe tried to deepen Japan's alliance with the United States. They also touted a "values-based diplomacy" that called for expanded cooperation with democracies in Asia, particularly the United States, Australia, and India. Aso has a reputation as a "revisionist" on historical issues, which could lead to tensions with China and South Korea if he becomes prime minister. In the past, Aso has praised some aspects of Japan's colonization of Asian countries in the first part of the 20 th century and voiced support for official visits to Yasukuni Shrine. Visits by former leaders to the controversial Shinto shrine that honors Japan's war dead—including several convicted Class A war criminals—have severely strained relations with China and other Asian countries. Other candidates include current Economic and Fiscal Policy Minister Kaoru Yosano (70), a strong opponent of increased government spending who argues that the consumption tax must be raised in order to save the national pension system. Former Defense Minister and popular television anchor Yuriko Koike (56), a proponent of re-energizing the government's structural reforms championed by Koizumi, is the first woman to run for the LDP Presidency. Former Transportation Minister and LDP policy chief Nobuteru Ishihara (51), the son of the popular mayor of Tokyo, also favors structural reforms. Another former Defense Minister, Shigeru Ishiba (51), favors increased government spending and is emphasizing his plan to enact a permanent law enabling Japan to dispatch the Self-Defense Forces overseas whenever necessary. If Lower House elections are held in the near future, the DPJ is expected to use the same strategy of emphasizing economic and social issues that propelled it to victory in the July 2007 elections for the Upper House of Japan's Diet. Ozawa has unveiled a highly populist policy blueprint that includes items such as providing income support to farmers and fishermen; abolishing certain provisional taxes; and reforming the national pension and healthcare systems. He would offset the over 18 trillion yen (over $160 billion) in revenue shortfalls by eliminating or trimming what he has called "wasteful" government programs that are funded through various "special accounts." Ozawa also has outlined measures to reduce bureaucrats' influence over politicians and has called for Japanese troops to participate in U.N. peacekeeping operations. Though Ozawa is not popular in opinion polls, he is respected in his party for his campaign prowess. Analysts point to a number of possible outcomes from the ongoing political turbulence. One possibility is continued paralysis, particularly if the LDP wins the Lower House elections but loses its 2/3 majority. A DPJ victory, while signifying the emergence of a true two-party system in Japan, could usher in a period of fundamental adjustment to policies that have remained static for decades under the LDP. Two other scenarios are a "Grand Coalition" and a political realignment, in which members of either party defect to the other and form a new majority. Before the elections, however, most analysts are reluctant to speculate specifically on how these scenarios might unfold. A number of factors impeded Fukuda's ability to govern and will challenge whomever the LDP chooses as his successor. In July 2007, the DPJ won a majority in nationwide elections for the Upper House of the Diet. As a result, for the first time in Japanese history, Japan's two parliamentary chambers are controlled by different parties. Shortly after the DPJ's victory, then-prime minister Shinzo Abe resigned, leading the LDP to select Fukuda as premier. Concerned by Ozawa's threats to veto major legislation, Fukuda attempted to form a "Grand Coalition" with the DPJ. After the talks broke down, the DPJ adopted an aggressive policy of using its control of the Upper House to block or delay several of the Fukuda government's legislative initiatives. For more than a decade, the LDP generally has not been able to secure independent majorities in both Diet chambers, forcing it to rely upon coalitions with smaller parties. Since 1999, the LDP has formed a governing coalition with the New Komeito party, a pacifist-leaning party with strong ties to the Buddhist Soka Gakkai religious group. Komeito's clout in the coalition has increased over time, for at least two reasons. First, the LDP is reliant upon Komeito to obtain the 2/3 majority in the Lower House to override the DPJ-led vetoes in the Upper House. Second, LDP candidates in many electoral districts have become reliant upon support from Soka Gakkai followers. Although traditionally the LDP has dominated the coalition, during the summer of 2008, New Komeito became more assertive, for instance by resisting Fukuda's push to renew the authorization to provide fuel to coalition forces in Afghanistan (see later section for details). Former Prime Minister Junichiro Koizumi significantly weakened the LDP's old, opaque system, in which the leaders of the party's internal factions made major budgetary, policy, and personnel decisions (including deciding who would serve as prime minister). This system, although widely criticized as lacking transparency, helped the LDP to overcome significant internal divisions over policy. While he was breaking the faction-based system, Koizumi used his personal popularity and aggressiveness to enforce party discipline. However, his successors, Abe and Fukuda, often were unable to duplicate this feat. As a result, decision-making became increasingly difficult on contentious matters, such as the battles between the LDP's economic reformers and those favoring a return to the status quo of channeling government funds toward key interest groups. The DPJ was formed in 1998 as a merger of four smaller parties and was later joined by a fifth grouping. The amalgamated nature of the DPJ has led to considerable internal contradictions, primarily between the party's hawkish/conservative and passivist/liberal wings. In particular, the issues of deploying Japanese troops abroad and revising the war-renouncing Article 9 of the Japanese constitution have generated considerable internal debate in the DPJ. As a result, for much of its history, the DPJ has a reputation of not being able to formulate coherent alternative policies to the LDP. Additionally, battles between various party leaders have weakened the party. Since winning the Upper House, however, the party has appeared much more unified, at least on the strategy of using its veto power to try to force the LDP to hold early elections. This discipline is remarkable considering that, privately and publicly, many DPJ members chafe at Ozawa's top-down leadership style. If the DPJ does worse than expected in the next election, it is likely that he will be forced to step down. In general, U.S. interests are likely to be negatively affected by political gridlock in Tokyo. In the first term of the Bush Administration, Japan was lauded as the "pivot" of the U.S. strategic presence in Asia and a reliable partner in the global war on terrorism. Continued ineffective leadership, however, suggests that Japan will avoid taking political risks to support U.S. global efforts. Stalled or protracted decision-making may further frustrate U.S. managers working on a range of economic, diplomatic, and military coordination with Japan. Although most analysts view the U.S.-Japan security alliance as mutually beneficial and fundamentally sound, an erosion of trust between Washington and Tokyo could constrain both capitals from weathering occasional controversies. Regardless of which party or candidate takes power, Tokyo is likely to focus most attention on domestic issues in the near future. Little progress is expected on a suite of reforms that had been pursued by Abe and encouraged by U.S. officials to enhance Japan's ability to contribute to international security. These proposals include revision of Article 9 of Japan's constitution, reinterpretation of the constitution to allow collective self-defense, and a law that would allow the Self Defense Forces to deploy without passage of special legislation. Given the emphasis on reforming the pension and health care systems, the new leadership is unlikely to put its energy and resources into passage of controversial foreign policy legislation. The political gridlock in Tokyo does not bode well for the continuation of Japanese support of the U.S.-led Operation Enduring Freedom (OEF) in Afghanistan. Beginning in 2001, Japan's Marine Self Defense Force (MSDF) provided fuel (over 130 million gallons, according to the Japanese government) and water from its tankers in the Indian Ocean to coalition forces. After the DPJ took control of the Upper House in the July 2007 elections, it and the other opposition parties in the Upper House voted down the "Anti-terrorism Special Measures Law" authorization, creating a gap in MSDF participation. Eventually, the LDP-New Komeito coalition used its two-thirds majority in the Lower House, to overrule the Upper House's rejection of the bill. The current measure expires on January 15, 2009. Although all five LDP candidates have stated support for the measure's renewal, the parliamentary calendar and New Komeito's apparent reluctance to back the extension point to at least an interruption of the re-fueling. In summer 2008, the Japanese government explored and then appeared to rule out sending a team of Japanese ground troops to participate in humanitarian activities in Afghanistan. A deployment is likely to be controversial for the pacifist-leaning Japanese public and is particularly opposed by the New Komeito Party. Although the DPJ opposes the refueling operations, it does so on the grounds that the operations fall under the U.S.-led OEF and is not authorized by the United Nations. DPJ leader Ozawa in the past has voiced support for Japanese participation in a Provincial Reconstruction Team (PRT) in Afghanistan because it is specifically authorized by the United Nations. Some analysts have speculated that Japan may be waiting to see how much emphasis the new U.S. president puts on Afghanistan before taking the political risk of sending ground troops. Political shifts in Japan since 2006 appear to have slowed some of the increased cooperation in the U.S.-Japan alliance. Implementation of a series of bilateral agreements intended to upgrade the alliance (known as the "2+2" agreements) depends on Tokyo providing the necessary resources and political capital. Because the transformation and realignment initiatives involve elements that are unpopular in the localities affected, successful implementation hinges on leadership from the central government. The centerpiece of the realignment scheme involves the relocation of a controversial Marine Corps air station in Futenma to a less-congested part of Okinawa. The agreement faces significant public opposition and environmental concerns. If implementation falters, the planned move of 8,000 Marines from Okinawa to Guam may also disrupt the Pentagon's overall plans for realigning U.S. forces in Asia. Japan's relations with its neighbors, while mixed, appear to be the least likely area of concern to be affected by the current political turmoil. Leaders in the various political parties do not have explicitly distinct agendas for dealing with the Koreas and China. After a period of tension under Koizumi, politicians in both Tokyo and Beijing appear to have recognized the necessity of maintaining friendly relations in the interest of regional stability and continued robust trade. Most analysts think that even Aso, who is known as a nationalist politician, is likely to follow Abe and Fukuda's lead and avoid provoking China. After some positive trends, Japan-South Korean ties have faltered again due to delicate sovereignty issues and, according to many analysts, a lack of high-level attention to Seoul in Tokyo. North Korea-Japan relations may have been affected by Fukuda's resignation: soon after Fukuda's announcement, Pyongyang postponed its promised reinvestigation into the fates of Japanese citizens its agents had kidnapped in the 1970s and 1980s until a new prime minister is chosen. Progress on the abduction issue may have slowed even without the political uncertainty in Japan, as the Six-Party Talks over North Korea's nuclear program have struggled to make progress. | On September 1, 2008, Japanese Prime Minister Yasuo Fukuda stunned observers by resigning his post, saying that a new leader might be able to avoid the "political vacuum" that he faced in office. Fukuda's 11-month tenure was marked by low approval ratings, a sputtering economy, and virtual paralysis in policymaking, as the opposition Democratic Party of Japan (DPJ) used its control of the Upper House of Japan's parliament (the Diet) to delay or halt most government proposals. On September 22, the ruling Liberal Democratic Party (LDP) will elect a new president, who will become Japan's third prime minister in as many years. Ex-Foreign Minister Taro Aso, a popular figure known for his conservative foreign policy credentials and support for increased deficit spending, is widely expected to win. Many analysts expect that the new premier will dissolve the Lower House and call for parliamentary elections later in the fall. As a result, Japanese policymaking is likely to enter a period of disarray, which could negatively affect several items of interest to the United States, including the passage of budgets to support the realignment of U.S. forces in Japan and the renewal of legislation that authorizes the deployment of Japanese navy vessels that are refueling ships supporting U.S.-led operations in Afghanistan. This report analyzes the factors behind and implications of Japan's current political turmoil. It will be updated as warranted by events. |
O riginally enacted by the First Congress as part of the Judiciary Act of 1789, the Alien Tort Statute (ATS) has been described as a provision that is "u nlike any other in American law" and "unknown to any other legal system in the world." In its current form, the complete text of the ATS provides that "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." Although it is only a single sentence long, the ATS has been the subject of intense interest in recent decades, as it evolved from a rarely used jurisdictional statute to a prominent vehicle for foreign nationals to seek redress in U.S. courts for human rights offenses and acts of terrorism . T his report examines the development of the ATS, beginning with its origins in the First Congress and continuing through to the Supreme Court's recent decision in Jesner v. Arab Bank, PLC , where the Court held that foreign corporations are not subject to ATS liability. Deconstructed, the ATS statute provides federal district courts with jurisdiction to hear cases with four elements: (1) a civil action (2) by an alien (3) for a tort (4) committed in violation of the law of nations or a treaty of the United States. The significance of these requirements is as follows: 1. A c ivil action : The ATS allows only for civil (rather than criminal) liability. 2. By an alien : A crucial, distinctive feature of the ATS is that it provides jurisdiction for U.S. courts to hear claims filed only by aliens (i.e., non-U.S. nationals). The ATS does not provide jurisdiction for suits alleging torts in violation of the law of nations by U.S. nationals —although other statutes may allow for such claims. 3. For a tort : As a general matter, a tort is "a civil wrong, other than breach of contract, for which a remedy may be obtained, [usually] in the form of damages[.]" 4. In violation of the law of nations or a treaty of the United States : The ATS requires that the tort asserted be considered a violation of either the "law of nations" or a treaty ratified by the United States. The term "law of nations" is now often understood to refer to "customary international law." As a general matter, customary international law is international law that is derived from "a general and consistent practice of States followed by them from a sense of legal obligation." State practices that form the basis for customary international law are often referred to as international "norms." But the process of identifying what norms are actionable under the ATS is a complex judicial function that was the subject of much debate and was addressed by the Supreme Court in Sosa v . Alvarez - Machain , discussed below. Under Article III of the Constitution, Congress is empowered (but not obligated) to create a system of federal courts inferior to the Supreme Court. As one of its first official duties, the First Congress passed legislation, now known as the Judiciary Act of 1789 (Judiciary Act), creating a system of federal district and circuit courts. The original iteration of the ATS was included in Section 9 of the Judiciary Act—a provision which broadly addressed the jurisdiction of the federal district courts. Congress made minor modifications to the ATS in 1873 and 1911. The current version, quoted above, was enacted in 1948 . According to the Supreme Court, the ATS "was intended to promote harmony in international relations by ensuring foreign plaintiffs a remedy for international-law violations in circumstances where the absence of a remedy might provoke foreign nations to hold the United States accountable." During the early years of the Republic, between the end of the Revolutionary War and the adoption of the Constitution, the United States faced a number of difficulties meeting its obligations regarding foreign affairs. Under the Articles of Confederation, the federal government had little ability to provide redress to foreign citizens for violations of international law. Instead, the Confederation Congress passed a resolution recommending that each state create judicial tribunals to hear civil and criminal claims arising out of violations of the law of nations, and that state legislatures criminalize treaty infractions and other breaches of international law. But only one state, Connecticut, passed legislation creating penalties for violations of the law of nations. At the same time, international law during the founding era was understood to place an affirmative obligation on the United States to redress certain violations of the law of nations, even when those violations were perpetrated by private individuals. The Framers expressed concern that the state governments did not fully understand or appreciate the duties that arose under international law by virtue of the United States' new position as a sovereign nation. These concerns led the Framers and the First Congress to provide jurisdiction to federal courts in a number of circumstances that may implicate foreign relations concerns—such as suits involving foreign diplomats, admiralty and maritime cases, and disputes between U.S. citizens and citizens of foreign nations. The ATS was included among those class of jurisdictional provisions designed to provide a forum for federal courts to hear claims for violations of international law when the absence of such a forum could impact U.S. foreign relations. In the 1780s, two incidents involving foreign diplomats highlighted the potential for conflict in international relations under the Articles of Confederation. In 1784, a French "adventurer," Julien de Longchamps, assaulted a French diplomat, François Barbé-Marbois ( Marbois ), on a public street in Philadelphia. Because no national judiciary existed at the time, any case against Longchamps could occur only in a Pennsylvania state court. Concerned that Pennsylvania officials may not adequately address the incident—especially after Longchamps briefly escaped following his arrest —the chief French diplomat in the United States lodged a protest with the Confederation Congress and threatened to leave the country unless an adequate remedy were provided. Longchamps was eventually recaptured, convicted, and sentenced to two years in jail by a Pennsylvania court. But Pennsylvania officials declined French requests to deliver Longchamps to French authorities, and the Confederation Congress passed a resolution directing the Secretary of Foreign Affairs to apologize to Marbois for its limited ability to provide redress at the federal level. Three years later, similar tensions arose when a New York constable entered the home of the Dutch Ambassador and arrested one of his domestic servants. When the Ambassador, Pieter J. Van Berckel, protested that his servant should have been afforded diplomatic immunity, U.S. Secretary of Foreign Affairs John Jay reported to Congress that the federal government was not "vested with any Judicial Powers competent" to adjudicate the propriety of the constable's actions. The United States was "embarrassed" by these incidents and by "its inability to provide judicial relief to the foreign officials injured in the United States[.]" Moreover, such incidents were not seen as low-level diplomatic quarrels. During the founding era, assaults on ambassadors (among other violations of international law) were considered "just causes of war" if not adequately redressed. Some dispute whether the Marbois and Van Berckel incidents were an impetus for the ATS . But the Supreme Court interpreted the ATS as part of a class of provisions in the Judiciary Act that was designed, at least in part, to respond to concerns that the federal government under the Articles of Confederation was unable to provide a judicial forum to protect the rights of foreign diplomats. Regardless of its original purpose, the ATS was rarely used as a source of federal jurisdiction for the first 190 years of its existence. Between 1789 and 1980, litigants successfully invoked the ATS as a basis for jurisdiction in only two reported decisions. The first case, Bolchos v. Darrel , involved a French captain attempting to recover a cargo of slaves he had captured along with a Spanish prize vessel. The second, Adra v. Clift , was brought over 150 years later, and involved the use of forged passports in an international child custody dispute. The dearth of judicial opinions led one federal judge and prominent commentator on federal jurisdiction to describe the statute as "an old but little used section [that] is a kind of a legal Lohengrin . . . no one seems to know from whence it came" —a reference to a Germanic tale involving a knight who appears in a boat drawn by swans to help a noblewoman in distress, but refuses to disclose his origins. After nearly two centuries of dormancy, the ATS sprang into judicial and academic prominence in 1980 after the U.S. Court of Appeals for the Second Circuit (Second Circuit) issued a landmark decision in Filártiga v. Peña-Irala . In that case, two Paraguayan citizens (the Filártigas) brought suit against the former Inspector General of Asuncion, Paraguay, alleging that he had kidnapped, tortured, and killed the plaintiffs' relative in retaliation for their family's support of a political opposition party. The defendant, Americo Norberto Peña-Irala, was also a Paraguayan citizen who was discovered to be living in New York on an expired visa. Relying on the ATS for jurisdiction, the Filártigas contended that Peña-Irala's actions constituted a tort in violation of the law of nations, but the district court initially dismissed the case on the ground that the law of nations actionable under the ATS did not include modern provisions in international law that govern how a nation (in this case, Paraguay) treats its own citizens. In a first-of-its-kind decision, the Second Circuit reversed and concluded that torture by a state official against its own citizen violates "established norms of the international law of human rights" and therefore provides an actionable claim under the ATS. The Filártiga court reasoned that courts applying the ATS "must interpret international law not as it was in 1789, but as it has evolved and exists among the nations of the world today." Although Filártiga never reached the Supreme Court, it was a highly influential decision that caused the ATS to "skyrocket" into prominence as a vehicle for asserting civil claims in U.S. federal courts for human rights violations even when the events underlying the claims occurred outside the United States. While Filártiga was a watershed moment in the history of the ATS, courts soon began to identify certain limits on ATS jurisdiction that were not addressed in the Second Circuit's decision. In one prominent 1984 decision, Tel-Oren v. Libyan Arab Republic , the D.C. Circuit framed one of the chief, conceptual questions related to the ATS: Is the statute solely jurisdictional in nature, or does it also create a cause of action for plaintiffs? As a general matter, plaintiffs pursuing a civil claim in federal court must both (1) identify a court that possesses jurisdiction over the subject matter of the case and (2) have a cause of action that allows them to seek the relief requested, such as compensatory relief for monetary damages. In Tel-Oren , the D.C. Circuit addressed—but did not resolve—whether the ATS satisfies both requirements. Tel-Oren involved a group of Israeli citizens and survivors of a terrorist attack in Israel who brought an ATS claim against the Palestinian Liberation Organization and others who allegedly orchestrated the attack. In a per curiam opinion, a three-judge panel of the D.C. Circuit unanimously agreed to dismiss the case, but each judge issued a separate opinion relying on a different rationale for dismissal. In a widely discussed concurring opinion, Judge Bork concluded that the ATS is a purely jurisdictional statute that does not create a cause of action for damages. To hold otherwise, Judge Bork reasoned, would violate separation-of-powers principles by allowing judges, rather than Congress, to create causes of action that could affect U.S. foreign relations. Judge Edwards disagreed, and argued that the ATS itself creates a statutory cause of action. However, Judge Edwards still concurred in the dismissal under the rationale that the case lacked official state action, and that the claim for terrorism was not sufficiently recognized as a violation of international law. In addition, Judge Robb found the case to raise nonjusticiable political questions—meaning it raised disputes more appropriately addressed by the legislative and executive branches. But it was the broader, doctrinal disagreement between Judge Bork and Judge Edwards over the cause-of-action question that would eventually become the subject of a landmark Supreme Court decision, Sosa v. Alvarez-Machain , discussed below. However, Sosa was not decided until 20 years later. In the interim, Congress created a new statutory basis for civil claims for torture and extrajudicial killing—the same claims asserted in Filártiga —through the Torture Victim Protection Act. In 1992, President George H. W. Bush signed into law the Torture Victim Protection Act (TVPA), which creates a civil cause of action for damages against any "individual who, under actual or apparent authority, or color of law, of any foreign nation," subjects another to torture or extrajudicial killing. Legislative history of the TVPA suggests the act was designed to establish an "unambiguous basis" for the causes of action recognized in Filártiga and to respond to Judge Bork's argument in Tel-Oren that there must be a separate and explicit "grant by Congress of a private right of action" in order to assert a tort claim for a violation of international law. However, there are important distinctions between the TVPA and ATS. Whereas the TVPA expressly creates a civil cause of action for torture and extrajudicial killing, the ATS refers only to the jurisdiction of federal courts. Moreover, while the ATS applies only to civil actions brought by aliens, the TVPA allows a cause of action to be brought by and against "individuals." Courts have interpreted this term as extending a cause of action to both U.S. and foreign nationals, but excluding liability against corporations. At the same time, the TVPA places limitations on civil actions that are not present in the ATS. Most notably, the TVPA requires that plaintiffs exhaust all "adequate and available remedies in the place in which the conduct giving rise to the claim occurred." The relationship between the TVPA and the ATS is not clearly defined. Some courts concluded that the TVPA supplements (but does not displace) the ATS, and therefore plaintiffs can choose whether to bring claims for torture or extrajudicial killing under either statute. Others courts reasoned that the TVPA was intended to "occupy the field," and that plaintiffs cannot avoid its exhaustion-of-remedies requirement merely by pleading their claims under the ATS. Regardless of how the two statutes interact, the TVPA serves as an example of Congress providing an express cause of action for certain claims that litigants had argued were actionable under the ATS as torts in violation of the law of nations. Twenty years after Judge Bork and Judge Edwards framed the debate over whether the ATS creates a cause of action, the Supreme Court addressed the cause-of–action question in Sosa v. Alvarez-Machain . Sosa concerned a Mexican doctor, Humberto Alvarez-Machain (Alvarez), who allegedly participated in the torture and murder of a Drug Enforcement Administration (DEA) agent in Mexico by prolonging the agent's life so he could be further interrogated and tortured. When the Mexican government declined the DEA's requests for assistance in apprehending Alvarez, DEA officials approved a plan to hire Mexican nationals to apprehend Alvarez and bring him to the United States for trial. The Supreme Court twice reviewed cases arising from Alvarez's seizure. After being brought into U.S. custody, Alvarez moved to dismiss the criminal indictment against him on the ground that his apprehension was "outrageous governmental conduct" and that it violated the extradition treaty between the United States and Mexico. In its first decision arising out of his case, United States v. Alvarez-Machain , the Supreme Court rejected Alvarez's arguments, finding no grounds to justify dismissal of the criminal case against him. The case was remanded to district court, but the district court dismissed the charges for lack of evidence at close of the government's case during trial. No longer subject to criminal charges, Alvarez filed suit in 1993 asserting ATS claims against the Mexican nationals responsible for his abduction. This civil case, Sosa v. Alvarez-Machain , also reached the Supreme Court, which granted certiorari to clarify whether the ATS "not only provides federal courts with [jurisdiction], but also creates a cause of action for an alleged violation of the law of nations." Adopting reasoning that largely appeared to comport with Judge Bork's concurring opinion in Tel-Oren , the Sosa Court agreed that the "ATS is a jurisdictional statute creating no new causes of action . . . ." Among other things, the Court noted that the ATS is written in jurisdictional language and was originally enacted as part of the Judiciary Act—a statute that concerned the jurisdiction of all federal courts more broadly. While the Sosa Court agreed that the ATS was not intended to create statutory causes of action, a majority nevertheless concluded that the statute was not meant to be "stillborn"—meaning it was not intended to be a "jurisdictional convenience to be placed on a shelf" until a future Congress authorized specific causes of action. Instead, the Court held that, under the "ambient law" of the era, the First Congress would have understood a "modest number of international law violations" to have been actionable under the ATS without the need for a separate statute creating a cause of action. In other words, Sosa held that, while the ATS is jurisdictional in nature, it was enacted with the expectation that federal courts could recognize a "narrow set" of causes of action as a form of judicially developed common law, as opposed to a congressionally created, statutory cause of action. Sosa cited three particular offenses against the law of nations in 18th-century English criminal law that the Court believed the Founders would have considered to have been tort claims actionable under the ATS at the time of its enactment: violations of safe conducts, infringement on the rights of ambassadors, and piracy. But the Court also held that ATS jurisdiction is not limited to those claims. Rather, under Sosa , federal courts can recognize common law claims for violations of the "present-day law of nations," provided the claims satisfy an important and overarching limitation: only those claims that "rest on a norm of international character accepted by the civilized world and defined with specificity comparable to the features of the 18th-century paradigms" of international law are actionable under the ATS. Thus, while Sosa allows federal courts to recognize some tort claims for violations of modern customary international law, the Court emphasized the need for "judicial caution" and "restraint" in identifying new causes of action. Applying these principles, the Court held that Alvarez's claim for arbitrary arrest and detention was not sufficiently defined or supported in modern-day international law to meet the newly described requirements for an ATS claim, and was thus dismissed. Since Sosa was decided, a majority of Justices on the Supreme Court have interpreted the case to establish a two-step framework for addressing questions related to the breadth of ATS liability. First, courts must determine whether the claim is based on violation of an international law norm that is "specific, universal, and obligatory." Second, if step one is satisfied, courts should determine whether allowing the case to proceed is an "appropriate" exercise of judicial discretion. Although Sosa warned that lower courts should exercise "vigilant doorkeeping" and "great caution" before recognizing causes of action under the ATS, the post- Filártiga movement of using the ATS to seek redress for human rights abuses continued "largely unabated" after Sosa . Beginning in 2013, that trend slowed after the Supreme Court recognized restrictions on the territorial reach of the ATS in Kiobel v. Royal Dutch Petroleum . In Kiobel , a group of Nigerian nationals residing in the United States filed an ATS suit against Dutch, British, and Nigerian oil companies for allegedly aiding and abetting human rights abuses committed by the Nigerian police and military in Nigeria. The Second Circuit dismissed the case on the ground that corporations cannot be liable for violations of the law of nations under the ATS, and the Supreme Court originally granted certiorari on the question of corporate liability. After hearing oral argument, the Court requested additional briefing and ordered reargument on a new issue that would become dispositive for the case: Does the ATS confer jurisdiction to hear claims for violations of the law of nations occurring within the territory of a sovereign other than the United States ? In a majority opinion written by Chief Justice Roberts, the Kiobel Court relied on a canon of statutory interpretation known as the "presumption against extraterritorial application" to conclude that the ATS does not reach conduct that occurred entirely in the territory of a foreign nation. Also known as the "presumption against extraterritoriality," the canon of construction is intended to avoid unintended clashes between U.S. and foreign law that could result in international discord. Reliance on the presumption also reflects the "more prosaic commonsense notion that Congress generally legislates with domestic concerns in mind." Unless a statute gives "clear indication of an extraterritorial application," federal courts generally will presume that it is not intended to apply to claims that arise in foreign territory. According to the Kiobel Court, nothing in the text or history of the ATS suggests the First Congress intended the statute to have extraterritorial reach. To the contrary, the events giving rise to the ATS—including the Marbois and Van Berckel incidents—demonstrate that the statute was designed to avoid the same types of "diplomatic strife" and foreign relations friction that the presumption of extraterritoriality is intended to guard against. Accordingly, the Court held that the presumption against extraterritoriality applies to the ATS, and the Nigerian plaintiffs' claims for violations of the law of nations in Nigerian territory were barred. In a brief concluding paragraph, the Kiobe l Court suggested that the presumption against extraterritoriality might be displaced in future ATS cases if the claims "touch[ed] and concern[ed]" the United States : On these facts, all the relevant conduct took place outside the United States. And even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application. Corporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices. If Congress were to determine otherwise, a statute more specific than the ATS would be required. The Court, however, did not provide any further explanation as to how an ATS claim could satisfy the "touch and concern" test—leading to divergent interpretations in the lower courts, as discussed below. Kiobel produced two concurring opinions and one opinion concurring in the judgment only. Justice Kennedy wrote a one-paragraph concurrence, emphasizing his belief that it was the "proper disposition" for the majority to "leave open a number of significant questions regarding the reach and interpretation" of the ATS that will require elaboration in the future. Justice Alito, in an opinion joined by Justice Thomas, agreed that the majority's opinion "le[ft] much unanswered." But Justice Alito would have further explained how litigants can satisfy the "touch and concern" requirement. Under Justice Alito's self-described "broader standard," only when the conduct that constitutes a violation of the law of nations occurred domestically will the claim "touch and concern" the United States with sufficient force to displace the presumption against extraterritoriality. In a third separate opinion, Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan, concurred in the majority's decision to dismiss the case, but disagreed with its reasoning. Justice Breyer argued the presumption of extraterritoriality should not apply because the ATS was always intended to create a cause of action for at least one act, piracy, which occurs outside the territorial jurisdiction of the United States. Instead, Justice Breyer argued that the Court should have limited ATS jurisdiction to cases involving one of the following factors: (1) the alleged tort occurs on American soil, (2) the defendant is an American national, or (3) the defendant's conduct substantially and adversely affects an important American national interest, and that includes a distinct interest in preventing the United States from becoming a safe harbor (free of civil as well as criminal liability) for a torturer or other common enemy of mankind. Justice Breyer reasoned that his test was consistent with the United States' long-standing obligation under international law not to become a safe harbor for violators of fundamental international norms. Applying this test to the facts of the Kiobel , Justice Breyer agreed that the matter should be dismissed because "the parties and relevant conduct lack sufficient ties to the United States for the ATS to provide jurisdiction." Although lower courts' interpretations of Kiobel are still evolving, many commentators see the Supreme Court's decision as having significantly limited the ATS as a vehicle to redress human rights abuses in U.S. courts. In particular, Kiobel appears to preclude so-called "foreign cubed" cases in which a foreign plaintiff sues a foreign defendant for conduct and injuries that occurred in a foreign nation. On the other hand, cases in which there is some connection to the United States—such as a defendant who is a U.S. citizen or corporation—are less easily resolved under Kiobel . In particular, courts have adopted differing interpretative frameworks for deciding what level of domestic conduct or contact is necessary to satisfy Kiobel 's "touch and concern" test, creating a split among the circuits. As of the date of this report, five circuits have considered the "touch and concern" test in the context of the ATS. The Fifth and Second Circuits adopted a bright-line approach similar to Justice Alito's concurrence in Kiobel . In order to displace the presumption against extraterritoriality under this approach, the conduct that constitutes a violation of the law of nations must have occurred in the United States, regardless of whether the case has other domestic connections , such as a U.S. citizen defendant. The Fourth, Ninth, and Eleventh Circuits, by contrast, have developed flexible methods of interpretation. According to the Fourth Circuit, an ATS claim "touches and concerns" the United States "when extensive United States contacts are present and the alleged conduct bears . . . a strong and direct connection to the United States." The Fourth Circuit emphasized that this is a fact-based analysis that most cases will not satisfy. But it allowed one case to go forward that involved American employees of a U.S. corporation, even though the primary conduct giving rise to a violation of the law of nations—alleged torture at the Abu Ghraib prison facility in Iraq—occurred outside the territorial jurisdiction of the United States. The Eleventh Circuit has held that an ATS claim satisfies the "touch and concern test" if it "has a U.S. focus and adequate relevant conduct occurs in the United States." Under this "fact-intensive" approach, the Eleventh Circuit has considered factors such as the citizenship of the defendants and potential U.S. national interests triggered by the nature of the defendants' conduct. But it deemed these factors insufficient on their own to displace the presumption against extraterritoriality. Similarly, the Ninth Circuit reasoned "that a defendant's U.S. citizenship or corporate status is one factor that, in conjunction with other factors, can establish sufficient connection between an ATS claim and the territory of the United States." Some of the disparity among the circuits arises from their interpretation of Morrison v. National Australia Bank Ltd. —a pre- Kiobel Supreme Court decision analyzing how the presumption of extraterritoriality applies to Section 10(b) of the Securities and Exchange Act of 1934. Section 10(b) prohibits the use of "any manipulative or deceptive device or contrivance" in connection with the purchase or sale of a "security registered on a national securities exchange[.]" The plaintiffs in Morrison argued that, although they purchased their securities on a foreign stock exchange outside the United States, their claim was domestic in nature because the deceptive conduct took place in the United States. The Supreme Court disagreed, and held that the presumption against extraterritoriality still defeated their case because the "focus" of Section 10(b) is on the "purchase and sale of securities"—which occurred in Australia—not the deceptive conduct. Application of Morrison 's "focus" analysis in ATS cases may make it more difficult for plaintiffs to displace the presumption against extraterritoriality, but courts have reached differing conclusions about whether Morrison applies to the ATS. The Ninth and Fourth Circuits concluded that the Morrison "focus" analysis should not control in ATS cases because the Supreme Court deliberately announced a different standard—the "touch and concern" tes t—in Kiobel . By contrast, the Fifth and Second Circuits were guided by Morrison 's "focus" analysis in their interpretations of Kiobel . And the Fifth and Second Circuits also adopted a bright line rule that plaintiffs can displace the presumption against extraterritoriality in ATS cases only when the conduct that constitutes a violation of the law of nations occurred domestically . Finally, the Eleventh Circuit adopted a hybrid approach "amalgamat[ing] Kiobel 's standards with Morrison 's focus test[.]" The Supreme Court's 2016 decision in RJR Nabisco, Inc. v. European Community may help to resolve this conflict. There, the Court applied the presumption against extraterritoriality to the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO). In the course of discussing its prior jurisprudence on extraterritoriality, including Kiobel , the Supreme Court explained: Morrison and Kiobel reflect a two-step framework for analyzing extraterritoriality issues. At the first step, we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially. . . . If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute's "focus." Some commentators interpreted this reference to Kiobel as a clarification that Morrison 's "focus" analysis applies in ATS cases. The Fifth Circuit also adopted this interpretation in the only court of appeals decision analyzing extraterritoriality and the ATS since the Supreme Court's ruling RJR Nabisco . However, at least one district court held that RJR Nabisco did not overturn prior Ninth Circuit precedent that Morrison 's "focus" test does not apply to the ATS. Thus, it remains to be seen whether RJR Nabisco will streamline lower courts' interpretive frameworks for analyzing extraterritoriality under the ATS. Moreover, even if the "focus" test becomes part of all the circuits' analyses, RJR Nabisco may still leave room for courts to disagree on precisely what the "focus" of the ATS is. But if courts follow the Fifth Circuit's interpretation of RJR Nabisco in ATS cases, they appear more likely to create a bright-line rule that ATS plaintiffs can overcome the presumption against extraterritoriality only if the specific conduct constituting a violation of the law of nations occurred within the United States. Regardless of which interpretation courts adopt, the Supreme Court's decision in Jesner v. Arab Bank, PLC , discussed below, is likely to further restrict the use of the statute in pursuing extraterritorial ATS claims. In the Supreme Court's most recent ATS case, Jesner v. Arab Bank, PLC , the Court granted certiorari to resolve another lingering circuit split in ATS litigation: May corporations be deemed liable under the ATS? Jesner was the second time the Supreme Court took up the issue of corporate liability under the ATS. Although it ultimately decided Kiobel on extraterritoriality grounds, the Court originally granted certiorari in that case to review a holding in the Second Circuit that the law of nations does not recognize corporate liability. At the time certiorari was granted in Je s n er , however, the Second Circuit was the only circuit to reach this conclusion. All other circuits that considered the issue had determined that corporate liability is available under the ATS. Jesner involved claims by approximately 6,000 foreign nationals (or their families or estate representatives) who were injured, killed, or captured by terrorist groups in Israel, the West Bank, and Gaza between 1995 and 2005. The plaintiffs alleged that Arab Bank—one of the largest financial institutions in the Middle East —aided and abetted four terrorist organizations allegedly responsible for the attacks. Among other things, the plaintiffs alleged that Arab Bank maintained accounts for the organizations knowing that they would be used for terrorist actions, and played an active role in identifying the families of victims of suicide bombing so that they could be compensated in so-called "martyrdom payments." As one court described the allegations, Arab Bank allegedly served as a "paymaster" for terrorist groups through its branch offices in the West Bank and Gaza Strip. Jesner was a consolidation of five cases filed in the Eastern District of New York, all of which assert similar allegations of facilitating and financing terrorism against Arab Bank. Relying on its prior circuit precedent, both the district court and Second Circuit dismissed the ATS claims on the ground that the ATS does not permit any form of corporate liability. Although the Second Circuit acknowledged there is a "growing consensus among [its] sister circuits" that the ATS allows for corporate liability, it nevertheless declined to overturn its prior circuit precedent. After granting certiorari in Jesner , the Supreme Court sided with the Second Circuit's minority approach regarding corporate liability under the ATS, with one modification: the Court held that foreign corporations are not subject to liability under the ATS. The Court left open the possibility that U.S. corporations could face claims under the ATS. Writing for a 5-4 majority, Justice Kennedy (joined, in relevant part, by Chief Justice Roberts and Justices Thomas, Alito, and Gorsuch) placed the decision in the context of the second step of the two-part inquiry described in Sosa v. Alvarez-Machain for evaluating whether violations of international norms are actionable under the ATS. In Sosa step two, courts consider whether circumstances make it "appropriate" to deem a violation of an international norm cognizable under the ATS. Although Sosa described federal courts' ability to recognize claims under the ATS as within judicial discretion, the Sosa Court instructed federal courts to exercise "great caution" and to act with "restraint in judicially applying internationally generated norms." In Jesner , the Court reasoned that the same restrained approach applies when evaluating the question of whether artificial entities like corporations can be defendants in ATS suits. Against this backdrop of judicial caution, the Jesner Court concluded that it would be "inappropriate for courts to extend ATS liability to foreign corporations." The Court's decision arose, in part, from separation-of-powers and foreign affairs concerns. Congress is in "the better position to consider if the public interest would be served by imposing" ATS liability on foreign corporations, the majority in Jesner reasoned. And ATS claims against foreign corporations often impact the United States' foreign relations, according to the Jesner Court. In fact, the Court noted, the claims against Arab Bank had already caused diplomatic tensions with Jordan, which filed an amicus brief describing the case as a "direct affront to its sovereignty." Because the "political branches, not the Judiciary, have the responsibility and institutional capacity to weigh foreign policy concerns[,]" the Jesner Court concluded that the judicial caution described in Sosa warranted the creation of a bright-line rule that "foreign corporations may not be defendants in suits brought under the ATS." Although a majority of the Jesner Court agreed to a categorical rule foreclosing ATS claims against foreign corporate entities, several Justices diverged in their rationale for the holding. A five-Justice majority joined portions of an opinion authored by Justice Kennedy, described above. But only Chief Justice Roberts and Justice Thomas joined the remainder of Justice Kennedy's plurality opinion. In a separate opinion concurring in part with Justice Kennedy and concurring in the judgment, Justice Alito expressed the view that courts should decline to recognize ATS claims "whenever doing so would not materially advance the ATS's objective of avoiding diplomatic strife." Justice Gorsuch also wrote separately to describe "two more fundamental reasons" why he believed Jesner should be dismissed. According to Justice Gorsuch, (1) separation-of-powers principles dictate that courts should never recognize new causes of action under the ATS; (2) and a reexamination of the history of the ATS shows that the statute was intended to apply only to claims against U.S. defendants—regardless of whether they are corporations or natural persons. Justice Thomas also wrote a one-paragraph concurring opinion in which he stated that, although he joined Justice Kennedy's opinion because he believed it "correctly applies" the Court's precedents, he also agreed with the concurrences of Justices Alito and Gorsuch. Justice Sotomayor, writing in dissent and joined by Justices Ginsburg, Breyer, and Kagan, argued that nothing in the "corporate form in itself raises" foreign policy concerns that require the Court to "immunize all foreign corporations from liability under ATS," regardless of the specific claim alleged. To the extent that ATS suits against foreign corporate entities lead to friction in foreign affairs, the dissent contended, such tension is better resolved through other limitations on ATS jurisdiction, such as Kiobel 's presumption against extraterritoriality. Further, while the majority emphasized that the political branches are better suited to consider the foreign policy implications of ATS suits, the dissenters observed that both the U.S. Solicitor General and certain Members of Congress urged the Supreme Court to permit foreign corporate liability. Jesner has led to a debate over the continuing viability of the ATS as a prominent vehicle for civil lawsuits alleging human rights abuses. Some observers have suggested that, when Jesner is combined with Kiobel 's presumption against extraterritoriality and the limitations of Sosa 's two-step framework, very few cases will satisfy the Supreme Court's requirements for ATS jurisdiction. Others see the ATS as retaining at least some significance because the Jesner Court did not foreclose suits against U.S. corporations , and the Court's holding allows for claims against the individual employees of foreign companies. Although not resolved in the Jesner Court's opinion, several Justices expressed a desire to revisit Sosa 's conclusion that federal courts have discretion under the ATS to recognize new causes of action for violations of modern international norms. If the Supreme Court were, in a future case, to hold that federal courts do not possess such discretion, ATS jurisdiction potentially could be limited to three types of claims that were generally recognized as actionable violations of international law at the time of the ATS's enactment: (1) piracy; (2) interference with the rights of ambassadors; and (3) violations of safe conducts. Such a holding could cabin the scope of ATS jurisdiction so significantly that it potentially could relegate the statute to its status during the long dormancy in which it was a rarely invoked jurisdictional provision. After nearly two centuries of relative obscurity, the ATS emerged as a prominent legal mechanism for human rights and terrorism-related litigation after the Second Circuit's decision in Filártiga . But while numerous suits premised on the ATS were filed by foreign nationals in the aftermath of Filártiga , the Supreme Court has never ruled in the plaintiff's favor in an ATS case. Instead, the High Court placed significant limitations on the scope of viable ATS claims through decisions in Sosa , Kiobel , and, most recently, Jesner . Some commentators see the Supreme Court's ATS jurisprudence as having limited the statute's jurisdictional reach so significantly as to result in the end of the ATS's era of importance. Others interpret the High Court's rulings as having left the door open for certain limited categories of cases against natural persons or U.S. corporate defendants. Ultimately, the Jesner Court emphasized the need for "further action from Congress" before recognizing an expansion of ATS jurisdiction beyond its 18th century roots, and therefore the future of ATS litigation may be dictated by the legislative branch rather than the courts. | Passed by the First Congress as part of the Judiciary Act of 1789, the Alien Tort Statute (ATS) has been described as a provision "unlike any other in American law" and "unknown to any other legal system in the world." In its current form, the complete text of the statute provides the following: "The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." While just one sentence, the ATS has been the subject of intense interest in recent decades, as it evolved from a little-known jurisdictional provision to a prominent vehicle for foreign nationals to seek redress in U.S. courts for injuries caused by human rights offenses and acts of terrorism. The ATS has its historical roots in founding-era efforts to give the federal government supremacy over the nation's power of foreign affairs and to avoid international conflict arising from disputes about the treatment of aliens in the United States. Although it has been part of U.S. law since 1789, the ATS was rarely used for nearly two centuries. In 1980, that long dormancy came to an end when the U.S. Court of Appeals for the Second Circuit rendered a landmark decision, Filártiga v. Peña-Irala, which held that the ATS permits claims for violations of modern international human rights law. Filártiga caused an explosion of ATS litigation in the decades that followed, but the Supreme Court has placed limits on ATS jurisdiction in its recent jurisprudence. In a 2004 case, Sosa v. Alvarez-Machain, the Court held that the ATS allows federal courts to hear only a "narrow set" of claims for violations of international law. And in 2013, the Supreme Court held in Kiobel v Royal Dutch Petroleum Co. that the statute does not provide jurisdiction for claims between foreign plaintiffs and defendants involving matters arising entirely outside the territorial jurisdiction of the United States. Lower courts' interpretations of these decisions are still evolving and, in some cases, conflicting, but many observers agree that Sosa and Kiobel have significantly narrowed the scope of the ATS. In its most recent ATS case, Jesner v. Arab Bank, PLC, the Supreme Court further limited the scope of viable claims by holding that foreign corporations may not be defendants in suits brought under the ATS. Jesner involved claims by approximately 6,000 foreign nationals (or their families or estate representatives) who were injured, killed, or captured by terrorist groups in Israel, the West Bank, and Gaza. The plaintiffs alleged that Arab Bank—the largest bank in Jordan—aided and abetted the terrorist organizations allegedly responsible for the attacks by maintaining bank accounts that Arab Bank knew would be used to fund terrorism and by identifying the relatives of suicide bombers so that they could be compensated with so-called "martyrdom payments." A divided Supreme Court held in Jesner that the claims must be dismissed because ATS jurisdiction does not extend to claims against foreign corporations, including Arab Bank. Separation-of-powers and foreign policy concerns led the Court to conclude that it would be "inappropriate" to permit ATS liability against foreign corporations. The High Court's narrowing of the available avenues to raise an ATS claim in Sosa, Kiobel, and Jesner has led commentators to debate whether the statute remains a viable mechanism to provide redress for human rights abuses in U.S. courts. |
On November 25, 2003, a House and Senate conference committee reported H.R. 2673 ( H.Rept. 108-401 ), the Consolidated Appropriations Act for FY2004. It combined sixappropriations bills that Congress was unable to complete before the close of the first session of the108th Congress, including H.R. 2765 , the District of ColumbiaAppropriations Act forFY2004, which became Division C of H.R. 2673. The House agreed to the conferencereport on December 8, 2003, while the Senate postponed final consideration of the measure untilCongress reconvenes in January 2004. On November 18, 2003, the Senate passed its version of H.R.2765. On September 9, 2003, the House approved its version of H.R. 2765 bya vote of 210 to 206 (Roll Call Vote 491). During consideration of the bill, the House approved aschool voucher program for the District of Columbia ( H.Amdt. 368 , Roll Call Vote No.490). On September 4, 2003, the Senate Appropriations Committee reported S. 1583 ( S.Rept. 108-142 ; later substituted as the text for the Senate version of H.R. 2765). TheHouse Appropriations Committee reported H.R. 2765 ( H.Rept. 108-214 ) on July 17, 2004. As passed by the House, H.R. 2765 recommended $466 million in special federalpayments, while the Senate and conference bills recommend $545 million. The conference version of the District of Columbia Appropriations Act for FY2004 includes special federal payments for several education initiatives, including $17 million for the District'sCollege Tuition Assistance Program, $13 million for a school voucher program, $13 million forpublic schools, $13 million for public charter schools, $4.5 million for public school facilities forplayground and window repair and replacement, 10.75 million appropriated to the CFO andearmarked for various education and related activities to be administered by organizations identifiedin the conference report, and $2 million for the Family Literacy Program, which would be match bythe District on a dollar for dollar basis. In addition, the conference bill recommends $373.1 millionfor criminal justice and court-related activities. Table 1. Status of District of Columbia Appropriations:FY2004 (1) The Senate substituted the language of S. 1583 for the text of H.R. 2765before it began consideration of the bill. On February 3, 2003, the Bush Administration released its FY2004 budget recommendations. The Administration's proposed budget included $420.5 millionin federal payments to the District of Columbia. (1) A major portion of the President'sproposed federal payments and assistance to the District involve the courts andcriminal justice system. This included $166.5 million for the Court Services andOffender Supervision Agency for the District of Columbia, an independent federalagency that has assumed management responsibility for the District's pretrialservices, adult probation, and parole supervision functions. In addition, theAdministration requested $163.8 million in support of court operations, and $32million for Defender Services. These three functions (court operations, defenderservices, and offender supervision) represent $362.3 million, or 86.3% of thePresident's proposed $420.5 million in federal payments to the District of Columbia(see Table 2 ). On June 3, 2003, District officials transmitted the city's $5.7 billion budget for FY2004 to the President for review and approval. The proposed budget included arequest for $915.9 million in special federal payments. On July 9, 2003, the BushAdministration transmitted the city's budget to Congress for its review and approval.The city's proposed operating budget of $5.7 billion includes a $50 million cashreserve fund. In addition, the District's budget would decrease local funding forpublic education by $48 million, while seeking $23.2 million in special federalpayments for charter school financing, early childhood education, and specialeducation activities. It would also decrease funding for general government supportby $19 million and human support services by $92 million, while requesting $18million in special federal payments for human support services targeted toimprovements at the St. Elizabeth Hospital and substance abuse facilities. TheDistrict also requested special federal payments of $159 million for emergencypreparedness assistance, $75 million for public safety, and $42 million for publiceducation. Section 302(a) of the Congressional Budget Act requires that the House and Senate pass a concurrent budget resolution establishing an aggregate spending ceiling(budget authority and outlays) for each fiscal year. These ceilings are used by Houseand Senate appropriators as a blueprint for allocating funds. Section 302(b) of theCongressional Budget Act of 1974 requires appropriations committees in the Houseand Senate to subdivide their Section 302(a) allocation of budget authority andoutlays among the 13 appropriations subcommittees. The House AppropriationsCommittee approved a Section 302(b) suballocation of $466 million in budgetauthority for FY2004 for the District of Columbia -- about half the amount requestedby the District. The Senate Appropriations Committee approved a Section 302(b)suballocation of $545 million in budget authority for FY2004 for the District ofColumbia. This is $370 million less than requested by the city. Congress not only appropriates federal payments to the District to fund certain activities but also reviews the District's entire budget, including the expenditure oflocal funds. The District subcommittees of both the House and Senate AppropriationsCommittees must approve -- and may modify -- the District's budget. House andSenate versions of the District budget are reconciled in a joint conference committeeand must be agreed to by the House and the Senate. After this final action, theDistrict's budget is forwarded to the President, who can sign it into law or veto it. House Version (H.R. 2765). On September 9, 2003, H.R. 2765 ,the District of Columbia Appropriations Act for FY2004, was approved by the Houseby a vote of 210 to 206 (Roll Call Vote No. 491). During its consideration of the bill,the House approved a controversial school voucher program. The HouseAppropriations Committee reported H.R. 2765 ( H.Rept. 108-214 ) on July17. In line with the Committee's recommendation, the House approved $466 millionin special federal payments for the District of Columbia. The bill included $17million for a college tuition assistance plan, $15 million for security planning, and$163.1 million for court services and offender supervision. H.R. 2765 alsoincluded $10 million in special federal payments for a school choice programdesigned to provide financial assistance to families of District school-age studentsattending private and parochial schools. The $10 million special federal paymentwas contingent on the passage of authorizing legislation. The bill also included $4.5million for public school facilities for playground enhancements and windowreplacements. The bill did not include $48.7 million in funding for public educationrequested by the District, including $6 million for charter schools and $20 million forspecial education students, facilities, and transportation. House Bill General Provisions. During the September 5, 2003, House floor debate on H.R. 2765 , theHouse rejected an amendment ( H.Amdt. 367 ) that would have deletedthe proposed $10 million special federal payment for a school voucher program. OnSeptember 9, 2003, the House approved an amendment ( H.Amdt. 368 ),introduced by Rep. Tom Davis, that would have authorized a school voucherprogram in the District of Columbia. In addition, as approved by the House, H.R.2765 included a provision that would have removed the prohibition on theuse of District funds for costs associated with implementing the District's HealthCare Benefits Expansion Act of 1992 (domestic partners program). The House billretained a number of provisions that District officials want to eliminate or modify,including those related to medical marijuana, abortion, and needle exchangeprograms. The bill also included a provision that would have prohibited the cityfrom using of federal and local funds appropriated in FY2004 in support of a lawsuitintended to enforce the District of Columbia Assault Weapons Manufacturing StrictLiability Act of 1990. For a summary and analysis of the general provisionscontained in H.R. 2765, see CRS Report RL32045(pdf) , District of ColumbiaAppropriations Act for FY2004: Comparison of General Provisions ofP.L. 108-7 and the House and Senate Versions of H.R. 2765 . Senate Version of H.R. 2765 (formerly S. 1583). On September 24, 2003, the Senate began floorconsideration of its version of H.R. 2765 , the District of ColumbiaAppropriations Act for FY2004. The Senate Appropriations Committee reported itsversion of the act ( S.Rept. 108-142 ) on September 4. The Committee recommended$545 million in special federal payments for the District of Columbia. The billincluded $17 million for a college tuition assistance plan, $15 million for securityplanning, and $173.4 million for court services and offender supervision. The Senatebill also includes $40 million in special federal payments for elementary andsecondary education, including $13 million for a school choice program designed toprovide financial assistance to families of District school-age students attendingprivate and parochial schools. The bill also proposed $13 million for the District'spublic schools, and $13 million for the city's public charter schools. The billincluded $14 million for improvements in the city's foster care program; a similarprovision was not included in the House version of the bill. It also recommendedappropriating $20 million to be administered by the CFO in support of education,security, economic development, and health initiatives, but it did not specifyrecipients of funds in the bill or its accompanying report. The House bill included$10 million for the CFO, but it did not specify the purpose or activities the fundswould be used to support. Senate Bill General Provisions. The Senate bill, like its House counterpart, included a provision that would haveremoved the prohibition on the use of District funds for costs associated withimplementing the District's Health Care Benefits Expansion Act of 1992 (domesticpartners program). It retained a number of provisions that District officials want toeliminate or modify, including those related to medical marijuana and abortion. Itproposed modifying the provision related to funding of needle exchange programs,allowing District but not federal funds to be used for such activities. The bill alsoincluded two provisions that would lift the prohibition on the use of District fundsfor lobbying and advocacy activities of elected officials. This would allow theDistrict's elected officials to use District, but not federal, funds for advocacy withrespect to any issue including statehood and voting representation in Congress. TheSenate bill included a provision not included in the House bill that would allow theDistrict of Columbia to appoint and compensate an attorney to represent a parent orguardian in an adoption proceeding who is facing termination of parental rights if theparent or guardian lacks the financial means of obtaining adequate legalrepresentation. For a summary and analysis of the general provisions contained in H.R. 2765 , see CRS Report RL32045(pdf) , District of ColumbiaAppropriations Act for FY2004: Comparison of General Provisions ofP.L. 108-7 and the House and Senate Versions of H.R. 2765 . Conference Version of Division C of H.R. 2763 (formerly H.R. 2765). Unable to completeaction on six appropriations measures (including H.R. 2765 ) before theend of the 2003 legislative session, Congress consolidated these funding measuresinto an omnibus appropriations measure. On November 25, 2003, a House andSenate conference committee reported H.R. 2673 ( H.Rept. 108-401 ), the Consolidated Appropriations Act for FY2004. On December 18, 2003, the Housepassed the measure by a vote of 242 to 176 (Roll Call Vote No. 676). Division C ofthe bill provides for the appropriation of funds for the District of Columbia forFY2004. The Senate postponed final action on the measure until its return in January2004. The conference bill would appropriate $545 million in special federalpayments for the District of Columbia and would approve the city's $5.7 billionoperating budget. The bill contains several significant education initiatives,including $17 million for the city college tuition assistance program, $13 million forpublic schools, $13 million for charter schools, $13 million for a school voucherprogram to assistance low-income students attend private schools, $4.5 million forschool playground facilities and window replacement and repairs, and $10.75 millionawarded to the CFO and earmarked to various entities for education-relatedinitiatives. The act also includes $19 million for emergency planning and security,bioterrorism preparedness, and emergency personnel cross training; $14 million insupport of foster care improvements; and $373 million for criminal justice and courtoperation activities. Conference Bill General Provisions. The conference bill includes a provision included theHouse and Senate bills removing the prohibition on the use of District funds for costsassociated with implementing the District's Health Care Benefits Expansion Act of1992 (domestic partners program). The bill includes a provision included in theHouse bill that would prohibit the use of federal and District funds in support of anyboycott or propaganda campaign intended to support or defeat legislation pendingbefore Congress or any state legislature, but it would allow the use of local funds forlobbying activities except in the case of statehood or voting representation inCongress. The bill also would prohibit the use federal and local funds for a needleexchange program, medical marijuana, or abortion services, except in instanceswhere the life of the mother is threatened. For a summary and analysis of the generalprovisions contained in House, Senate, and conference versions of the District ofColumbia Appropriations Act, see CRS Report RL32045(pdf) , District of ColumbiaAppropriations Act for FY2004: Comparison of General Provisions ofP.L. 108-7 and the House and Senate Versions of H.R. 2765 . Table 2. District of Columbia Special Federal Payment Funds: Proposed FY2004 Appropriations (in millionsof dollars) Source: H.Rept. 108-214 , S.Rept. 108-142 , H.Rept. 108-401 . Note: The amount included in [ ] is a component part of the preceding unbracketedamount. a Provision would allow federal payments to courts, excluding those appropriated capital improvements to be used for defender services. b District must provide a 100% match of federal funds. c City requested $46 million as part of a special federal payment for EmergencyPreparedness. Senate bill provides for a stand-alone appropriation for FY2004. d Funds administered under the CFO account. e Funded under separate account for public charter schools. f Administration has requested funding for a similar program within the Labor, Health andHuman Services, Education and Related Agencies Appropriations Act for FY2004. g Subject to passage of authorizing legislation. h Notes the funds are to be used for education, security, economic development and healthinitiatives, but does not specify recipients of funds in the bill or its accompanying report. i Funded in FY2003 under CFO account. FY2004 funded under a separate account. Table 3. District of Columbia General Funds forFY2004 (in millions of dollars) Source: H.Rept. 108-214 . Whether to continue a needle exchange program funded with federal or District funds is one of several key policy issues that Congress will likely consider whenreviewing the District's appropriations for FY2004. The controversy surroundingfunding a needle exchange program touches on issues of home rule, public healthpolicy, and government sanctioning and facilitating the use of illegal drugs. Proponents of a needle exchange program contend that such programs reduce thespread of HIV among illegal drug users by reducing the incidence of shared needles. Opponents of these efforts contend that such programs amount to the governmentsanctioning illegal drugs by supplying drug-addicted persons with the tools to usethem. In addition, they contend that public health concerns raised about the spreadof AIDS and HIV through shared contaminated needles should be addressed throughdrug treatment and rehabilitation programs. Another view in the debate focuses onthe issue of home rule and the city's ability to use local funds to institute suchprograms free from congressional actions. The prohibition on the use of federal and District funds for a needle exchange program was first approved by Congress as Section 170 of the District of ColumbiaAppropriations Act for FY1999, P.L. 105-277 . The 1999 Act did allow privatefunding of needle exchange programs. The District of Columbia Appropriations Actfor FY2001, P.L. 106-522 , continued the prohibition on the use of federal andDistrict funds for a needle exchange program; and it restricted where privately fundedneedle exchange activities could take place. Section 150 of the District of ColumbiaAppropriations Act for FY2001 made it unlawful to distribute any needle or syringefor the hypodermic injection of any illegal drug in any area in the city that is within1,000 feet of a public elementary or secondary school, including any public charterschool. The provision was deleted during congressional consideration and passageof the District of Columbia Appropriations Act of FY2002, P.L. 107-96 . The act alsoincluded a provision that allows the use of private funds for a needle exchangeprogram, but it prohibits the use of both District and federal funds for such activities. At present, one entity, Prevention Works, a private nonprofit AIDS awareness andeducation program, operates a privately funded needle exchange program. TheFY2002 District of Columbia Appropriations Act requires such entities to track andaccount for the use of public and private funds. District officials were seeking to lift the prohibition on the use of District funds for needle exchange programs. The House version of H.R. 2765 ,however, included a provision that continued to prohibit the use of both District andfederal funds for needle exchange programs. The House version of the bill wouldallow the use of private funds for needle exchange programs and would requireprivate and public entities that receive federal or District funds in support of otheractivities or programs to account for the needle exchange funds separately. TheSenate version of the bill proposed prohibiting only the use of federal funds for aneedle exchange program and allowing the use of District funds. The conference bill, H.R. 2673 , reflects the House position prohibiting the use of bothfederal and local funding for a needle exchange program, but allowing the use ofprivate funds. The medical marijuana initiative provision in the District of Columbia appropriations legislation is another issue that engenders controversy. The Districtof Columbia Appropriations Act for FY1999, P.L. 105-277 , included a provision thatprohibited the city from counting ballots of a voter-approved initiative that wouldhave allowed the medical use of marijuana to assist persons suffering debilitatinghealth conditions and diseases including cancer and HIV infection. Congress's power to prohibit the counting of a medical marijuana ballot initiative was challenged in a suit filed by the D.C. Chapter of the American CivilLiberties Union (ACLU). On September 17, 1999, District Court Judge RichardRoberts ruled that Congress, despite its unique legislative responsibility for theDistrict under Article I, Section 8, of the Constitution, did not possess the power tostifle or prevent political speech, which included the ballot initiative. (2) This rulingallowed the city to tally the votes on the November 1998 ballot initiative. To preventthe implementation of the initiative, Congress had 30 days to pass a resolution ofdisapproval from the date the medical marijuana ballot initiative (Initiative 59) wascertified by the Board of Elections and Ethics. Language prohibiting theimplementation of the initiative was included in P.L. 106-113 , the District ofColumbia Appropriations Act for FY2000. Opponents of the provision contend thatsuch congressional actions undercut the concept of home rule. The District of Columbia Appropriations Act for FY2002, P.L. 107-96 , includes a provision that continues to prohibit the District government from implementing theinitiative. Congress's power to block the implementation of the initiative was againchallenged in the courts. On December 18, 2001, two groups, the Marijuana PolicyProject and Medical Marijuana Initiative Committee, filed suit in U.S. District Court,seeking injunctive relief in an effort to put a medical marijuana initiative on theNovember 2002 ballot. The District's Board of Elections and Ethics ruled that acongressional rider that has been included in the general provisions of each Districtappropriations act since 1998 prohibits it from using public funds to do preliminarywork that would put the initiative on the ballot. On March 28, 2002, a U.S. district court judge ruled that the congressional ban on the use of public funds to put such a ballot initiative before the voters wasunconstitutional. (3) The judge stated that the effectof the amendment was to restrictthe plaintiff's First Amendment rights to engage in political speech. The decisionwas appealed by the Justice Department and on September 19, 2002, the U.S. Courtof Appeals for the District of Columbia Circuit reversed the ruling of the lower courtwithout comment. The appeals court issued its ruling on September 19, 2002, whichwas the deadline for printing ballots of the November 2002 general election. The House, Senate, and conference bills include a provision that continues the prohibition against the implementation of the medical marijuana ballot initiative. The public funding of abortion services for District of Columbia residents is a perennial issue debated by Congress during its annual deliberations on District ofColumbia appropriations. District officials cite the prohibition on the use of Districtfunds as another example of congressional intrusion into local matters. The Districtof Columbia Appropriations Act for FY2002, P.L. 107-96 , included a provisionprohibiting the use of federal or District funds for abortion services, except in caseswhere the life of the mother is endangered or the pregnancy is the result of rape orincest. This prohibition has been in place since 1995, when Congress approved theDistrict of Columbia Appropriations Act for FY1996, P.L. 104-134 . Since 1979, with the passage of the District of Columbia Appropriations Act of 1980, P.L. 96-93 , Congress has placed some limitation or prohibition on the use ofpublic funds for abortion services for District residents. From 1979 to 1988,Congress restricted the use of federal funds for abortion services to cases where themother's life would be endangered or the pregnancy resulted from rape and incest. The District was free to use District funds for abortion services. When Congress passed the District of Columbia Appropriations Act for FY1989, P.L. 100-462 , it restricted the use of District and federal funds for abortion servicesto cases where the mother's life would be endangered if the pregnancy were taken toterm. The inclusion of District funds, and the elimination of rape or incest asqualifying conditions for public funding of abortion services, was endorsed byPresident Reagan, who threatened to veto the District's appropriations act if theabortion provision was not modified. (4) In 1989,President Bush twice vetoed theDistrict's FY1990 appropriations act over the abortion issue. He signed P.L. 101-168 after insisting that Congress include language prohibiting the use of District revenuesto pay for abortion services except in cases where the mother's life was endangered. (5) The District successfully fought for the removal of the provision limiting District funding of abortion services when Congress considered and passed the District ofColumbia Appropriations Act for FY1994, P.L. 103-127 . The FY1994 Act alsoreinstated rape and incest as qualifying circumstances allowing for the public fundingof abortion services. The District's success was short-lived. The District ofColumbia Appropriations Act for FY1996, P.L. 104-134 , and subsequent District ofColumbia appropriations acts limited the use of District and federal funds forabortion services to cases where the mother's life is endangered or cases where thepregnancy was the result of rape or incest. The House, Senate, and conference bills would continue to restrict the use of District and federal funds for abortion services except in cases of rape or incest, orwhen the life of the mother is endangered. This is consistent with provisionsincluded in the House and Senate versions of the District of ColumbiaAppropriations Act for FY2003, P.L. 108-7 . P.L. 107-96 includes a provision lifting the congressional prohibition on the use of District funds to implement its Health Care Benefits Expansion Act. (6) Theprovision permits unmarried heterosexual and homosexual couples to register asdomestic partners. Under the Health Care Benefits Expansion Act, which wasapproved by the city's elected leadership in 1992, an unmarried person who registersas a domestic partner of a District employee hired after 1987 may be added to theDistrict employee's health care policy for an additional charge. The Act had not beenimplemented until 2002 because of a congressional prohibition first included in thegeneral provisions of District of Columbia Appropriations Act for FY1994. The city's Health Care Benefits Expansion Act allows two cohabiting, unmarried, and unrelated individuals to register as domestic partners with the Districtfor the purpose of securing certain health and family related benefits, includinghospital visiting rights. Under the law, District government employees enrolled inthe District of Columbia Employees Health Benefits Program are allowed to purchasefamily health insurance coverage that would cover the employee's family members,including domestic partners. In addition, a District employee registered as a domesticpartner may assume the additional cost of the family health insurance coverage forfamily members, which would include the employee's domestic partner. Opponents of the act maintain that it devalues the institution of marriage, and that the act grants unmarried gay and heterosexual couples the same standing asmarried couples. Congressional proponents of lifting the ban on the use of Districtfunds argue that the implementation of the act is a question of home rule and localautonomy. Supporters of the amendment noted that at least nine states, 136 localgovernments, and more than 4,000 companies offer benefits to domestic partners. (7) The House, Senate, and conference bills, consistent with the provision first included in the District's FY2002 Appropriations Act, include a general provisionthat allows the use of District funds to administer the program during FY2004. During the FY2004 appropriations process, key policy issues have emerged in the areas of special education, public charter schools, and school choice. Special Education. The District's special education program has long been characterized as ineffective and inefficient. (8) The system has been plagued by problems in transporting students to specialeducation facilities and in the timely evaluation of students who may have specialneeds. Delays in the period between a student's referral and assessment increase thenumber of students placed in private educational institutions, which adds to the costof special education. Concern about the cost of these delays prompted Congress toinclude a provision in the District of Columbia Appropriations Act for FY1999 thatextends the time period between referral and assessment of a student with specialeducation needs, as defined by the Individuals with Disabilities Education Act(IDEA) (9) or the Rehabilitation Education Act, (10) from 50 days to 120 days. (11) P.L.108-7 , the Consolidated Appropriations Act for FY2003, deleted the 120-day specialeducation evaluation and placement time period provision included in previousappropriations acts. In addition, the FY1999 Appropriations Act for the District of Columbia limited the amount of compensation payable to attorneys representing disabled students whoprevailed in an action brought against the District of Columbia Public Schools(DCPS) under the IDEA. Subsequent appropriations acts for FY2000 and FY2001also limited the amount of funds payable to attorneys successfully representingstudents seeking special education services. The FY1999 act limited attorneys' feesto an hourly rate of $50 and a case ceiling of $1,300; the FY2000 limit was $60 perhour and a case ceiling of $1,560; and the FY2001 rate was $125 per hour with a caseceiling of $2,500. The District's FY2002 Appropriations Act lifted the ceiling, in part, in response to the argument that the ceiling placed a hardship on households with limitedfinancial resources. District officials countered that the payment of attorney's feesdiverted significant funds from the provision of special education services, but wereunable to quantify the amount. As a consequence, the FY2002 Appropriationsdirected the superintendent of the DCPS to provide an itemized list of attorney's feesawarded plaintiffs who had prevailed in cases brought under the IDEA. (12) The actalso directed the General Accounting Office to report to the House and SenateAppropriations Committees on attorneys' fees awarded to prevailing plaintiffsseeking remedy under the IDEA in excess of the payment ceiling established in theAppropriations Acts for FY1999, FY2000, and FY2001. (13) Copies of the GAOreports cited above may be obtained at the GAO website. (14) The District of Columbia Appropriations Act for FY2003, P.L. 108-7 , limits to $4,000 the amount of appropriated funds that may be used to pay attorney's fees foractions brought against the DCPS under the IDEA. The $4,000 limit includes feesfor attorneys representing students and those defending the DCPS. Section 145 ofthe act requires attorneys in special education cases brought under the IDEA todisclose all financial, corporate, legal, or other interest or relationships with anyspecial education diagnostic services or schools to which the attorney may havereferred any client. The House, Senate, and conference bills would continue to limit attorney's fees in IDEA cases to $4,000, and would continue to require attorneys in such cases todisclose any interest in or relationship with any special education diagnostic servicesor schools to which the attorney may have referred any client. Charter Schools. Charter schools are public schools that operate independently of traditional local public schoolsystems under a charter granted by a public entity. The 104th Congress authorized theestablishment of charter schools in the District of Columbia, under the District ofColumbia School Reform Act of 1995 ( P.L. 104-134 ). Under the District ofColumbia's charter school law, charters may be granted by either the District ofColumbia Board of Education or the District of Columbia Public Charter SchoolBoard. In accordance with requirements implemented under P.L. 104-134 , bothDCPS schools and public charter schools are funded on a per-pupil basis accordingto a uniform per student funding formula (UPSFF). During the 2003-2004 schoolyear, 41 public charter schools are operating in the District of Columbia, enrollingover 11,750 students. (15) The District of Columbia Appropriations Act for FY2003, P.L. 108-7 , included several provisions in support of the public charter school movement in the Districtof Columbia. The Act appropriated $16.9 million for charter school activities,including $8 million for a credit enhancement revolving fund, and $5 million for afacilities improvement fund. In addition, the act established the Office of PublicCharter School Financing and Support and amended the District of Columbia SchoolReform Act of 1995 to establish the Charter School Fund. The act also included aprovision directing the General Accounting Office to provide a detailed analysis ofDistrict and nationwide efforts to establish adequate charter schools facilities. (16) These provisions were intended to address major issues confronting charter schoolsin the city -- finding, financing, and renovating adequate facilities. For FY2004, District officials have requested $6 million in federal special payments for charter schools. The House version of H.R. 2765 did notinclude any additional funding for District of Columbia charter schools for FY2004. The Senate version of the District of Columbia Appropriations Act would provide$13 million for public charter schools in the District of Columbia as part of a $40million federal payment for school improvement. (17) The charter school componentincludes $8 million for the Direct Loans Fund for Charter School Improvementestablished under P.L. 108-7 and $5 million for a new "City Build" charter schoolinitiative. The City Build charter school initiative would help create five new charterschools in city neighborhoods that are in need of development. The conference billwould also provide $13 million for charter schools as part of a $40 million federalpayment for school improvements. School Voucher Program. In its FY2004 budget submission, the Bush Administration requested $75 million for aChoice Incentive Fund that would provide competitive awards to states, localeducational agencies (LEAs), and community based organizations (CBOs) thatexpanded opportunities for parents of children who attend low-performing schoolsto attend higher-performing public schools (including charter schools) and privateschools. Under the administration's proposal, a portion would be reserved for schoolchoice programs in the District of Columbia. On May 1, 2003, Mayor Anthony Williams endorsed a Bush Administration school choice initiative intended to provide scholarships to assist eligible Districtschoolchildren to attend private elementary and secondary schools. The mayor'sendorsement followed that of Peggy Cafritz, President of the District of ColumbiaBoard of Education, who announced her support for vouchers in a Washington Post editorial on March 29, 2003. (18) The mayorand board of education president endorsedthe concept of private school vouchers as a means of improving educational optionsfor District public-school children and transforming the city's faltering publicschools. Local supporters of a voucher program insist that it must be federallyfunded and must not reduce funding for the city's traditional public schools andpublic charter schools. The mayor's support of a voucher program has been criticized by the city's Delegate to Congress, Eleanor Holmes Norton, who characterized the BushAdministration proposal as an affront to home rule. (19) Opponents of the voucherprogram contend that it will drain needed funds from public education and will be ofminimal benefit to the majority of District school children. While the U.S. SupremeCourt has ruled in Zelman v. Simmons-Harris that the Constitution permits publicfunding of school vouchers for attendance at religiously affiliated schools ininstances where parents have the opportunity of selecting from a range of options thatincludes public and private secular schools, many still object to allowing public fundsto be used to pay tuition for attendance at religiously affiliated schools. (20) On July 10, 2003, the House Committee on Government Reform passed H.R. 2556 , the DC Parental Choice Incentive Act of 2003, by a vote of22 to 21. The bill would authorize the establishment of a federal competitive grantprogram in which the Secretary of Education would award grants for the operationof a scholarship program to enable children from low-income families in the Districtof Columbia to attend private elementary or secondary schools located in the Districtof Columbia. Under the program, students who are residents of the District ofColumbia and who are from families with incomes not exceeding 185 percent of thepoverty line could apply for scholarships valued at up to $7,500 per academic year. The program would be authorized at $15 million for FY2004 and such sums asnecessary through FY2008. (21) On July 17, 2003, House Committee on Appropriations reported H.R. 2765 , which would authorize a special federal payment of $10million for a school choice program in the District of Columbia, subject to theprogram's authorization. (22) On September 5, 2003,during floor debate on H.R.2765, the House considered two school voucher-related amendments to thebill. Delegate Norton introduced H.Amdt. 367 , which would havedeleted from the bill the proposed $10 million to fund the school choice program. The amendment failed to pass by a vote of 203 to 203 (Roll Call Vote No. 479). TheHouse approved by a vote of 209 to 206 (Roll Call Vote No. 490) an amendmentoffered by Representative Tom Davis. H.Amdt. 490 would authorizea school voucher program in the District of Columbia for students whose familyincome does not exceed 185% of the federal poverty level. Students will be eligiblefor up to $7,500 in funds to attend a private elementary or high school in the District. On September 4, 2003, the Senate Committee on Appropriations reported S. 1583 (later renumbered H.R. 2765 ), which wouldauthorize $13 million for a school voucher program as part of a $40 million federalpayment for school improvement in the District of Columbia. (23) Title II of H.R.2765 would authorize the DC Student Opportunity Scholarship Act of 2003for five years. The bill would provide scholarship funds to low-income parents --parents whose incomes do not exceed 185% of the federal poverty level -- ofchildren attending underperforming public schools. Grant funds would be awardedon a competitive basis to eligible entities, including the District of Columbiagovernment, a nonprofit organization, or a consortium of nonprofit organizations, toadminister the program. The act would limit annual scholarship amounts to $7,500per pupil. It would prohibit an eligible entity or participating school fromdiscriminating against program participants or applicants on the basis of race, color,national origin, religion, or sex, but it would allow students to attend religious-basedand single-sex private schools. On November 18, 2003, the Senate considered andpassed the bill, including Title II. Title III of Division C of the conference bill( H.R. 2673 ) includes many of the same provisions included in theSenate bill. It would authorize a five-year school choice program in the District ofColumbia. It would prevent entities participating in the program from discriminatingagainst participants and applicants on the basis of race, color, national origin,religion, or sex, but would allow for single-sex schools operated by religiousorganizations as long as single-sex schools are consistent with the religious tenets orbeliefs of the school. For a detailed analysis of policy issues surrounding the Districtschool voucher proposal, see CRS Report RL32019 , The DC Parental ChoiceIncentive Act of 2003: Policy Issues and Analysis , by [author name scrubbed]. | On February 3, 2003, the Bush Administration released its FY2004 budget recommendations. The Administration's proposed budget included $420.5 million in federal payments to the Districtof Columbia. This includes $166.5 million for the Court Services and Offender Supervision Agencyfor the District of Columbia, an independent federal agency that has assumed managementresponsibility for the District's pretrial services, adult probation, and parole supervision functions. In addition, the Administration requested $163.8 million in support of court operations, and $32million for Defender Services. These three functions represent 86.3% of the President's proposed$420.5 million in federal payments to the District of Columbia. On July 9, 2003, the Bush Administration transmitted the city's $5.7 billion proposed operating budget to Congress for its review and approval. In addition, the District requested $916 million inspecial federal payments, including $159 million for emergency preparedness assistance and $75million for public safety. On July 17, 2003, the House Appropriations Committee reported H.R. 2765 , the District of Columbia Appropriations Act for FY2004 ( H.Rept. 108-214 ). On September 9, 2003,the House approved H.R. 2765. The House bill recommended $466 million in specialfederal payments for the District of Columbia. The bill includes $17 million for a college tuitionassistance plan, $15 million for security planning, and $163.1 million for court services and offendersupervision. H.R. 2765 also includes $10 million in special federal payments for a schoolchoice program designed to provide financial assistance to families of District school-age studentsattending private and parochial schools. On November 18, 2003, the Senate passed its version of H.R. 2765 ( S.Rept. 108-142 ). As passed, the bill recommended an appropriation of $545 million in special federalpayments to the District. This includes $17 million for a college tuition assistance program; $15million for emergency planning and security; and $377.5 million in court and criminal justice-relatedassistance. The bill also includes $40 million for public education, charter schools, and schoolvouchers, including $13 million for a school voucher program. On November 25, 2003, a House and Senate conference committee reported H.R. 2673 ( H.Rept. 108-401 ), the Consolidated Appropriations Act for FY2004, which combined sixappropriations bills -- including the FY2004 District of Columbia Appropriations Act -- thatCongress was unable to complete before the close of the first session of the 108th Congress. TheHouse agreed to the conference report on December 8, 2003, while the Senate postponed finalconsideration of the measure until Congress reconvenes in January 2004. The conference billincludes $13 million for a school voucher program, and would continue to allow the District to useits local funds to administer a domestic partners health insurance act, prohibit the use of District orfederal funds to prepare a medical marijuana ballot initiative, and restrict the use of federal orDistrict funds for a needle exchange program and for abortion services, except in instances of rapeor incest or a threat to the mother's health. This report will be updated as warranted. Key Policy Staff Division abbreviations: DSP = Domestic Social Policy Division; G&F = Government and Finance Division. |
The conventional wisdom is that the terrorist attacks on September 11, 2001, prompted a substantive change in U.S. immigration policy on visa issuances and the grounds for excluding foreign nationals. A series of laws enacted in the 1990s, however, may have done as much or more to set current U.S. visa policy and the legal grounds for exclusion. This report's review of the legislative developments in visa policy over the past 20 years and analysis of the statistical trends in visa issuances and denials provide a nuanced study of U.S. visa policy and the grounds for exclusion. Legislation aimed at comprehensive immigration reform may take a fresh look at the grounds for excluding foreign nationals that were enacted over the past two decades. While advocacy of sweeping changes to the grounds for inadmissibility has not emerged, proponents of comprehensive immigration reform might seek to ease a few of these provisions as part of the legislative proposals. Waiving the provision that makes an alien who is unlawfully present in the United States for longer than 180 days inadmissible is often raised as an option within a legislative package that includes legalization provisions. Expanding the grounds for inadmissibility, conversely, might be part of the legislative agenda among those who support more restrictive immigration reform policies. Regardless of which legislative path Congress may take, the case of Umar Farouk Abdulmutallab, who allegedly attempted to ignite an explosive device on Northwest Airlines Flight 253 on December 25, 2009, has heightened scrutiny of the visa process and grounds for exclusion. Foreign nationals may be admitted to the United States temporarily or may come to live permanently. Those admitted on a permanent basis are known as immigrants or legal permanent residents (LPRs), while those admitted on a temporary basis are known as nonimmigrants (such as tourists, foreign students, diplomats, temporary agricultural workers, and exchange visitors). Humanitarian admissions, such as asylees, refugees, parolees, and other aliens granted relief from deportation, are handled separately under the Immigration and Nationality Act (INA). Foreign nationals not already legally residing in the United States who wish to come to the United States generally must obtain a visa to be admitted. They must first meet a set of criteria specified in the INA that determine whether they are eligible for admission. Conversely, foreign nationals also must not be deemed inadmissible according to other specified grounds in the INA. Under current law, three departments—the Department of State (DOS), the Department of Homeland Security (DHS), and the Department of Justice (DOJ)—play key roles in administering the law and policies on the admission of aliens. DOS's Bureau of Consular Affairs (Consular Affairs) is the agency responsible for issuing visas, DHS's Citizenship and Immigration Services (USCIS) is charged with approving immigrant petitions, and DHS's Bureau of Customs and Border Protection (CBP) is tasked with inspecting all people who enter the United States. The Attorney General and DOJ's Executive Office for Immigration Review (EOIR) play a significant policy role through the adjudication of specific immigration cases and ruling on questions of immigration law. The documentary requirements for visas are stated in §§221-222 of the INA, with some discretion for further specifications or exceptions by regulation (as discussed below). Generally, the application requirements are more extensive for aliens who wish to permanently live in the United States than those coming for visits. The amount of paperwork required and the length of adjudication process to obtain a visa to come to the United States are analogous to that of the Internal Revenue Service's (IRS's) tax forms and review procedures. Just as persons with uncomplicated earnings and expenses may file an IRS "short form" while those whose financial circumstances are more complex may file a series of IRS forms, so too an alien whose situation is straightforward and whose reason for seeking a visa is easily documented generally has fewer forms and procedural hurdles than an alien whose circumstances are more complex. The visa application files must be stored in an electronic database that is available to immigration adjudicators and immigration officers in DHS. There are over 70 U.S. Citizenship and Immigration Services (USCIS) forms as well as DOS forms that pertain to the visa issuance process. The visa issuance procedures delineated in the statute require the petitioner to submit his or her photograph, as well as full name (and any other name used or by which he or she has been known), age, gender, and the date and place of birth. Depending on the visa category, certain documents must be certified by the proper government authorities (e.g., birth certificates and marriage licenses). All prospective LPRs must submit to physical and mental examinations, and prospective nonimmigrants also may be required to have physical and mental examinations. The statutory provision that gives the consular officer the authority to disqualify a visa applicant is broad and straightforward: No visa or other documentation shall be issued to an alien if (1) it appears to the consular officer, from statements in the application, or in the papers submitted therewith, that such alien is ineligible to receive a visa or such other documentation under section 212 [8 USC §1182], or any other provision of law, (2) the application fails to comply with the provisions of this Act, or the regulations issued there under, or (3) the consular officer knows or has reason to believe that such alien is ineligible to receive a visa or such other documentation under section 212 [8 USC §1182], or any other provision of law.... These determinations are based on the eligibility criteria of the various and numerous visa categories. The shorthand reference for these disqualifications is §221(g), which is the subsection of the INA that provides the authority. In addition to the determination that a foreign national is qualified for a visa, a decision must be made as to whether the foreign national is admissible or excludable under the INA. The grounds for inadmissibility are spelled out in §212(a) of the INA. These criteria are health-related grounds; criminal history; security and terrorist concerns; public charge (e.g., indigence); seeking to work without proper labor certification; illegal entrants and immigration law violations; ineligible for citizenship; and aliens previously removed. These grounds for exclusion or inadmissibility are discussed extensively later in the report. In some cases, the foreign national may be successful in overcoming the §212(a) exclusion if new or additional information comes forward. The decision of the consular officer, however, is not subject to judicial appeals. Foreign nationals who wish to live permanently in the United States must meet a set of criteria specified in the INA. 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 minor child of a legal permanent resident. 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 also provides LPR visas to aliens who are selected in the diversity lottery for low-immigrant sending countries. Petitions for immigrant (i.e., LPR) status are first filed with USCIS by a sponsoring relative or employer in the United States. If the prospective immigrant already resides in the United States, the USCIS handles the entire process, which is called "adjustment of status." If the prospective LPR does not have legal residence in the United States, the petition is forwarded to Consular Affairs in his or her home country after USCIS has reviewed the petition. The Consular Affairs officer (when the alien is coming from abroad) and USCIS adjudicator (when the alien is adjusting status in the United States) must be satisfied that the alien is entitled to the immigrant status. Many LPRs are adjusting status from within the United States rather than receiving visas issued abroad by Consular Affairs. Although over 1 million aliens became LPRs in FY2008, for example, only 42% of immigrant visas were issued abroad that year. A personal interview is required for all prospective LPRs. The burden of proof is on the applicant to establish eligibility for the type of visa for which the application is made. Consular Affairs officers (when the alien is coming from abroad) and USCIS adjudicators (when the alien is adjusting status in the United States) must confirm that the alien is qualified for the visa under the category he or she is applying, as well as is not ineligible for a visa under the grounds for inadmissibility of the INA, which include criminal, terrorist, and public health grounds for exclusion, discussed below. The number of immigrant visas issued each year by consular officers abroad has held steady at about 0.4 to 0.5 million in the past 15 years. The trend analysis of the FY1994-FY2008 period, however, reveals an interesting pattern ( Figure 1 ). FY1998 and FY2003 emerge as the years in which the fewest visas were issued in absolute numbers, 375,684 and 364,768 respectively. In terms of the percentage of visas approved, FY1998 was the lowest year (51.9%). Disqualifications on the basis of INA §221(g) as discussed above exhibit a trend line that is somewhat complementary to the trend line of those who were issued a visa from FY1994 through FY2008. FY1998 was one of the peak years with 256,706 disqualifications (35.4%), but fell short of FY2005 and FY2006 with 270,590 disqualifications (37.9%) and 269,608 disqualifications (34.8%) respectively. In terms of INA §212(a) exclusions, FY1998 along with FY1999 had the largest portion of prospective immigrants excluded, 12.3% and 12.4% respectively. In absolute numbers, FY1998 led with 89,848 determinations that were §212(a) exclusions, followed closely by FY1999 with 89,641 exclusions. Although FY1998 and FY1999 were the only years analyzed in which the percentages of §212(a) exclusions were in double digits, exclusions trended upward in FY2008 with 9.6% or 77,080 denials. Aliens seeking to come to the United States temporarily rather than permanently are known as nonimmigrants. These aliens are admitted to the United States for a temporary period of time and an expressed reason. There are 24 major nonimmigrant visa categories, and over 70 specific types of nonimmigrant visas are issued currently. Most of these nonimmigrant visa categories are defined in §101(a)(15) of the INA. These visa categories are commonly referred to by the letter and numeral that denotes their subsection in §101(a)(15); for example, B-2 tourists, E-2 treaty investors, F-1 foreign students, H-1B temporary professional workers, J-1 cultural exchange participants, and S-4 terrorist informants. Nonimmigrants must demonstrate that they are coming for a limited period and for a specific purpose. As with immigrant visas, the burden of proof is on the applicant to establish eligibility for nonimmigrant status and the type of nonimmigrant visa for which the application is made. The Consular Affairs officer, at the time of application for a visa, as well as the Customs and Border Protection Bureau (CBP) inspectors, at the time of application for admission, must be satisfied that the alien is entitled to a nonimmigrant status. Personal interviews are generally required for foreign nationals seeking nonimmigrant visas. Interviews, however, may be waived in certain cases; prior to the September 11, 2001, terrorist attacks, personal interviews for applicants for B visitor visas reportedly were often waived. After September 11, 2001, the number of personal interviews rose significantly as part of broader efforts to meet national security goals. DOS issued interim regulations on July 7, 2003, that officially tightened up the requirements for personal interviews and substantially narrowed the class of nonimmigrants eligible for the waiver of a personal interview. Congress then enacted provisions requiring an in-person consular interview of most applicants for nonimmigrant visas between the ages of 14 and 79 as part of the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ). Prior to implementation of P.L. 108-458 , personal interview waivers could have been granted only to children under age 16, persons 60 years or older, diplomats and representatives of international organizations, aliens who were renewing a visa they obtained within the prior 12 months, and individual cases for whom a waiver was warranted for national security or unusual circumstances. Specifically, §214(b) of the INA generally presumes that all aliens seeking admission to the United States are coming to live permanently; as a result, most aliens seeking to qualify for a nonimmigrant visa must demonstrate that they are not coming to reside permanently. There are three nonimmigrant visas that might be considered provisional in that the visaholder may simultaneously seek LPR status. As a result, the law exempts nonimmigrants seeking any one of these three visas (i.e., H-1 professional workers, L intracompany transfers, and V accompanying family members) from the requirement that they prove they are not coming to live permanently. USCIS and CBP play a role in determining eligibility for certain nonimmigrant visas, notably H workers and L intracompany transfers. Also, if a nonimmigrant in the United States wishes to change from one nonimmigrant category to another, such as from a tourist visa to a student visa, the alien must file a change of status application with the USCIS. If the alien leaves the United States while the change of status is pending, the alien is presumed to have relinquished the application. DOS typically issues about 5 to 6 million nonimmigrant visas annually. Depending on the visa category and the country the alien is coming from, the nonimmigrant visa may be valid for several years and may permit multiple entries. The 15-year trend analysis for nonimmigrant visa determinations in Figure 2 reveals a different pattern than that in Figure 1 for LPRs. Foremost, FY2001 is noteworthy because more visas were issued in that year (7,588,778) and more applicants were ineligible for a visa in that year (2,276,611) on the basis of §214(b) presumed immigrants than in any other year during the 15-year period. In terms of the percentage of nonimmigrant visas issued, FY1996 was the top year with 80.0%. By FY2008, there were 6,603,073 nonimmigrant visas issued, yielding a percent of 75.8%, which was the first time the percentage surpassed FY1999. The growth in nonimmigrant visas issued in the 1998-2001 period was largely attributable to the issuances of new border crossing cards to residents of Canada and Mexico and a periodic lifting of the ceilings on temporary worker visas. The largest percentages of nonimmigrant visa applicants that were presumed immigrants, excluded or otherwise disqualified were in FY2002 and FY2003, when just under 70% of nonimmigrant visas were approved. Of that increase visa denials, much of it came not from §212(a) exclusions, which some might have expected following the September 11 terrorist attacks, but from disqualifications under §221(g), meaning that the visa applications did not comply with the INA or regulations. Throughout the 15-year span, §214(b) presumption was the most common basis to reject a nonimmigrant visa applicant. Never rising above one-half of one percent over this period, §212(a) exclusions were too few to depict in Figure 2 . Although the §212(a) exclusions represent a small portion of nonimmigrant visa determinations, their number is not trivial. Because Figure 3 is scaled in thousands in comparison to Figure 2 , which is scaled in millions, the ups and downs in the §212(a) exclusion trends become apparent. In FY2008, §212(a) exclusions of nonimmigrant visas hit 35,403 and surpassed the prior high point of 34,750 in FY1998. For prospective LPRs, §212(a) exclusions peaked in FY1998 and FY1999, reaching over 89,000 in both years. The §212(a) exclusions of prospective LPRs fell from FY2000 through FY2003, then began climbing to reach 77,080 in FY2008. The ebbs and flows depicted in Figure 3 challenge the commonly held assumption that the terrorist attacks of September 11, 2001, were the watershed moment for U.S. visa policy and the exclusion of foreign nationals. These 15-year trends also invite a more detailed study of the grounds for exclusion, as well as a more nuanced analysis of these trends over time. All aliens seeking visas must undergo admissibility reviews performed by DOS consular officers abroad. These reviews are intended to ensure that aliens are not ineligible for visas or admission under the grounds for inadmissibility spelled out in the INA. Consular decisions are not appealable or reviewable; however, some of those seeking visas are able to bring additional information that may be used to overcome an initial refusal. As previously mentioned, these criteria are health-related grounds; criminal history; security and terrorist concerns; public charge (e.g., indigence); seeking to work without proper labor certification; illegal entrants and immigration law violations; ineligible for citizenship; and aliens previously removed. Each of these grounds is explained more fully following a brief legislative history of the provisions. When the various immigration and citizenship laws were unified and codified as the Immigration and Nationality Act of 1952 (INA), there were 31 grounds for exclusion of aliens specified in §212(a) of the Act. The Immigration Amendments Act of 1990 streamlined and modernized all of the grounds for inadmissibility into nine broad categories. These nine categories, as amended, remain the basis for denying visas and excluding the entry of foreign nationals into the United States. As a response to the 1993 World Trade Center bombing, Congress revised the national security grounds for inadmissibility in the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 (Division C of P.L. 104-208 ) and the Antiterrorism and Effective Death Penalty Act ( P.L. 104-132 ). IIRIRA ramped up the consequences for foreign nationals attempting to return to the United States if they had prior orders of removal or had been illegally present in the United States. IIRIRA also revised the criminal grounds for exclusion. Along with the IIRIRA, Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 ) strengthened the enforceability of the inadmissibility provisions aimed at indigent or low-income people. After the terrorist attacks on September 11, 2001, Congress enacted the Enhanced Border Security and Visa Entry Reform Act of 2002 ( P.L. 107-173 ), which aimed to improve the visa issuance process abroad, as well as immigration inspections at the border. It expressly required that, beginning in October 2004, all newly issued visas have biometric identifiers. In addition to increasing consular officers' access to electronic information needed for alien screening, it expanded the training requirements for consular officers who issue visas. Congress passed the REAL ID Act ( P.L. 109-13 , Division B) in 2005, which expanded the terror-related grounds for inadmissiblity and deportability, and amended the definitions of "terrorist organization" and "engage in terrorist activity" used by the INA. Over the past two years, Congress has incrementally revised the grounds for inadmissibility. Two laws enacted in the 110 th Congress altered longstanding policies on exclusion of aliens due to membership in organizations deemed terrorist. The 110 th Congress also revisited the health-related grounds of inadmissibility for those who were diagnosed with HIV/AIDS. Questions about the public charge ground of inadmissibility arose in the context of Medicaid and the state Children's Health Insurance Program (CHIP) in the 111 th Congress. The statutory language permitting the exclusion of aliens on the basis of health or communicable diseases dates back to the Immigration Act of 1891, when "persons suffering from a loathsome or a dangerous contagious disease" were added to the grounds of exclusion. Since the Immigration Amendments of 1990, the INA authorizes the exclusion of any alien "who is determined (in accordance with regulations prescribed by the Secretary of Health and Human Services) to have a communicable disease of public health significance." While the INA does not define "communicable disease of public health significance" directly, it does task the Secretary of Health and Human Services (HHS) to define the term by regulation. The relevant regulation's definition expressly lists eight diseases as a "communicable disease of public health significance": chancroid, gonorrhea, granuloma inguinale, infectious leprosy, lymphogranuloma venereum, active tuberculosis, and infectious syphilis. However, this list is neither exclusive nor exhaustive, because the regulatory definition also includes other diseases incorporated by reference to a Presidential executive order. The relevant executive order lists cholera; diphtheria; infectious tuberculosis; plague; smallpox; yellow fever; viral hemorrhagic fevers (Lassa, Marburg, Ebola, Crimean-Congo, South American, and others not yet isolated or named); severe acute respiratory syndrome (SARS); and "[i]nfluenza caused by novel or reemergent influenza viruses that are causing, or have the potential to cause, a pandemic." Furthermore, the regulatory definition also includes communicable diseases that may pose a "public health emergency of international concern." A disease rises to this level, and thus qualifies as a "communicable disease of public significance," if the Centers for Disease Control (CDC) Director, after evaluating (1) the seriousness of the disease, (2) whether the emergence of the disease was unusual or unexpected, (3) the risk of the spread of the disease in the United States, and (4) the transmissibility and virulence of the disease, determines that "a threat exists for [the disease's] importation into the United States" and the disease "may potentially affect the health of the American public." Foreign nationals who are applying for visas at U.S. consulates are tested by in-country physicians who have been designated by the State Department. The physicians enter into written agreements with the consular posts to perform the examinations according to HHS regulations and guidance. A medical examination is required of all foreign nationals seeking to come as legal permanent residents and refugees, and may be required of any alien seeking a nonimmigrant visa or admission at the port of entry. Foreign nationals are generally tested at their own expense, though the costs for refugees are covered by the U.S. government. If there is reason to suspect an infection, applicants for temporary admission as nonimmigrants (such as tourists, business travelers, temporary workers, and foreign students) are tested at the discretion of the consular officer or admitting CBP inspector. Children under 15 years of age are required to have a general physical examination and provide proof of immunizations, but they are not required to have the chest x-rays, blood tests, or HIV anti-body test. The Secretary of Homeland Security has discretionary authority to waive some of the health-related grounds for inadmissibility under certain circumstances. For example, foreign nationals infected with a communicable disease of public health significance can still be issued a waiver and admitted into the country if they are the spouse, unmarried son, unmarried daughter, minor unmarried lawfully adopted child, father or mother of a U.S. citizen, alien lawfully admitted for permanent residence, or an alien issued an immigrant visa. Waivers are also available, under certain circumstances, for those who are inadmissible because they lack proper vaccination and for those who have a physical or mental disorder. The Secretary may also waive the application of any of the health-related grounds for inadmissibility if she finds it in "the national interest" to do so. Criminal offenses in the context of immigration law cover violations of federal, state, and, in some cases, foreign criminal law. Most crimes affecting immigration status fall under a broad category of crimes defined in the INA, notably those involving moral turpitude or aggravated felonies. It does not cover violations of the INA that are not defined as crimes, such as working without employment authorization, overstaying a nonimmigrant visa, or unauthorized presence in the United States. Criminal history as a grounds for exclusion under the INA applies to the following foreign nationals: Those who have been convicted of, admit having committed, or admit to acts comprising essential elements of a crime involving moral turpitude. Those who have been convicted of or admit having committed a federal, state, or foreign law violation relating to a controlled substance. Based on the knowledge or reasonable belief of a consular officer or immigration officer, either (1) an alien who is or has been an illicit trafficker in a controlled substance, or knowingly is or has been an aider or abettor of a controlled substance, or (2) an alien who is the spouse, son, or daughter of an alien as described above and who received any financial or other benefit from the illicit activity and who reasonably should have known that the financial or other benefit resulted from illicit activity. Those who have been convicted of two or more offenses (other than purely political offenses) for which the aggregate sentence imposed was at least five years. Those who are coming to the United States to engage in (or within 10 years of applying for admission have engaged in) prostitution (including procurement and receipt of proceeds) or are coming to the United States to engage in another form of unlawful commercialized vice. Those who have committed a serious crime for which diplomatic immunity or other form of immunity was claimed. Those who have committed or have conspired to commit a human trafficking offense or who are known or reasonably believed to have aided or otherwise furthered severe forms of human trafficking, or are known or reasonably believed to be the adult child or spouse of such an alien and knowingly benefitted from the proceeds of illicit activity while an adult in the past five years. Also, the INA gives authority to consular officers or immigration officers, based on their knowledge or reasonable belief, to exclude a foreign national who they think is engaging in, or seeks to enter the United States to engage in, a federal offense of money laundering, or who is or has been a knowing aider, abettor, assister, conspirator, or colluder with others in such an offense. There is authority in §212(h) of the INA to waive certain criminal grounds of inadmissibility, if certain criteria are met. No waiver is permitted for aliens who have been convicted of murder or criminal acts involving torture, as well as attempts or conspiracies to commit murder or a criminal act involving torture. A foreign national may be deemed inadmissible if he or she has engaged in or intends to engage in any activity a purpose of which is the opposition to, or the control or overthrow of, the government of the United States by force, violence, or other unlawful means. If the Secretary of State has reasonable grounds to believe an alien's entry, presence, or activities in the United States would have potentially serious adverse foreign policy consequences for the United States, that alien may be deemed inadmissible or deportable. However, an alien generally may not be deported or denied entry into the United States on account of the alien's past, current, or expected beliefs, statements, or associations, if such beliefs, statements, or associations would be lawful within the United States, unless the Secretary of State personally determines that the alien's admission would compromise a compelling United States foreign policy interest. Additionally, aliens who are foreign officials or candidates cannot be denied entry or deported solely because of past, current, or expected beliefs, statements, or associations that would be lawful in the United States. Engaging in specified, terror-related activity has direct consequences concerning an alien's ability to lawfully enter or remain in the United States. Since 1990, the INA has expressly provided that aliens who have engaged or intend to engage in terrorist activity either as an individual or as a member of a terrorist organization are inadmissible and deportable. Over the years, the INA has been amended to lower the threshold for how substantial, apparent, and immediate an alien's support for a terrorist activity must be for the alien to be rendered inadmissible, removable, and ineligible for most forms of relief from removal. The Secretary of State or Secretary of Homeland Security, in consultation with the other and the Attorney General, has the general authority to waive INA §212(a)(3)(B) concerning terrorist activity. However, §212(a)(3) of the INA may not be waived for aliens who are engaged or are likely to engage in terrorist activity after entering the United States; voluntarily and knowingly engage or have engaged in terrorist activity on behalf of a designated terrorist organization; voluntarily and knowingly have received military training from a designated organization; are members or representatives of designated terrorist organizations; or voluntarily and knowingly endorse or espouse the terrorist activity of a designated organization, or convince others to support the group's terrorist activities. Opposition to the entry of foreign paupers and aliens "likely at any time to become a public charge"—language found in the INA today—dates from colonial times. Over time, a policy developed in which applicants for immigrant status can overcome the public charge ground for exclusion based on their own funds, prearranged or prospective employment, or an affidavit of support from someone in the United States. For most prospective immigrants, this exclusion is implemented by provisions on deeming sponsors' income and binding affidavits of support. The affidavit of support is a legally binding contract that requires the sponsor to ensure that the new immigrant will not become a public charge and makes the sponsor financially responsible for the new immigrant, as codified in INA §213A. Sponsors must demonstrate the ability to maintain an annual income of at least 125% of the federal poverty line (100% for sponsors who are on active duty in U.S. Armed Forces), or share liability with one or more joint sponsors, each of whom must independently meet the income requirement. Current law also directed the federal government to include "appropriate information" regarding affidavits of support in the Systematic Alien Verification for Entitlements (SAVE) system. Congress has required the establishment of an automated record of the sponsors' social security numbers (SSN) in order to implement this policy. Employment-based LPRs are rarely required to have an affidavit of support because they meet the public charge ground by means of the job offer. Employment-based LPRs only need an affidavit of support if the prospective employer is a relative. All family-based immigrants must have binding affidavits of support signed by U.S. sponsors in order to show that they will not become public charges. The INA waives the public charge ground for refugees and asylees and for other special cases. The INA bars the admission of any immigrant who seeks to enter the United States to perform skilled or unskilled labor, unless the Secretary of Labor provides a certification to the Secretary of State and the Attorney General. Specifically, the Secretary of Labor must determine that there are not sufficient U.S. workers who are able, willing, qualified, and available at the time of the alien's application for a visa and admission to the United States and at the place where the alien is to perform such skilled or unskilled labor. The Secretary of Labor must further certify that the employment of the alien will not adversely affect the wages and working conditions of similarly employed workers in the United States. The foreign labor certification program in the U.S. Department of Labor (DOL) is responsible for ensuring that foreign workers do not displace or adversely affect working conditions of U.S. workers. Under current law, DOL adjudicates labor certification applications (LCAs) for permanent employment-based immigrants, temporary agricultural workers, and temporary nonagricultural workers, as well as the streamlined LCA known as labor attestations for temporary professional workers. The labor market protections of §212(a)(5) do not apply to most foreign nationals seeking to immigrate to the United States. Only employers of certain employment-based LPRs and certain temporary workers seeking H visas are required to be certified by the DOL. LPRs entering as priority workers who are persons of extraordinary ability in the arts, sciences, education, business, or athletics; outstanding professors and researchers; and certain multinational executives and managers are exempt from labor certification. A waiver is available for those members of the professions holding advanced degrees or persons of exceptional ability who are deemed to be "in the national interest." There are also specific provisions that bar the admission of unqualified physicians and uncertified health care workers. Any foreign national who is present in the United States without being legally admitted or paroled, or who arrives in the United States at any time or place other than as designated, is inadmissible. There are exceptions to this ground for certain battered spouses and children. As currently constructed, this §212(a) basis for exclusion is relatively new and dates back to the IIRIRA of 1996. Foreign nationals who "without reasonable cause" fail to attend their removal proceedings or remain in attendance at a hearing are inadmissible for a period of five years following their subsequent departure. If the alien can establish a reasonable cause for the failure to attend the removal proceedings, he or she might not be deemed inadmissible; however, the burden of proof in demonstrating reasonable cause is on the alien. Since the 1952 act, any foreign national who has, by fraud or willful misrepresentation of a material fact, sought to procure or has procured either admission into the United States or a benefit under the INA is inadmissible. An alien who falsely represents himself or herself to be a U.S. citizen for any purpose or benefit under the INA or any other federal or state law is also inadmissible for life, except under narrow circumstances. There is no immigrant waiver available for inadmissibility on the ground of knowingly making false citizenship claims. Although the ground "ineligible for citizenship" suggests a range of criteria linked to the naturalization provisions in Title III of the INA, its actual effect is to bar the entry of individuals who deserted their military service or evaded the military draft. It grows out of applications for exemption or discharge from military training or service based on alienage. Since World War I, Congress has enacted various statutes exempting certain aliens within the United States from military service upon the condition that those taking advantage of such relief would thereafter be ineligible for citizenship. If a foreign national takes advantage of this exemption from military service, he or she becomes excludable. There are no waivers from the military-related exclusion grounds. Foreign nationals who have been deported (i.e., removed) from the United States are barred from re-entry for periods of time dependent on the reasons for the removal. The specific instances in which foreign nationals are deported from the United States are found in §237 of the INA. The procedures for removal are detailed in INA §240, and the procedures for expedited removal are found in INA §235. There are also provisions for the "expedited removal" of removable aliens serving criminal sentences in INA §238. In removal proceedings an immigration judge from the Department of Justice's Executive Office for Immigration Review (EOIR) determines whether an alien is admissible or removable. A final order of removal is not necessary to make such an inadmissibility determination, though a final removal order is also a specific ground for inadmissibility. The INA specifically states that any alien who has been ordered removed (either under §235(b)(1) pertaining to expedited removal or at the end of general removal proceedings under §240 initiated upon the alien's arrival in the United States) and who again seeks admission within 5 years of the date of such removal (or within 20 years in the case of a second or subsequent removal or at any time in the case of an alien convicted of an aggravated felony) is inadmissible. The INA also specifies that any alien who was ordered removed under §240 or any other provision of law, or departed the United States while an order of removal was outstanding, and who seeks admission within 10 years of the date of such alien's departure or removal (or within 20 years of such date in the case of a second or subsequent removal or at any time in the case of an alien convicted of an aggravated felony) is inadmissible. As a result of the enactment of IIRIRA in 1996, 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. Not counted under these rules are periods during which the alien (1) is a minor, (2) has a pending claim for asylum (unless the alien is working without authorization), (3) is a battered wife or child, or (4) qualifies under family unity provisions of the Immigration Act of 1990 as a long-term (generally pre-1989) spouse or unmarried child of an alien who legalized under the Immigration Reform and Control Act of 1986. Also not counted is a period of up to 120 days in the case of a previously paroled or lawfully admitted alien whose authorized stay has expired but who before expiration of authorized status filed a nonfrivolous application for a change or extension of status (unless the alien works without authorization). Additionally, the INA gives the Attorney General authority to waive inadmissibility 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. There is no express exception under this rule for acts occurring prior to April 1997. The sole exception to this bar is a discretionary waiver by the Attorney General for an alien who has been outside the United States for at least 10 years. The IIRIRA increases from one year to five years the period during which an alien who was previously removed on arrival is inadmissible. The INA sets a 20-year period of inadmissibility for aliens who have been removed on arrival more than once. Separately, the inadmissibility period for aliens ordered removed under other provisions (i.e., ordered removed after arrival other than under expedited removal provisions) is increased to 10 years, with a 20-year period set for aliens removed more than once and an indefinite period of inadmissibility set for aliens who have been convicted of an aggravated felony. The INA gives the Attorney General authority to waive the foregoing provisions. The INA also gives the Attorney General the authority to grants exceptions to the bars on aliens previously removed in certain instances. To better understand these grounds for inadmissibility, CRS has analyzed DOS data on all visa determinations from two perspectives. One approach analyzes all the grounds of inadmissibility for four selected years : FY1996, FY2000, FY2004, and FY2008. The other approach analyzes the top grounds for exclusion over a 15-year period. As in the discussions above, the immigrant determinations are treated separately from the nonimmigrant determinations. All of these analyses are based on the initial decision and do not take into account initial refusals that might have been overcome with subsequent information. As Figure 4 makes clear, most LPR petitioners who were excluded on §212(a) grounds in FY1996 and FY2000 were rejected because the DOS determined that the aliens were inadmissible as likely public charges. In FY2004, the proportion of public charge exclusions had fallen, but remained the top basis for denial. The lack of proper labor certification was another leading ground for exclusion in FY1996, FY2000, FY2004, and FY2008. By FY2008, however, illegal presence and previous orders of removal from the United States had become the leading ground. What Figure 4 does not depict is the considerable shifting of trend lines in the late 1990s as well as the late 2000s. The trends in public charge exclusions dominate the 15-year trend analysis, as Figure 5 illustrates. The importance of public charge as a grounds of inadmissibility is evidenced in the fact that over one-half (53.3%) of all 790,685 exclusions over this 15-year period were on this basis, suggesting an effect of the changes in 1996 to the INA provisions on affidavits of support. Labor market protections and illegal presence and prior removals came in distant second and third, with 18.5% and 14.8% of exclusions, respectively. The proportion of public charge exclusions had fallen by FY2004, but remained the top basis for denial. By FY2008, however, illegal presence and previous orders of removal from the United States was the leading ground, and public charge was less than 10% of the §212(a) exclusions. Refusals of nonimmigrant petitions presented have a somewhat different pattern than that of immigrant petitions. Violations of immigration law was the leading category in FY1996, FY2000, and FY2004, but fell to the second ranking in FY2008. Similar to the analysis of immigrant data, illegal presence and prior removal became the leading ground for nonimmigrant visas in FY2008. Over the four points in time, the criminal grounds grew as a more common ground for refusal, and represented a larger portion of exclusions among nonimmigrant petitioners than it was for immigrant petitioners. Violations of immigration law was the leading basis for §212(a) exclusions over the 15-year period, making up 47.7% of all exclusions. It was the top basis from FY1994 through FY2006, but fell to the second ranking by FY2008 (31.0%). Illegal presence and prior removal became the leading ground in FY2007 (38.7%) and FY2008 (33.2%). The criminal grounds have grown as more common basis for §212(a) exclusions, and represented a much larger portion of exclusions among nonimmigrant petitioners (29.8% in FY2008) than among immigrant petitioners (2.8% in FY2008). The rise and fall of the public charge ground is the most striking feature of the 15-year trend analysis. Foremost, many applicants filed affidavits of support that were insufficient in the first few years after IIRIRA went into effect. As the legal community and the prospective LPRs gained a better understanding of the requirement that the affidavit of support must demonstrate the ability to maintain an annual income of at least 125% of the federal poverty line, they may have submitted more complete financial data to support the affidavit. The statutory change in IIRIRA that made the affidavits of support legally binding may have changed behavior over time as well. Potential sponsors may have become less likely to petition for family members if they lacked adequate resources to support them. The steady rise in exclusions based on past illegal presence and prior removal is likewise largely due to the statutory change in IIRIRA. Since 1996, foreign nationals who were unlawfully present in the United States for longer than 180 days but less than a year are inadmissible for three years after their departure. Foreign nationals who were unlawfully present for at least a year are inadmissible for 10 years after their departure. When these changes were coupled with database improvements and access to databases across agencies, consular officers became better able to identify visa applicants who are inadmissible on these grounds. The improvements in immigration-related databases as well as the expansion of access to law enforcement databases offer similar explanations for the uptick in criminal grounds of exclusion. Finally, the increase in immigrant exclusions based upon labor market protections may reflect the growth in demand for foreign workers and the competition for these scarce visas. As of November 1, 2009, there were 3,499,964 employment-based LPRs visa applications pending. Appendix A. Consular Databases for Screening Consular officers use the Consular Consolidated Database (CCD) to screen visa applicants. Records of all visa applications are now automated in the CCD, with some records dating back to the mid-1990s. Since February 2001, the CCD has stored photographs of all visa applicants in electronic form, and more recently the CCD has begun storing 10-finger scans. In addition to indicating the outcome of any prior visa application of the alien in the CCD and comments by consular officers, the system links with other databases to flag problems that may have an impact on the issuance of the visa. These databases linked with CCD include DHS's Automated Biometric Identification System (IDENT) and FBI's Integrated Automated Fingerprint Identification System (IAFIS) results, and supporting documents. The CCD also links to the DHS's Traveler Enforcement Compliance System (TECS) for use by CBP officers at ports of entry. A limited number of consular officers have recently been granted access to DHS'Arrival Departure Information System (ADIS). ADIS tracks foreign nationals' entries into and most exits out of the United States. DOS credits access to ADIS with its ability to identify previously undetected cases of illegal overstays in the United States. For some years, consular officers have been required to check the background of all aliens in the "lookout" databases, specifically the Consular Lookout and Support System (CLASS) database, which contained over 26 million records in 2009. According to Janice Jacobs, Assistant Secretary of State for Consular Affairs, the CLASS database grew by approximately 400% after September 11, 2001. This increase in the quantity and quality of CLASS records is largely the result of improved data sharing between the Department of State and the law enforcement and intelligence communities. In 2001, only 25 percent of records in CLASS came from other government agencies. Now, almost 70 percent of CLASS records come from other agencies. The Security Advisory Opinion (SAO) system requires a consular officer abroad to refer selected visa cases for greater review by intelligence and law enforcement agencies. The current interagency procedures for alerting officials about foreign nationals who may be suspected terrorists, referred to in State Department nomenclature as Visa Viper, began after the 1993 World Trade Center bombing and were institutionalized by enactment of the Enhanced Border Security and Visa Entry Reform Act of 2002. If consular officials receive information about a foreign national that causes concern, they send a Visa Viper cable (which is a dedicated and secure communication) to the NCTC. In 2009, consular posts sent approximately 3,000 Visa Viper communications to NCTC. In a similar set of SAO procedures, consular officers send suspect names, identified by law enforcement and intelligence information (originally certain visa applicants from 26 predominantly Muslim countries), to the Federal Bureau of Investigation (FBI) for a name check program called Visa Condor. There is also the "Terrorist Exclusion List" (TEL), which lists organizations designated as terrorist-supporting and includes the names of individuals associated with these organizations. Appendix B. Exceptions to the Visa Requirements Not all aliens are required to have a visa to visit the United States. Indeed, most visitors enter the United States without nonimmigrant visas through the Visa Waiver Program (VWP). This provision of the INA allows the visa documentary requirements to be waived for aliens coming as visitors from 35 countries (e.g., Australia, France, Germany, Italy, Japan, New Zealand, and Switzerland). Thus, visitors from these countries are not required to obtain a visa from a U.S. consulate abroad. Since aliens entering through VWP do not have visas, CBP inspectors at the port of entry are responsible for performing the background checks and making the determination of whether the alien is admissible. P.L. 110-53 created a waiver allowing the Secretary of Homeland Security (Secretary) to admit countries with refusal rates under 10% to the VWP. This waiver authority became available in October 2008, when the Secretary certified that (1) an air exit system was in place that verifies the departure of not less than 97% of foreign nationals that exit through U.S. airports, and (2) the electronic system for travel authorization (ESTA) was operational. The ESTA is a system through which each foreign national electronically provides, in advance of travel, the biographical information necessary to check the relevant databases and "watch lists" to see whether the foreign national poses a law enforcement or security risk. As in all VWP cases, CBP inspectors at the port of entry perform the initial admissibility screening. In addition to the Visa Waiver Program, a number of exceptions to documentary requirements for a visa have been established by law, treaty, or regulation. The INA also authorizes the Attorney General and the Secretary of State acting jointly to waive the documentary requirements of INA §212(a)(7)(B)(i), including the passport requirement, on the basis of unforeseen emergency in individual cases. In 2003, the Administration scaled back the circumstances in which the visa and passport requirements are waived. In 2004, Congress enacted a provision, now known as the Western Hemisphere Travel Initiative, in 7209 of P.L. 108-458 , that affected all citizens and categories of individuals for whom documentation requirements had previously been waived under 212(d)(4)(B) of INA. The Secretary of Homeland Security, in consultation with the Secretary of State, was required to develop and implement a plan as expeditiously as possible to require a passport or other document, or combination of documents, "deemed by the Secretary of Homeland Security to be sufficient to denote identity and citizenship," for all travelers entering the United States. The law expressly states in 7209(c)(2) that "the President may not exercise discretion under 215(b) of such Act to waive documentary requirements for U.S. citizens departing from or entering, or attempting to depart from or enter, the United States except—(A) where the Secretary of Homeland Security determines that the alternative documentation that is the basis for the waiver of the documentary requirement is sufficient to denote identity and citizenship; (B) in the case of an unforeseen emergency in individual cases; or (C) in the case of humanitarian or national interest reasons in individual cases." | The conventional wisdom is that the terrorist attacks on September 11, 2001, prompted a substantive change in U.S. immigration policy on visa issuances and the grounds for excluding foreign nationals from the United States. A series of laws enacted in the 1990s, however, may have done as much or more to set current U.S. visa policy and the legal grounds for exclusion. This report's review of the legislative developments in visa policy over the past 20 years and analysis of the statistical trends in visa issuances and denials provide a nuanced study of U.S. visa policy and the grounds for exclusion. Foreign nationals not already legally residing in the United States who wish to come to the United States generally must obtain a visa to be admitted. Those admitted on a permanent basis are known as immigrants or legal permanent residents (LPRs), while those admitted on a temporary basis are known as nonimmigrants (such as tourists, foreign students, diplomats, temporary agricultural workers, and exchange visitors). They must first meet a set of criteria specified in the Immigration and Nationality Act (INA) that determine whether they are eligible for admission. The burden of proof is on the foreign national to establish eligibility for a visa. Conversely, foreign nationals also must not be deemed inadmissible according to other specified grounds in §212(a) of the INA. These §212(a) inadmissibility criteria are health-related grounds; 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 number of aliens excluded on the basis of §212(a) of the INA has fluctuated over the years. In FY2008, §212(a) exclusions of prospective nonimmigrants hit 35,403 and surpassed the prior high point of 34,750 in FY1998. For prospective LPRs, §212(a) exclusions peaked in FY1998 and FY1999, reaching over 89,000 in both years. The §212(a) exclusions of prospective LPRs fell from FY2000 through FY2003, then began climbing to reach 77,080 in FY2008. Most LPR petitioners who were excluded on §212(a) grounds from FY1994 through FY2004 were rejected because the Department of State (DOS) determined that the aliens were inadmissible as likely public charges. By FY2004, the proportion of public charge exclusions had fallen but remained the top basis for denial. The lack of proper labor certification was another leading ground for exclusion from FY1994 through FY2004. By FY2008, however, illegal presence and previous orders of removal from the United States was the leading ground. Exclusions of nonimmigrant petitions have a somewhat different pattern than that of immigrant petitions. Violations of immigration law were the leading category from FY1994 through FY2006, but fell to the second ranking by FY2008. Illegal presence and prior removal became the leading ground in FY2008. Over time, criminal activity has become a more common ground for refusal, and has represented a larger portion of exclusions among nonimmigrant petitioners than it was for immigrant petitioners. Legislation aimed at comprehensive immigration reform may take a fresh look at the grounds for excluding foreign nationals enacted over the past two decades. Expanding the grounds for inadmissibility, conversely, might be part of the legislative agenda among those who support more restrictive immigration reform policies. More specifically, the case of Umar Farouk Abdulmutallab, who allegedly attempted to ignite an explosive device on Northwest Airlines Flight 253 on December 25, 2009, has heightened scrutiny of the visa process and grounds for exclusion. This report will be updated as warranted. |
The Small Business Administration (SBA) administers several programs to support small businesses, including the 7(a), 504/CDC, and Microloan lending programs to enhance small business access to capital; the Small Business Investment Company (SBIC) program to enhance small business access to venture capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion. Congressional interest in these programs, and the SBA's assistance to small business startups in particular (defined as new businesses that meet the SBA's criteria as small), has increased in recent years, primarily because these programs are viewed by many as a means to stimulate economic activity and create jobs. The Small Business Act specifies four missions for the SBA: It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation. As part of its mission to maintain and strengthen the overall economy of the nation, the SBA has always been interested in promoting job creation and job retention. For example, the SBA currently gathers data from its clients concerning the number of jobs either created or retained as a result of the assistance they receive from the SBA. The SBA refers to these self-reported data as the number of "jobs supported." The SBA also regularly sponsors research on the role of small businesses in job creation and retention, and considers that research when designing its programs. Economists generally do not view job creation as a justification for providing federal assistance to small businesses. They argue that in the long term such assistance will likely reallocate jobs within the economy, not increase them. In their view, jobs arise primarily from the size of the labor force, which depends largely on population, demographics, and factors that affect the choice of home versus market production (e.g., the entry of women in the workforce). However, economic research does suggest that increased federal spending on small business assistance programs may result in additional jobs in the short term. The SBA's interest, and congressional interest, in providing assistance to small business startups is derived primarily from economic research indicating that startups play an important role in job creation. That research suggests that startups create many, and in some years almost all, net jobs in the national economy. Although there is a consensus that startups have an important role in job creation and retention, economic research suggests that startups have a more limited effect on net job creation over time because fewer than half of all startups are still in business after five years. That research also suggests that the influence of startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years). Given the relatively high rate of firm deaths among startups, providing SBA assistance to startups, especially in the form of a SBA guaranteed loan or venture capital investment, is generally viewed as a relatively "high risk-high reward" endeavor, with advocates focusing on the possibility of job creation and opponents focusing on the risk of default. For example, opponents point to the SBA's experiences with its SBIC Participating Securities program as an example of the risk in providing venture capital to startups. The SBIC Participating Securities program was established in 1994, with congressional authorization, to encourage the formation of participating securities SBICs that would make equity investments in startup and early stage small businesses. The SBA created the program to fill a perceived investment gap created by the SBIC debenture program's focus on investments in mid- and later-stage small businesses. The SBA stopped issuing new commitments for participation securities on October 1, 2004, following relatively major losses (exceeding $2.7 billion in losses on investments of just over $6.0 billion) in the program following the burst of the "technology stock market bubble" from 2000 to 2002. The SBA's action began a process to end the program, which continues today. This report examines startups' experiences with the SBA's management and technical assistance training programs, focusing on Small Business Development Centers (SBDCs); Women Business Centers (WBCs); SCORE (formerly the Service Corps of Retired Executives); the SBA's 7(a), 504/CDC, and Microloan lending programs; and the SBA's SBIC venture capital program. The SBA's growth accelerators initiative, which targets entrepreneurs looking to "start and scale their business" by helping them access "seed capital, mentors, and networking opportunities for customers and partners," and the recently sunset SBIC early stage debenture program, which focused on providing venture capital to startups, are also discussed. With some notable exceptions, such as the Microloan lending program and SBA's growth accelerators initiative, these programs are designed to assist small businesses at all developmental stages, as opposed to targeting startups for special attention. Nonetheless, all of these programs provide assistance to startups, and report both outcome data (e.g., the number of small businesses receiving training and the number and amount of loans and venture capital provided) and performance data (e.g., the usefulness of the training and the number of jobs supported by the loan) based on the age of the business. As a result, the experiences of startups can be compared with the experiences of older firms both within and across the SBA's programs. For example, as will be shown, the SBA programs that specifically target startups for special attention provide a relatively larger share of its assistance to startups than other SBA programs. Although the data collected by the SBA concerning these programs' impact on economic activity and job creation are somewhat limited and subject to methodological challenges concerning their validity as reliable performance measures, most small business owners who have participated in these programs report in surveys sponsored by the SBA that the programs were useful. Given the data limitations, however, it is difficult to determine the cost effectiveness of these programs. The SBA has provided management and technical assistance training "to small-business concerns, by advising and counseling on matters in connection with government procurement and on policies, principles and practices of good management" since it began operations in 1953. Initially, the SBA provided its own management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training. The SBA reports that more than 1.5 million aspiring entrepreneurs and small business owners receive training from an SBA-supported resource partner each year. The SBA has argued that its support of management and technical assistance training for small businesses has contributed "to the long-term success of these businesses and their ability to grow and create jobs." It currently provides financial support to about "14,000 resource partners," including 63 lead SBDCs and nearly 1,000 SBDC local outreach locations, 116 WBCs, and over 300 chapters of the mentoring program, SCORE. The SBDC, WBC, and SCORE programs are the SBA's three largest management and technical assistance training programs. These programs provide training assistance to small businesses at all stages of development, and do not target their assistance exclusively at startups. All three of these programs provide assistance to small businesses, as defined by the SBA's size standards and regulations. However, there are some differences in the small businesses that tend to seek their services. For example, businesses owned by SBDC clients tend to be somewhat larger, both in terms of annual revenue and employment, than those owned by SCORE and WBC clients. Also, as expected given their mission, WBCs' clients are more likely to be female than SBDC and SCORE clients. SBDCs are "hosted by leading universities, colleges, and state economic development agencies" to deliver management and technical assistance training "to small businesses and nascent entrepreneurs (pre-venture) in order to promote growth, expansion, innovation, increased productivity and management improvement." These services are delivered, in most instances, on a nonfee, one-on-one confidential counseling basis and are administered by 63 lead service centers, with at least one located in each state (four in Texas and six in California), the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. These lead centers manage nearly 1,000 service centers located throughout the United States and the territories. In FY2017, SBDCs provided technical assistance training services to 245,329 clients and counseling services to 188,225 clients. In addition, 14,491 new businesses were formed with assistance from SBDC counselors in FY2017. WBCs are private, nonprofit organizations that provide financial, management, and marketing assistance to small businesses, including startup businesses, owned and controlled by women. Since its inception, the program has targeted the needs of socially and economically disadvantaged women. In FY2017, WBCs provided technical assistance training services to 114,310 clients and counseling services to 26,318 clients. They also assisted in the formation of 17,438 new businesses in FY2017. SCORE is a national volunteer organization which provides management and technical assistance training to small business owners and prospective owners. In FY2017, SCORE's volunteer network of business professionals provided technical assistance training services to 519,368 clients and counseling services to 126,892 clients. They also assisted in the formation of 54,027 new businesses in FY2016 (FY2017 data are not yet available). In addition to compiling program output data, such as the number of clients served, since 2003 the SBA's Office of Entrepreneurial Development has commissioned an annual "multi-year time series study to assess the impact of the programs it offers to small businesses." The survey asks questions about several aspects of the client's experiences with these programs, including the impact of the programs on their staffing decisions and management practices. The survey is sent each year to a stratified random sample of clients participating in the SBDC, WBC, and SCORE programs. The SBA's 2012 survey included responses from nascent clients (individuals who have taken one or more steps to start a business), startup clients (individuals who have been in business one year or less), and in-business clients (individuals who have been in business more than one year and their business was classified as small by the SBA). The 2012 survey was released in February 2013. There were 8,263 SBDC client respondents (19% response rate), 7,217 SCORE client respondents (16% response rate), and 340 WBC client respondents (15% response rate). The survey data reported in Table 1 through Table 6 indicate that (1) these programs assisted small businesses at all stages of development, (2) most of the respondents reported that the assistance they received was useful, and (3) most of the respondents reported that the assistance they received resulted in them changing their management practices or strategies. However, relatively few of the respondents reported that the assistance they received resulted in them hiring new staff, retaining staff, or increasing their profit margin. A statistical analysis of the survey data conducted by the survey's authors suggested that clients receiving three or more hours of counseling, female clients, startups, and clients owning relatively large small businesses were more likely, at a statistically significant level, than clients receiving less than three hours of counseling, male clients, non-startups, and clients owning relatively smaller businesses to report positive results concerning the financial impact of the assistance they received. As shown in Table 1 , the survey indicated that SBDCs, WBCs, and SCORE served businesses at all three stages of development, with 44% of SBDC clients being either a nascent (25%) or startup (19%) client; 55% of SCORE clients being either a nascent (33%) or startup (22%) client; and 47% of WBC clients being either a nascent (32%) or startup (15%) client. The survey asked SBA management and training assistance participants if they thought that the information they received from counselors was extremely useful, useful, no opinion, somewhat useful, or not useful. As shown in Table 2 , most of the SBDC, WBC, and SCORE clients that responded to the survey, including both nascent and startup clients, rated the usefulness of the information provided during their face-to-face management and technical assistance training as either extremely useful or useful. The survey also asked SBA management and training assistance participants if they had changed their management practices or strategies as a result of the SBA management and technical assistance training they received. As shown in Table 3 , more than half of SBDC and SCORE startup clients that responded to the survey reported that they had changed their management practices or strategies as a result of the SBA management and technical assistance training they received, slightly less than the percentages reported by in-business clients. In comparison, three-quarters of WBC startup clients that responded to the survey reported that they changed their management practices or strategies as a result of the assistance they received, somewhat higher than the percentage reported by in-business clients. As shown in Table 4 , 14% of SBDC startup clients, 11% of SCORE startup clients, and 12% of WBC startup clients of survey respondents reported that they agreed or strongly agreed with the statement that the management and technical assistance training they received enabled them to retain current staff, somewhat less than the percentages reported by in-business clients. As shown in Table 5 , 13% of SBDC startup clients, 10% of SCORE startup clients, and 10% of WBC startup clients that responded to the survey reported that they either agreed or strongly agreed with the statement that the SBA management and technical assistance training they received enabled them to hire new staff, somewhat less than the percentages reported by in-business clients. As shown in Table 6 , 30% of SBDC startup clients, 24% of SCORE startup clients, and 31% of WBC startup clients that responded to the survey reported that they either agreed or strongly agreed with the statement that the SBA management and technical assistance training they received had a positive impact on their profit margin, somewhat less than the percentages reported by in-business clients. Growth accelerators are organizations that help entrepreneurs start and scale their business. Accelerators are typically run by experienced entrepreneurs and help small businesses, especially startups, "access seed capital, mentors, and networking opportunities" and provide "targeted advice on revenue growth, job growth, and sourcing outside funding." In 2012, the SBA hosted four regional events (Northeast, Midwest, South, and Mid-Atlantic), which were attended by representatives "from over 100 universities and accelerators to discuss working with high-growth entrepreneurs." These meetings "culminated in a White House event co-hosted by the SBA and the Department of Commerce which will help formalize the network of universities and accelerators, provide a series of 'train the trainer' events on various government programs that benefit high-growth entrepreneurs, and provide a playbook of best practices on engaging universities on innovation and entrepreneurship." The Obama Administration requested $5.0 million, and Congress recommended an appropriation of $2.5 million, for the SBA's growth accelerator initiative for FY2014. The SBA proposed to use the funding to provide matching grants to universities and private-sector accelerators "to start a new accelerator program (based on successful models) or scale an existing program." The SBA also indicated that it planned to request funding for five years ($25 million in total funding) and feature a required 4:1 private-sector match. However, because it received half of its budget request ($2.5 million), the SBA decided to reconsider the program's requirements. As part of that reconsideration, the SBA dropped the 4:1 private-sector match in an effort to enable the program to have a larger effect. On May 12, 2014, the SBA announced the availability of 50 growth accelerator grants of $50,000 each. It received more than 800 applications by the August 2, 2014, deadline. The 50 awards were announced in September 2014. Congress recommended that the program receive $4.0 million in FY2015, and $1.0 million in FY2016, FY2017, and FY2018. Congress also directed the SBA in its explanatory statements accompanying P.L. 113-235 and P.L. 114-113 to "require $4 of matching funds for every $1 awarded under the growth accelerators program." The SBA announced the award of 80 growth accelerator grants of $50,000 each on August 4, 2015 ($4.0 million), 68 growth accelerator grants of $50,000 each on August 31, 2016 ($3.4 million), and 20 growth accelerator grants of $50,000 each on October 30, 2017 ($1 million). Reports from the first round of awardees indicated that more than 1,000 small businesses graduated from the accelerators initiative, with each accelerator graduating about 10 small businesses per year. Award recipients also reported supporting the creation or retention of nearly 4,800 jobs. The Trump Administration requested that the initiative receive no funding in FY2018 and FY2019. The SBA's business lending programs are designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." Historically, the SBA's lending programs have been justified on the grounds that small businesses can be at a disadvantage, compared with other businesses, when trying to obtain access to sufficient capital and credit. As an economist explained, Growing firms need resources, but many small firms may have a hard time obtaining loans because they are young and have little credit history. Lenders may also be reluctant to lend to small firms with innovative products because it might be difficult to collect enough reliable information to correctly estimate the risk for such products. If it's true that the lending process leaves worthy projects unfunded, some suggest that it would be good to fix this "market failure" with government programs aimed at improving small businesses' access to credit. In FY2018, the SBA enhanced small business access to capital by approving about $30.2 billion in loans to small businesses. The SBA's two largest loan guaranty programs are the 7(a) loan guaranty program (nearly $25.4 billion approved in FY2018) and the 504/CDC loan guaranty program (nearly $4.8 billion approved in FY2018). In addition, the SBA's Microloan program, which includes startups among its targeted audiences, provides direct loans to 144 active nonprofit intermediary Microloan lenders to provide "microloans" of up to $50,000 to small business owners, entrepreneurs, and nonprofit child care centers. The Microloan program provided $76.8 million in loans to small businesses in FY2018. The SBA's 7(a) loan guaranty program is considered the agency's flagship loan guaranty program. It is named from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide business loans to American small businesses. The SBA provides participating, certified lenders a guaranty of repayment in the case of a default of up to 85% of qualified loan amounts of $150,000 or less and up to 75% of qualified loan amounts exceeding $150,000 to the program's loan limit of $5 million. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. Specific uses include to acquire land (by purchase or lease); improve a site (e.g., grading, streets, parking lots, and landscaping); purchase, convert, expand, or renovate one or more existing buildings; construct one or more new buildings; acquire (by purchase or lease) and install fixed assets; purchase inventory, supplies, and raw materials; finance working capital; and refinance certain outstanding debts. The SBA's 504 Certified Development Company (504/CDC) loan guaranty program provides long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. A 504/CDC loan cannot be used for working capital or inventory. It is named from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699, as amended), which authorized the sale of debentures pursuant to Section 503 of the act, which previously authorized the program. The 504/CDC program is administered through nonprofit CDCs. Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing backed by a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing. The SBA's debenture is backed with the full faith and credit of the United States and is sold to underwriters who form debenture pools. Investors purchase interests in the debenture pools and receive certificates representing ownership of all or part of the pool. The SBA and CDCs use various agents to facilitate the sale and service of the certificates and the orderly flow of funds among the parties. After a 504/CDC loan is approved and disbursed, accounting for the loan is set up at the Central Servicing Agent (CSA, currently PricewaterhouseCoopers Public Sector LLP), not the SBA. The SBA guarantees the timely payment of the debenture. If the small business is behind in its loan payments, the SBA pays the difference to the investor on every semiannual due date. The 504/CDC program is somewhat unique in that borrowers must meet one of two specified economic development objectives. First, borrowers, other than small manufacturers, must create or retain at least one job for every $75,000 of project debenture. Borrowers who are small manufacturers must create or retain one job per $120,000 of project debenture. The jobs created do not have to be at the project facility, but 75% of the jobs must be created in the community where the project is located. Using job retention to satisfy this requirement is allowed only if the CDC "can reasonably show that jobs would be lost to the community if the project was not done." Second, if the borrower does not meet the job creation or retention requirement, the borrower can retain eligibility by meeting any one of 5 community development goals or 10 public policy goals, provided the CDC's overall portfolio of outstanding debentures meets or exceeds the job creation or retention criteria of at least one job opportunity created or retained for every $75,000 in project debenture (or for every $85,000 in project debenture for projects located in special geographic areas such as Alaska, Hawaii, state-designated enterprise zones, empowerment zones, enterprise communities, labor surplus areas, or opportunity zones). Loans to small manufacturers are excluded from the calculation of this average. The SBA's Microloan program was authorized in 1991 ( P.L. 102-140 , the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992) as a five-year demonstration program to address the perceived disadvantages faced by very small businesses in gaining access to capital. The program became operational in 1992, and it was made permanent, subject to reauthorization, in 1997 ( P.L. 105-135 , the Small Business Reauthorization Act of 1997). Its stated purpose is to assist women, low-income, veteran ... and minority entrepreneurs and business owners and other individuals possessing the capability to operate successful business concerns; to assist small business concerns in those areas suffering from a lack of credit due to economic downturns; ... to make loans to eligible intermediaries to enable such intermediaries to provide small-scale loans, particularly loans in amounts averaging not more than $10,000, to start-up, newly established, or growing small business concerns for working capital or the acquisition of materials, supplies, or equipment; [and] to make grants to eligible intermediaries that, together with non-Federal matching funds, will enable such intermediaries to provide intensive marketing, management, and technical assistance to microloan borrowers. The maximum Microloan amount is $50,000 and no borrower may owe an intermediary more than $50,000 at any one time. Microloan proceeds may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans cannot be made to acquire land or property, and must be repaid within six years. Within these parameters, loan terms vary depending on the loan's size, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. Interest rates are negotiated between the borrower and the intermediary (within statutory limits), and typically range from 7% to 9%. Each intermediary establishes its own lending and credit requirements. However, borrowers are generally required to provide some type of collateral, and a personal guarantee to repay the loan. The SBA does not review the loan for creditworthiness. The SBA maintains a relatively extensive output database for its business lending programs (e.g., number and amount of loans approved and disbursed by program and by year; number and amount of loans approved and disbursed by program and by year to various demographic groups, including startups; number and amount of loans approved and disbursed by program by state; amount of loan purchases and recoveries by program and by year). It also asks borrowers to report information concerning the impact the loans have on job creation and retention. As will be shown, these data suggest that the SBA provides lending support to small businesses at all stages of development, but to varying degrees, with the Microloan program providing a relatively higher share of its lending to startups than the 7(a) and 504/CDC programs. The data also suggest that these programs have a generally positive impact on job creation and retention, but, as will be discussed, the data are self-reported and subject to methodological limitations. As expected given their missions, the Microloan program provides a greater percentage of its loan proceeds to startups (38.0% of total loan disbursements in FY2018) than does the 7(a) program (16.6% of total loan approvals to date in FY2019) and the 504/CDC program (16.8% of total loan approvals to date in FY2019). The SBA has two venture capital programs. The SBIC program, authorized by P.L. 85-699, the Small Business Investment Act of 1958, as amended, is the SBA's flagship venture capital program. It is designed to "improve and stimulate the national economy in general and the small business segment thereof in particular" by stimulating and supplementing "the flow of private equity capital and long-term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply." The SBA also sponsors the much smaller New Markets Venture Capital Program, which is not discussed here given its relatively small size ($1.65 million in financing to four small businesses in FY2015, and no new financing since then). It is designed to promote economic development and the creation of wealth and job opportunities in low-income geographic areas by addressing the unmet equity investment needs of small businesses located in those areas. The SBA does not make direct investments in small businesses. It partners with privately owned and managed SBICs licensed by the SBA to provide financing to small businesses with private capital the SBIC has raised (called regulatory capital) and with funds (called leverage) the SBIC borrows at favorable rates because the SBA guarantees the debenture (loan obligation). As of September 30, 2018, there were 305 licensed SBICs participating in the SBIC program. A licensed debenture SBIC in good standing, with a demonstrated need for funds, may apply to the SBA for financial assistance (leverage) of up to 300% of its private capital. However, the SBA has traditionally approved debenture SBICs for a maximum of 200% of their private capital and no fund management team may exceed the allowable maximum amount of leverage of $175 million per SBIC and $350 million for two or more licenses under common control. SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. Some SBICs specialize in a particular field or industry, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., startup, expansion, or turnaround) and geographic area. SBICs provide equity capital to small businesses in various ways, including by purchasing small business equity securities (e.g., stock, stock options, warrants, limited partnership interests, membership interests in a limited liability company, or joint venture interests); making loans to small businesses, either independently or in cooperation with other private or public lenders, that have a maturity of no more than 20 years; purchasing debt securities from small businesses; and providing small businesses (subject to limitations) a guarantee of their monetary obligations to creditors not associated with the SBIC. The SBIC program currently has invested or committed about $30.1 billion in small businesses, with the SBA's share of capital at risk about $14.3 billion. In FY2018, the SBA committed to guarantee $2.52 billion in SBIC small business investments. SBICs invested another $2.98 billion from private capital for a total of $5.50 billion in financing for 1,151 small businesses. The SBIC program provides financing to small businesses at all developmental stages, with most of its financing provided to businesses that have been in operation for at least five years. The amount of SBIC financing provided to startups (defined as being in operation for one year or less) as a share of SBIC financing has increased somewhat since FY2014 (16.5% in FY2014, 17.9% in FY2015, 15.3% in FY2016, 19.3% in FY2017, and 23.0% in FY2018). In 2012, the Obama Administration established the early stage debenture SBIC initiative to encourage additional SBIC investments in startups (up to $150 million in SBIC leverage in FY2012, and up to $200 million in SBIC leverage per fiscal year thereafter until the initiative's $1 billion limit was reached). Early stage debenture SBICs are required to invest at least 50% of their financings in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year. In recognition of the higher risk associated with investments in early stage small businesses, the initiative includes "several new regulatory provisions intended to reduce the risk that an early stage SBIC would default on its leverage and to improve SBA's recovery prospects should a default occur." For example, early stage debenture SBICs are required to raise more regulatory capital (at least $20 million) than debenture SBICs (at least $5 million). They are also subject to special distribution rules to require pro rata repayment of SBA leverage when making distributions of profits to their investors. In addition, early stage debenture SBICs are also provided less leverage (up to 100% of regulatory capital, $50 million maximum) than debenture SBICs (up to 200% of regulatory capital, $150 million maximum per SBIC and $225 million for two or more SBICs under common control). On May 1, 2012, the SBA announced its first annual call for venture capital fund managers to submit an application to become a licensed early stage debenture SBIC. Thirty-three venture capital funds submitted preliminary application materials. After these materials were examined and interviews held, the SBA announced on October 23, 2012, that it had issued Green Light letters to six funds, formally inviting them to file license applications. The SBA's second, third, fourth, and fifth annual calls for venture capital fund managers to submit an application to become a licensed early stage debenture SBIC took place on December 18, 2012, February 4, 2014, January 12, 2015, and February 2, 2016, respectively. To date, 5 of the 63 investment funds that have applied to participate in the program have been granted an early stage SBIC license. As of September 30, 2016, the 5 early stage SBICs had raised $246.9 million in private capital, received $78.0 million in SBA-guaranteed leverage, had $105.3 million in outstanding commitments, and invested $160.7 million in 62 small businesses. In FY2016, early stage SBICs invested $66.2 million in 45 small businesses. On September 19, 2016, the SBA published a notice of proposed rulemaking in the Federal Register , which included proposed changes to the early stage SBIC initiative to "make material improvements to the program" and "attract more qualified early stage fund managers." The SBA, at that time, indicated its intention to continue the initiative beyond its initial five-year term. However, the SBA, now under the Trump Administration, stopped accepting new applications for the early stage SBIC initiative in 2017. In addition, on June 11, 2018, the SBA withdrew the September 19, 2016, proposed rule that included provisions designed to encourage qualified SBICs to participate in the initiative. The SBA indicated that it took this action "because very few qualified funds applied to the Early Stage SBIC initiative, the costs were not commensurate with the results, and the comments to the proposed rule did not demonstrate broad support for a permanent Early Stage SBIC program." It is too early to determine the extent to which the SBA's decision to stop accepting new applications for the early stage debenture initiative may affect the share and amount of total SBA financing provided to startups. The SBA has indicated, from the very start of the agency, that assisting small businesses to create and retain jobs is part of its mission. However, the SBA also has a long-established tradition of providing assistance to all qualifying small businesses. With some exceptions, the SBA has generally not taken actions or requested authorization to focus its assistance solely onto those businesses, such as startups, that are judged to be the ones most likely to contribute to job growth or wealth creation. The tradition of providing SBA assistance to all qualified small businesses without regard to their potential for job growth or wealth creation is perhaps understandable given that the tradition aligns with one of the SBA's primary missions, which is to promote free markets—by limiting monopoly and oligarchy formation within all industries. In addition, the tradition of providing assistance to all qualified small businesses has, for the most part, never been challenged by Congress or interested small business organizations. The SBA's recent initiatives to focus increased attention to assisting startups (e.g., the Growth Accelerators initiative and the recently sunset early stage debenture SBIC initiative) are less of a challenge to the SBA's tradition of assisting all qualified small businesses than a recognition of the potential role of startups in job creation and concerns about the pace of job growth during the current economic recovery. For example, the SBA has offered the initiatives as supplements to, rather than replacements of, existing programs. As mentioned previously, the relatively "high risk-high reward" of targeting SBA assistance to startups makes it tempting for some and controversial for others. Most who have participated in these programs report in surveys sponsored by the SBA that the programs were useful. However, determining if the risk of financial losses associated with targeting SBA assistance to startups outweighs the startups' potential for job growth is difficult because the data collected by the SBA concerning these programs' impact on economic activity and job creation are somewhat limited and subject to methodological challenges concerning their validity as reliable performance measures. | The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty and venture capital programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion. Congressional interest in these programs, and the SBA's assistance provided to small business startups in particular (defined as new businesses that meet the SBA's criteria as small), has increased in recent years, primarily because these programs are viewed by many as a means to stimulate economic activity and create jobs. Economists generally do not view job creation as a justification for providing federal assistance to small businesses. They argue that in the long term such assistance will likely reallocate jobs within the economy, not increase them. In their view, jobs arise primarily from the size of the labor force, which depends largely on population, demographics, and factors that affect the choice of home versus market production (e.g., the entry of women in the workforce). However, economic theory does suggest that increased federal spending on small business assistance programs may result in additional jobs in the short term. Congressional interest in assistance to business startups is derived primarily from economic research suggesting that startups play a very important role in job creation. That research suggests that business startups create many new jobs, but have a more limited effect on net job creation over time because fewer than half of all startups remain in business after five years. However, that research also suggests that the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years). This report examines small business startups' experiences with the SBA's management and technical assistance training programs, focusing on Small Business Development Centers (SBDCs), Women Business Centers (WBCs), and SCORE (formerly the Service Corps of Retired Executives); the SBA's 7(a), 504/CDC, and Microloan lending programs; and the SBA's Small Business Investment Company (SBIC) venture capital program. Although data collected by the SBA concerning these programs' impact on economic activity and job creation are somewhat limited and subject to methodological challenges concerning their validity as reliable performance measures, most small business owners who have participated in these programs report in surveys sponsored by the SBA that the programs were useful. Given the data limitations, however, it is difficult to determine the cost effectiveness of these programs. The report also discusses the SBA's growth accelerators initiative, which targets entrepreneurs looking to "start and scale their business" by helping them access "seed capital, mentors, and networking opportunities for customers and partners," and the recently sunset SBIC early stage debenture program, which focused on providing venture capital to startups. |
In March 2010, Congress passed P.L. 111-148 , the Patient Protection and Affordable Care Act of 2010 (PPACA) and amended it by passing P.L. 111-152 , the Health Care and Education Reconciliation Act of 2010 (HCERA). Subsequently, lawsuits were filed in multiple courts challenging various aspects of the new law. Many of these cases made their way through the judicial system and three petitions for certiorari were ultimately granted by the United States Supreme Court in one of these cases. The Court ultimately decided in favor of the law in June 2012. This collection of resources is intended to assist in responding to a broad range of research questions and requests for assistance related to the Affordable Care Act litigation before the Supreme Court. On November 14, 2011, the Supreme Court granted three petitions for certiorari to decide issues raised by the Affordable Care Act cases: (1) National Federation of Independent Business v. Sebelius , No. 11-393; (2) Florida v Department of Human Services , No. 11-400; and (3) Department of Health and Human Services v. Florida , No. 11-398. Please note, the Court agreed to hear four separate questions raised by the three petitions. Oral arguments for the cases took place March 26-28, 2012. On June 28, 2012, the Court issued its decision in the case, National Federation of Independent Business et al. v. Sebelius. Below are links to documents related to these cases before the Court. Many of the documents are available on the Supreme Court's Patient Protection and Affordable Care Act website at http://www.supremecourt.gov/docket/PPAACA.aspx . For further information from the Court, the public information officer can be reached at [phone number scrubbed]. The questions for the Court raised by this petition are whether Congress has the power under Article I of the Constitution to enact the minimum coverage provision of PPACA and whether the challenges to the minimum coverage provision itself are barred by the Anti-Injunction Act. Docket No. 11-398 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-398.htm Petition for a Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-398%20Cert%20Petititon.pdf Appendix to Petition http://www.supremecourt.gov/docket/PDFs/11-398%20appendix.pdf Brief of Private Respondents http://www.supremecourt.gov/docket/PDFs/11-398%20BIO%20Private.pdf Brief of State Respondents http://www.supremecourt.gov/docket/PDFs/11-398%20BIO%20States.pdf Reply Brief http://www.supremecourt.gov/docket/PDFs/11-398%20Reply.pdfAmicus Briefs (as compiled by the American Bar Association ) Anti-Injunction Ac t— http://www.americanbar.org/publications/preview_home/11-398_Anti-InjuntionAct.html Minimum Coverage Provisio n— http://www.americanbar.org/publications/preview_home/11-398.htmlTranscript of Oral Arguments March 26, 2012 — http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-398-Monday.pdf March 27, 2012— http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-398-Tuesday.pdfSlip Opinion http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf Florida v. United States HHS , 648 F.3d 1235 (11 th Cir. Fla. 2011) http://www.uscourts.gov/uscourts/courts/ca11/201111021.pdf Order Granting Summary Judgment, Florida v. United States HHS , 780 F. Supp. 2d 1256 (N.D. Fla. 2011) http://www.justice.gov/healthcare/docs/fl-sj-ruling.pdf The questions for the Court in this petition concern the severability of the minimum coverage provision from the rest of the Affordable Care Act if the minimum coverage provision is found to be unconstitutional. Docket No. 393 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-393.htm Petition for Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-393%20Cert%20Petition.pdf Appendix to Petition http://www.supremecourt.gov/docket/PDFs/11-393%20Appendix.pdf Brief in Opposition http://www.supremecourt.gov/docket/PDFs/11-393%20BIO.pdfAmicus Briefs (as compiled by the American Bar Association) Severability — http://www.americanbar.org/publications/preview_home/11-393.htmlTranscript of Oral Arguments March 28, 2012 — http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-393.pdfSlip Opinion http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf The questions for the Court in this petition are limited to whether the individual mandate can be severed from the act, and whether the changes to Medicaid in the Affordable Care Act unconstitutionally coerce the states. Docket No. 11-400 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-400.htm Petition for Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-400%20Cert%20Petition.pdf Brief in Opposition http://www.supremecourt.gov/docket/PDFs/11-400%20BIO.pdf Reply Brief http://www.supremecourt.gov/docket/PDFs/11-400%20Reply.pdfAmicus Briefs (as compiled by the American Bar Association) Severability — http://www.americanbar.org/publications/preview_home/11-393.html Medicaid — http://www.americanbar.org/publications/preview_home/11-400_Medicaid.htmlTranscript of Oral Arguments March 28, 2012 — http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-400.pdfSlip Opinion http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf In addition to the cases referenced above, information is provided on three other cases in which a petition for a writ of certiorari has been filed and that contain notable legal arguments related to the Affordable Care Act cases. In this petition for certiorari, the petitioners present arguments on whether Congress had the power under Article I of the Constitution to enact the minimum coverage provision of PPACA. Docket No. 11-117 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-117.htm Petition for Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-117%20Cert%20Petition.pdf Brief in Opposition http://www.supremecourt.gov/docket/PDFs/11-117%20BIO.pdf Reply Brief http://www.supremecourt.gov/docket/PDFs/11-117%20%20Reply.pdf Opinion, Thomas More Law Ctr. v. Obama , 651 F.3d 529 (6 th Cir. Mich. 2011) http://www.ca6.uscourts.gov/opinions.pdf/11a0168p-06.pdf Order Denying Plaintiffs' Motion for Injunction and Dismissing Plaintiffs' First and Second Claims for Relief [Doc #7], Thomas More Law Ctr. v. Obama , 720 F. Supp. 2d 882 (E.D. Mich. 2010) http://www.mied.uscourts.gov/News/Docs/09714485866.pdf In this petition for certiorari, the petitioners present arguments on whether a state has standing to challenge the minimum coverage provision, whether Congress had the power under Article I of the Constitution to enact the minimum coverage provision, and whether the minimum coverage provision is severable from the rest of the Affordable Care Act. Docket No. 11-420 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-420.htm Petition for Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-420%20Cert%20Petition.pdf Brief in Opposition http://www.supremecourt.gov/docket/PDFs/11-420%20BIO.pdf Opinion, Virginia ex rel. Cuccinelli v. Sebelius , 656 F.3d 253 (4 th Cir. Va. 2011) http://pacer.ca4.uscourts.gov/opinion.pdf/111057.P.pdf Memorandum Opinion (Cross Motions for Summary Judgment), Commonwealth ex rel. Cuccinelli v. Sebelius , 728 F. Supp. 2d 768 (E.D. Va. 2010) http://www.justice.gov/healthcare/docs/cucinelli-v-sebelius-memo-opinion-summary-judgment.pdf In this petition for certiorari, the petitioners present arguments on whether the challenges to the minimum coverage provision itself are barred by the Anti-Injunction Act and whether Congress has the power under Article I of the Constitution to enact the minimum coverage provision of PPACA. Docket No. 11-438 http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/11-438.htm Petition for a Writ of Certiorari http://www.supremecourt.gov/docket/PDFs/11-438%20Cert%20Petition.pdf Brief in Opposition http://www.supremecourt.gov/docket/PDFs/11-438%20BIO.pdf Reply Brief http://www.supremecourt.gov/docket/PDFs/11-438%20Reply.pdf Opinion , Liberty Univ., Inc. v. Geithner , 2011 U.S. App. LEXIS 18618, 2011 WL 3962915 (4 th Cir. Va. 2011) http://www.justice.gov/healthcare/docs/liberty-university-4th-circuit-opinion.pdf Memorandum Opinion, Liberty Univ., Inc. v. Geithner , 753 F. Supp. 2d 611 (W.D. Va. 2010) http://www.vawd.uscourts.gov/OPINIONS/MOON/LIBERTYUNIVERSITYVGEITHNER.PDF The following are selected links to statutes, laws, and cases that are relevant to the issues before the Court. The Constitution of the United States of America: Analysis and Interpretation http://crs.gov/analysis/Pages/constitutionannotated.aspx?source=QuickLinks Also known as "The Constitution Annotated" or "CONAN", this resource contains legal analysis and interpretation of the United States Constitution, based primarily on Supreme Court case law. It is especially useful when researching the constitutional implications of a specific issue or topic. Some of the commonly referenced constitutional provisions related to PPACA are below: Constitution of the United States, Article I, Section 8, Clause 1. The "Power to Tax and Spend Clause" The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States. Constitution of the United States, Article I, Section 8, Clause 3. The "Commerce Clause" The Congress shall have Power *** To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes. Constitution of the United States, Article I, Section 8, Clause 18. The "Necessary and Proper Clause" The Congress shall have Power *** To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by the Constitution in the Government of the United States, or in any Department or Officer thereof. Constitution of the United States, Article VI, Clause 2 . The " Supremacy Clause " This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. Compilation of the Patient Protection and Affordable Care Act http://housedocs.house.gov/energycommerce/ppacacon.pdf Compiled by the Office of Legislative Counsel, this committee print contains the text of P.L. 111-148 , the Patient Protection and Affordable Care Act (PPACA) consolidated with the amendments made by title X of P.L. 111-152 , the Health Care and Education Reconciliation Act of 2010 (HCERA). Links to the text of the codified version of two particular PPACA provisions at issue in the litigation are provided below: Maintenance of Minimum Essential Coverage , 26 U.S.C. §5000A. http://www.gpo.gov/fdsys/pkg/USCODE-2010-title26/pdf/USCODE-2010-title26-subtitleD-chap48.pdf Enacted and amended as part of the health care reform legislation, this section of PPACA deals with minimum coverage. State Plans for Medical Assistance , 42 U.S.C. §1396a http://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap7-subchapXIX-sec1396a.pdf PPACA amended existing laws related to the Medicaid program to require expanded coverage. Anti-Injunction Act , 26 U.S.C. §7421 http://www.gpo.gov/fdsys/pkg/USCODE-2010-title26/pdf/USCODE-2010-title26-subtitleF-chap76-subchapB-sec7421.pdf Enacted in 1954, this act prohibits a court from hearing a case to prevent the assessment or collection of a tax (except in certain circumstances). Below are three cases often cited in the discussion of commerce clause issues. United States v. Lopez , 514 U.S. 549 (U.S. 1995) http://www.supremecourt.gov/opinions/boundvolumes/514bv.pdf In this Supreme Court case, a conviction under the Guns Free School Zone Act was overturned. The Court held the act was beyond the power of Congress under the commerce clause. United States v. Morrison , 529 U.S. 598 (U.S. 2000) http://www.supremecourt.gov/opinions/boundvolumes/529bv.pdf In this case, the Court held Congress lacked the authority to enact a statute because it did not involve commercial activity. Gonzalez v. Raich , 545 U.S. 1 (U.S. 2005) http://www.supremecourt.gov/opinions/boundvolumes/545bv.pdf The Court examined whether Congress could prohibit the cultivation of marijuana for personal, medicinal use, and held that such regulation was permissible under the Commerce Clause because these activities, when viewed in the aggregate, had a substantial effect on the interstate market for marijuana. Below are two cases cited in the discussion of the expansion of Medicaid coverage. South Dakota v. Dole , 483 U.S. 203 (U.S. 1987) http://www.law.cornell.edu/supremecourt/text/483/203 In this case, the Court held that the general welfare provision of the Taxing and Spending Clause to the Constitution gave Congress the power to condition federal funds on a state's establishment of a minimum drinking age. Garcia v. San Antonio Metro. Transit Auth ., 469 U.S. 528 (U.S. 1985) http://www.law.cornell.edu/supremecourt/text/469/528 In this case, the Court held that a public mass transit authority entity was not entitled to immunity from federal wage and overtime standards. In researching these cases, those less accustomed with court proceedings may encounter unfamiliar terms. Below are definitions, taken from Black's Law Dictionary, Ninth Edition , for some common words used in litigation. Listed below are existing CRS products on the Affordable Care Act litigation and related policy issues. Additional titles are available on the CRS.gov website, http://www.crs.gov , by searching or browsing the Health Care Issues Before Congress. CRS Report R40725, Requiring Individuals to Obtain Health Insurance: A Constitutional Analysis , by Jennifer Staman et al. CRS Report R40846, Health Care: Constitutional Rights and Legislative Powers , by [author name scrubbed]. CRS Report R42367, Medicaid and Federal Grant Conditions After NFIB v. Sebelius: Constitutional Issues and Analysis , by [author name scrubbed]. CRS Report RL34708, Religious Exemptions for Mandatory Health Care Programs: A Legal Analysis , by Cynthia Brougher. CRS Report R41664, ACA: A Brief Overview of the Law, Implementation, and Legal Challenges , coordinated by [author name scrubbed]. CRS Report R41331, Individual Mandate and Related Information Requirements under ACA , by [author name scrubbed] and [author name scrubbed]. CRS Report R41159, Summary of Potential Employer Penalties Under the Patient Protection and Affordable Care Act (PPACA) , by [author name scrubbed]. CRS Report R41210, Medicaid and the State Children's Health Insurance Program (CHIP) Provisions in ACA: Summary and Timeline , by [author name scrubbed] et al. CRS Report R42431, Upcoming Rules Pursuant to the Patient Protection and Affordable Care Act: Fall 2011 Unified Agenda , by [author name scrubbed] and [author name scrubbed]. | In March 2010, Congress passed P.L. 111-148, the Patient Protection and Affordable Care Act of 2010 (PPACA), and amended it by passing P.L. 111-152, the Health Care and Education Reconciliation Act of 2010 (HCERA). Subsequently, lawsuits were filed in multiple courts challenging various aspects of the new law. Many of these cases were heard in the district courts and a few were appealed to appellate courts. In November 2011, the Supreme Court granted three petitions for certiorari in one of these cases. On June 28, 2012, the Court issued its decision in the case, National Federation of Independent Business et al. v. Sebelius. This report contains resources for retrieving background information and selected legal material relevant to these cases. It also includes information on CRS experts and products to assist in understanding the legal and policy issues related to the act. This report will be updated as needed. |
Congressional hearings and press coverage critical of the medical care received by noncitizens in the custody of the Department of Homeland Security's (DHS's) Immigration and Customs Enforcement (ICE) have increased congressional interest in the subject, including the introduction of legislation related to detainee health care. An overarching debate on this issue concerns the appropriate standard of health care that should be provided to foreign nationals in immigration detention. The medical care required to be provided to detainees is outlined in ICE's National Detention Standards, and the Division of Immigrant Health Services (DIHS), which is detailed from the U.S. Public Health Service to ICE is ultimately responsible for the health care of noncitizens detained by ICE. However, the Florida Immigrant Advocacy Center has reported that problems with access to medical care is one of the chief complaints of aliens in detention. Similarly, the National Immigrant Justice Center states that complaints about access to medical care are a constant theme in conversations with detained aliens. In addition, the U.S. government recently admitted negligence in the death of Francisco Castaneda, a former ICE detainee. Thus, although standards exist, one of the questions raised is are the standards being followed? This report begins with an overview of noncitizen detention and then examines the procedures and policies related to the provision of health care to detainees. The report concludes with a discussion of the issues surrounding detainee health care. The report does not investigate the veracity of claims of substandard medical care made in the press or ICE's rebuttals. The law provides broad authority to detain aliens while awaiting a determination of whether they should be removed from the United States, and mandates that certain categories of aliens are subject to mandatory detention (i.e., the aliens must be detained) by the Department of Homeland Security (DHS). Aliens not subjected to mandatory detention can be paroled, released on bond, or continue to be detained. Any alien can be detained while DHS determines whether the alien should be removed from the United States. Although some detainees are criminal aliens, others are asylum seekers who have not committed a crime, and others are aliens who are present without status (illegal aliens) who, while in violation of their immigration status and immigration law, have not committed a criminal offense. In addition, some of the criminal alien detainees are legal permanent residents who have resided in the United States for many years. Other detained aliens include those who arrive at a port-of-entry without proper documentation (e.g., fraudulent or invalid visas, or no documentation), but most of these aliens are quickly returned to their country of origin through a process known as expedited removal . The majority of aliens arriving without proper documentation who claim asylum are held until their "credible fear hearing" and then released; however, some asylum seekers are held until their asylum claims have been adjudicated. Although noncitizens in immigration detention are in the custody of ICE, only a minority are detained at facilities owned or fully contracted by ICE. In October 2007, 65% of noncitizen detainees were detained at state and local prisons, 19% at contract facilities, 14% at Service Processing Centers (SPCs) owned and operated by ICE, and 2% at Bureau of Prisons (BOP) facilities. Notably, all facilities housing immigration detainees must comply with ICE's National Detention Standards (discussed below). On an average day, up to 33,000 immigration detainees are in ICE's custody in more than 300 facilities nationwide. The average stay is 37.5 days. For FY2008, as of December 31, 2007, the average daily detained population was 31,244. In FY2008, approximately 311,000 aliens were detained by ICE. As of April 30, 2007, ICE reported that, cumulatively, 25% of all detained aliens were removed within four days, and 90% within 85 days. Nonetheless, in FY2006, more than 7,000 aliens were in detention longer than six months. For FY2006, approximately 48% of the aliens in detention were criminal aliens. (For a more detailed discussion of the detention population, see Appendix A .) Currently, ICE contracts with Creative Corrections, L.L.C., to perform the annual inspections of detention facilities. ICE also contracts with another company, the Nakamoto Group Inc., to serve as on-site, full-time quality assurance inspectors at the 40 largest detention facilities. The Detention Facilities Inspection Group (DFIG) within the ICE's Office of Professional Responsibility (OPR) is primarily responsible for oversight of detention facilities. The DFIG, which began in February 2007, provides oversight and independent validation of the annual detention facility inspection program (done by Creative Corrections). DFIG also conducts investigations of serious incidents involving detainees. Lastly, DRO's Detention Standards Compliance Unit is tasked with ensuring that facilities that detain aliens comply with ICE's National Detention Standards. The press has reported that a DHS Inspector General's 2008 draft report finds that previous oversight has not been effective in identifying serious problems at the facilities. The US Immigration and Customs Enforcement (ICE), Office of Detention and Removal Operations (DRO) is responsible for ensuring safe and humane conditions of confinement for detained aliens in federal custody, including the provision of reliable, consistent, appropriate and cost-effective health services. —Immigration and Customs Enforcement In 2000, the former Immigration and Naturalization Service (INS) created National Detention Standards for aliens in detention, which are published in the Detention Operations Manual. In late 2008, ICE—reportedly with input from detention experts, non-governmental organizations, and DHS' Civil Rights and Civil Liberties Office—published new Detention Standards in a performance-based format. The standards specify the detention conditions appropriate for immigration detainees. In most cases, the standards mirror American Correctional Association (ACA) standards, though some of ICE's Detention Standards provide more specificity or are unique to the needs of alien detainees. The Detention Standards, however, do not have the force of law, thus detainees do not have legal recourse for violations of the standards. The Detention Operations Manual contains a section on health services, which addresses standards for medical care; hunger strikes; suicide prevention and intervention; and terminal illness, advanced directives, and death. The American Civil Liberties Union (ACLU) and the National Immigration Law Center have complained about the standards. They note that ICE lacks written guidelines for how to rate a facility's adherence to the Detention Standards, and that ICE notifies the facilities 30-days before their annual reviews, giving facilities opportunities to prepare for the reviews. In addition, they note that annual reviews do not require detainee interviews and are only observational reviews of the facilities and files. In 2007, the Assistant Secretary of ICE directed that ICE's Office of Detention and Removal (DRO) report semiannually on agency-wide adherence with the National Detention Standards. The semiannual reports explain the standards used to rate the detention facilities. The first report under this directive was issued in May 2008. According to ICE's Detention Operations Manual the Detention Standards ensure, "that detainees have access to emergent, urgent or non-emergent medical, dental, and mental health care that are within the scope of services provided by the DIHS, so that their health care needs are met in a timely and efficient manner." According to the Detention Operations Manual, every facility has to provide detainees with initial medical screening, primary medical care, and emergency care. The ICE Officer in Charge (OIC) must arrange for specialized health care, mental heath care, and hospitalization within the local community. All facilities are required to employ a medical staff large enough to provide basic exams and treatments to all detainees. Medical care at facilities ranges from small clinics with contract staff to facilities with on-site medical staff and diagnostic equipment. The facilities are required to have a mechanism (normally paper request slips) that allows detainees to request health care services provided by a physician or other qualified medical officer in a clinical setting. The facilities are required to have regularly scheduled times, known as sick call , when medical personnel are available to see detainees who have requested medical services. All detainees, without exception, have access to sick call, and the facilities have to have procedures in place that ensure that all sick call requests are received and triaged by medial personnel within 48 hours after the detainee submits the request. ICE detainee policy requires that all detainees receive an initial health screening immediately upon arrival at the detention facility to determine the appropriate necessary medical, mental health, and dental treatment. In addition to the initial screening, ICE policy also requires that detainees receive a health appraisal and physical examination within 14 days of arrival to identify medical conditions that require monitoring or treatment. In addition, all detainees are supposed to receive a mental health screening within 12 hours of admission. Detainees also receive a mental status evaluation during their physical examination, which is required to take place within 14 days of admission. According to ICE, a detainee with a medical condition will be scheduled for as many follow-up appointments as necessary. In addition, detainees have access to sick call (i.e., the opportunity to request non-emergeny health care provided by a health service provider during scheduled times at the detention facility). In addition, the manual states that an initial dental screening exam should be performed within 14 days of the detainee's arrival, and if an on-site dentist is not available, the initial dental screening may be performed by a physician, physician's assistant, or nurse practitioner. All detainees are afforded authorized emergency dental treatment. Aliens detained for more than six months are eligible for routine dental treatment. Detainees' dental care, reportedly, is often limited to extractions, and care for painful dental conditions is often delayed or denied. Dentures are not provided, nor are eyeglasses, unless the glasses were broken while the alien was in detention. In addition, detainees may not use their own money to get medical or dental care. Under the Medical Standards, detainees also have access to medication from an on-site pharmacy or a pharmacy in the community. Detainees may get medicine from their family members, provided that the medicine can be verified as appropriate for the detainee to take and is not contraband. There have been reports, however, of detainees having problems getting medications even when their families have been willing to provide them. The Division of Immigrant Health Services (DIHS), which is indefinitely detailed from the U.S. Public Health Service to ICE, is ultimately responsible for the provision of health care to noncitizens detained by ICE. At 15 of over 300 detention facilities, DIHS provides on-site health care, while in the others, mostly for detainees in local prisons and jails, health care is provided by contract workers who are not affiliated with DIHS. The amount of care available on-site at detention facilities is variable. Some facilities have full-time, on-site medical staff, while other facilities make use of local providers. Notably, DIHS is responsible for the approval of any off-site medical care, regardless of where the alien is detained. Some immigration advocates maintain that since the Detention Standards do not have the force or law or regulation, DIHS policy exercises the largest influence over the provision of medical care to detainees. Although the medical care that is supposed to be received is detailed in the Detention Standards Manual, one stated concern is that the procedures and standards are not followed. Another concern focuses on the covered benefits package (discussed below) and whether that and the Detention Standards allow for the provision of adequate services to the detained populations. DIHS is a stand-alone medical unit consisting of U.S. Public Health Service (PHS) Officers and contract medical professionals who work under DIHS supervision. DIHS serves as the medical authority for ICE. Prior to October 1, 2007, ICE received the medical services of DIHS through the Department of Health and Human Services's (HHS's) Health Resources and Services Administration (HRSA). In other words, HRSA oversaw DIHS, including the U.S. Public Health Service Officers assigned to DIHS. According to DHS, ICE was interested in greater administrative control over DIHS for a variety of reasons, including HRSA's inability to fill DIHS vacancies in a timely manner and unwillingness to provide Public Health Service (PHS) Officers to support ICE law enforcement missions. In October 2007, DIHS was detailed indefinitely to ICE. The detail of the PHS Officers in DIHS was accomplished via a memorandum of agreement (MOA), which also covers the assignment of PHS resources elsewhere within DHS. Since the detail became effective, ICE has provided both administrative support to DIHS and oversight of the administration of DIHS. Under the MOA, DHS is responsible for the day-to-day conduct of PHS Officers under its detail and assumes liability for their negligence or malpractice. Lawyers in the DHS Office of Health Affairs (OHA) handle such claims. In addition, beginning on October 1, 2007, ICE has stated that it has been collaboratively working with OHA on a variety of improvement initiatives, including selecting a new Director for DIHS at the appropriate rank; implementing aggressive hiring strategies to address staffing needs; identifying and implementing a new electronic medical records system; and reviewing (or changing, if necessary) the process by which Treatment Authorization Requests (TARS) are approved. ICE is also working with OHA to develop an enhanced process for TAR appeals. ICE has established a covered benefits package that delineates the health care services available to detainees in ICE custody, in addition to the minimum scope of services provided by the detention facilities. This package, known as the DIHS Medical Dental Detainee Covered Services Package (CSP), primarily provides health care services for emergency care, which is defined as "a condition that is threatening to life, limb, hearing or sight," rather than elective or non-emergency conditions. The CSP states that: [accidental] or traumatic injuries incurred while in the custody of ICE or BP [Border Patrol] and acute illnesses will be reviewed for appropriate care. Other medical conditions which the physician believes, if left untreated during the period of ICE/BP custody, would cause deterioration of the detainee's health or uncontrolled suffering affecting his/her deportation status will be assessed and evaluated for care.... Elective, non-emergent care requires prior authorization.... Requests for pre-existing, non-life threatening conditions, will be reviewed on a case by case basis. Detainees who require non-emergency medical care beyond that which can be provided at the detention facilities must get preauthorization. They submit a Treatment Authorization Request (TAR), which is evaluated by the DIHS Managed Care Program. The TAR must be approved before the detainee may receive care. According to ICE, more than 40,000 TARs are submitted each year; the average turn-around time is 1.4 days, and 90% are approved. Nonetheless, some detainees have described waiting weeks or months to get basic care. In addition, reportedly, detainees have been told that biopsies were "elective surgery" and, as such, have had trouble getting the diagnostic test. According to a 2007 GAO report, officials at several detention facilities reported difficulties obtaining approval for outside medical and mental health care. TAR reviews for care are conducted by DIHS nurses in Washington, DC, who review the paperwork submitted by physicians. These nurses are known as Managed Care Coordinators (MCCs). The nurses are on duty Monday through Friday, 7:30 a.m to 4 p.m. Regardless of where the alien is held, approval from DIHS is required for diagnostic testing, speciality care, or surgery. However, when an ICE detainee is hospitalized, the hospital assumes medical decision-making authority, including the patient's drug regimen, lab tests, X-rays, and treatments. Off-site medical care for people in the custody of the U.S. Marshals service is handled in a similar manner. According to ICE, DIHS has a formal appeals process that is similar to industry standards and comparable to that of the Bureau of Prisons for declined Treatment Authorization Requests (TARs). Facilities and individual detainees have the right to appeal denial determinations. TARs denied for lack of medical necessity may be resubmitted for reconsideration to the Managed Care Coordinator (MCC) (i.e., the DIHS nurses in Washington DC). If a TAR is denied for lack of timely submission, the medical records are forwarded to the Managed Care Coordinator (MCC) Branch Chief for review. According to DIHS Standard Operating Procedure, the Managed Care Review Committee (MCRC) conducts a second level review for all appeals which are upheld by the MCC. The MCRC is comprised of the DIHS Medical Director, appropriate medical, dental, or mental health consultants, and MCC(s). Decisions of the MCRC are made in writing within three working days of the appeal. ICE, DIHS, and OHA are working to develop a more independent appeal body outside of DIHS and ICE. The preauthorization (also called pre-certification of medical necessity) requirement is similar to those of many managed care/health insurers. Nonetheless, some contend that this procedure can prevent detainees from getting the necessary care, and note that off-site nurses have the ability to deny care that was requested by on-site medical personnel. Reportedly, the DIHS Medical Dental Detainee Covered Services Package (CSP) has been amended several times since 2005, to limit the scope of medical care for detainees. A repeating theme in press reports and congressional testimony concerned difficulties getting biopsies when there is a concern about cancer. The ACLU is involved in a class action suit regarding inadequate medical care for immigration detainees at the San Diego Correctional Facility, and contends that there are serious deficiencies in the CSP which should be fixed to ensure that detainees receive adequate medical care consistent with the ICE Detention Standards on Medical Care. The CSP primarily provides health care services for emergencies only. According to the ACLU, as recently as August 2005, the CSP did not extend to pre-existing conditions. In his testimony, Tom Jawetz of the ACLU argued that there is a disconnect between ICE's Detention Standards and the CSP. In addition, he contends that "the standard is inconsistent with established principles of constitutional law and basic notions of decency." Representative Zoe Lofgren also stated in a question to ICE at the October 2007 hearing that there seems to be an inconsistency between the CSP and the Detention Standards because the CSP states that medical conditions will be evaluated for treatment based on the criteria that, "if left untreated during the period of ICE/BP custody [the medical condition] would cause deterioration of the detainee's health or uncontrolled suffering affecting his/her deportation status [emphasis added]," (i.e., the detainees health issues would have to jeopardize the ability of ICE to remove the alien before treatment would be rendered.) ICE responded that it disagrees that the Detention Standards and CSP are inconsistent. ICE contends that all detainees receive medical treatment when DIHS determines that care is required, "regardless of whether the alien is about to be deported or not." There have been reports of problems with detainees being transferred without their medical records. ICE does not have a system to track the transfer of medication and medical records of detainees. Some lawyers described difficulties getting access to medical records on their client's behalf. Other detainees have complained about problems with getting interpreters during medical treatment. Female detainees have also reported not getting regular gynecological or needed obstetric care. The following section synthesizes the finding in three U.S. government reports that examined selected detention facilities' compliance with all or some of the National Detention Standards. All three reports examined compliance with the Medical Care standard. The reports are as follows: U.S. Immigration and Customs Enforcement, Office of Detention and Removal (DRO), Semiannual Report on Compliance with ICE National Detention Standards: January—June 2007 , May 9, 2008. Government Accountability Office (GAO), Alien Detention Standards: Telephone Access Problems Were Pervasive at Detention Facilities; Other Deficiencies Did Not Show a Pattern of Noncompliance, GAO-07-875, July 2007. Department of Homeland Security, Office of the Inspector General (DHS OIG), Treatment of Immigration Detainees Housed at Immigration and Customs Enforcement Facilities , OIG-07-01, December 2006. Table 1 presents the time period of the reviews, the number of facilities reviewed, and the total number of standards evaluated for the studies discussed. In May 2008, ICE released its first semiannual report on compliance with the National Detention Standards. The report covers reviews conducted during the first six months of 2007 and includes the inspections of more than 175 facilities. The report rated the facilities on the Detention Standards as either "acceptable" or "deficient." Overall, on the medical care standard, 98% of the facilities were rated acceptable, while 2% were rated deficient. Of the evaluated Service Processing Centers (SPCs) owned and operated by ICE, 80% were rated acceptable, while 20% were rated deficient. In July 2007, the Government Accountability Office (GAO) released an audit of 23 detention facilities. GAO found a lack of adherence to the medical care standards at 3 of the 23 facilities, including failing to administer the mandatory physical exams within 14 days of admission and failure to administer medical screening immediately after admission. In addition, GAO found that concerns about medical care were common reasons for aliens to file complaints. The DHS Office of the Inspector General (OIG) conducted an audit of compliance with selected detention standards at five facilities used to house immigration detainees. Of the five facilities reviewed, DIHS managed and administered health care at two facilities. At the other three facilities, DIHS was responsible for approving off-site care, but the on-site care was administered by contractors at those facilities. The OIG identified instances of non-compliance with the medical care standards at four of the five detention facilities, including failure to provide timely initial medical care. The one facility found to be in full compliance with the standards for initial medical screening and physical examination was Krome SPC, where medical care is provided by DIHS. The OIG stated in its review that the Detention Standards on sick calls do not clearly define what is considered a timely response to a non-emergency sick call request. Thus, the report found that in the absence of standards, local detention facilities have established differing policies regarding response time to non-emergency care. Nonetheless, at three of the detention facilities (two local prisons and one contract facility), 196 out of 481 detainee non-emergency medical requests were not responded to in the time-frame specified by the facility. As a result, the OIG recommended that ICE develop specific criteria to define a reasonable time for medical treatment. ICE responded to the recommendation, concurring in part and promising to examine the merits of the issue, but contending that its medical program provides adequate detainee care and is consistent with industry standards. ICE also stated that it "must rely on its service providers to make medical decisions regarding the provision of medical care and any criteria to be established that would determine timeliness." Reports of inadequate care being provided to detainees raise several policy issues pertaining to the health care provided to the detained noncitizen population. First, the detention population, both in funded bed space and in the total detention population, increased between FY2003 and FY2007 raising interest in spending on detainee medical care, and concerns that spending has not increased in the same proportion as the detained population. In addition, ICE has the authority to release aliens due to medical and psychological problems, elevating interest in the existing guidelines and practices for medical release, and their adequacy. Similarly, due to the likely special needs of asylum seekers in detention, another policy issue focuses on whether proper care is and can be provided to this population within a detention setting. While every death is regrettable, preventable deaths of aliens in detention who are reliant on the government for medical care heighten concerns about the quality of health care. Doubts about the propriety of the number of deaths in detention as a reliable measure of standard of care, lead to the policy question of which measures would provide insight into the adequacy and quality of care. Finally, an overarching debate on this issue concerns the appropriate standard of health care that should be provided to foreign nationals in immigration detention. This debate is especially emotional because of the balancing act between basic human rights and the cost of health care when U.S. citizens also face barriers in accessing health care. Concerns about the adequacy of health care for detained aliens has increased interest in funding for detainee medical care. As shown in Table 2 , from FY2003 to FY2007, the total amount spent on detainee medical care increased by 83%, from $50 million to $92 million. During that same time period, the total amount of funded bed space increased by 41%. The total amount of funds spent on ICE detainee health care increased between FY2003 and FY2004. Between FY2004 and FY2006, the total expenditures on detainee health care fluctuated but remained between $70 and $74 million. Between FY2006 and FY2007, the total expenditures increased from $74 million to $92 million. Most of the increase in total spending on detainee health care was from increases in program operations, not in medical claims, which are for services rendered by an off-site health care provider to detainees. The total amount of money spent on detainee health care program operations doubled between FY2003 and FY2007. However, the funds expended for medical claims increased between FY2003 and FY2004, then decreased between FY2004 and FY2005. Between FY2005 and FY2007, expenditures on medical claims remained almost constant. During the same time, the funded amount of bed space increased by 49%. ICE has the authority to release aliens due to medical and psychological problems; however, how often this authority is exercised and whether it is used effectively is unknown. ICE has prosecutorial discretion in determining custody for aliens with humanitarian (including medical) concerns. The alien may be released into an Alternatives to Detention program, released on an Order of Supervision, or released on his or her own recognizance. These decisions are made on a case-by-case basis, "whenever a medical or psychiatric evaluation makes the alien's detention problematic and/or removal [from the United States] unlikely." ICE does not keep track of how often this discretion is exercised. While there is general debate about the merits of detaining asylum seekers, asylum seekers often have medical and psychological issues and it is not clear how well-equipped the detention health care system is to deal with the specific physical and psychological needs of asylum seekers. As discussed, aliens in expedited removal must be detained, and thus aliens in expedited removal who claim asylum are detained while their "credible fear" cases are pending, and they may then be detained while their case is decided. In FY2006, 5,761 asylum seekers were detained, and 1,559 (27%) were detained for more than 180 days. Notably, some claim that the practice of detaining asylum seekers has helped reduced the number of fraudulent asylum claims. However, the position of the United Nations High Commission on Refugees is that detaining asylum seekers is "inherently undesirable." It argues that detention may be psychologically damaging to an already fragile population such as those who are escaping from imprisonment and torture in their countries. Often, the asylum seeker does not understand why he or she is being detained, which can increase psychological stress. In addition, asylum seekers may have unusual medical conditions resulting from the imprisonment and torture suffered in their home countries. Nonetheless, ICE reports that it routinely provides medical care for life-threatening conditions, such as cardiac arrest, kidney disease, HIV/AIDS, hypertension, and diabetes. As discussed earlier in the report, according to ICE detainees receive dental care, physical exams, sick call visits, prescription drugs, and mental health services. ICE states that staff are trained to spot detainees who may be at risk of suicide, and to use prevention and intervention techniques to assist such detainees. Between May 2007 and May 2008, psychologists and social workers have managed a daily population of over 1,350 seriously mentally ill detainees without a single suicide. Thus, current ICE procedures may adequately address the health care needs of detained asylum seekers. Two policy issues become highlighted when a detainee dies in custody. The first issue concerns the quality of oversight when a death occurs and whether there is enough oversight to identify possible cases of inadequate care. Secondly, while a detainee's death may heighten concerns about the quality of health care, there are doubts about the propriety of using deaths in detention as a reliable measure of standard of care. What follows is a discussion of these two issues. Although there is a system to report the death of a detainee, some question whether there is effective oversight when a death occurs in detention. Current ICE procedure dictates that when a detainee dies while in the custody of ICE's Detention and Removal Office (DRO), the death is to be reported to ICE headquarters via a system known as the Significant Event Notification (SEN) system. Under its proceedures, DRO is also supposed to report detainee deaths to the ICE Office of Professional Responsibility (OPR) and to the DHS Office of the Inspector General (OIG) so that they can conduct independent reviews of the incident. In addition, deaths are referred to the local medical examiner's office, which decides whether to perform an autopsy. The OIG is also notified of the death by the Joint Intake Center (JIC), which is notified by the SEN system and sends all records regarding the death (including those from the local medical examiner) to the OIG. The OIG may accept the case for investigation or may decline and refer the case back to the JIC for referral to the Office of Professional Responsibility. ICE has reported a decline in the number of deaths of aliens in detention between 2004 and 2008. Some, however, question whether mortality rates should be used in appraising health care in a transitional population, and truly reflect the quality of care provided to detainees. In May 2008, ICE published a fact sheet reporting that there were 71 deaths in immigration detention facilities from calendar year 2004 (inclusive) through May 2, 2008 (see Table 3 ). ICE reported a decline in the number of detainee deaths between 2004 and 2008, a period when the detainee population increased. ICE also asserted that the mortality rate in its facilities is lower than in U.S. prisons and jails and the general U.S. population. A critical analysis of the death rates was published by physicians at the New York University School of Medicine, who commented that ICE's comparisons were not valid because, among other things, the respective mortality rates had not been adjusted for age or for length of detention. These doctors stated that mortality is an imprecise method for appraising health care in a transitional population, and that morbidity which refers to sickness or having a disease would be a better measure of ICE healthcare. They also stated that, in their calculations, the length-adjusted mortality rate for detainees increased between 2006 and 2007. In addition, critics of the reported death rates stated that those who die outside the facilities but whose deaths were precipitated by their time in detention are not included in the mortality rates. There is debate about the appropriate standard of care that should be provided to aliens in detention. Many U.S. citizens lack health insurance and face barriers in accessing health care, and there are issues of patient safety in many medical settings, not just in correctional facilities. In addition, a proportion of aliens are in detention who are not authorized to be in the country. The cost of care for aliens in detention is paid by the American taxpayer. Reportedly, the health care provided to detained aliens tends to be similar to that provided to those in criminal incarceration. According to a press report, ICE has argued that some aliens are getting better health care in detention than they would in their home countries and that they had received earlier in their lives. Assistant Secretary of ICE, Julie Myers testified that in FY2007, 34% of detainees screened were diagnosed with and treated for preexisting chronic conditions (e.g., hypertension, diabetes), and many of these detainees would not have known of their medical condition or received treatment if it were not for the comprehensive health screening they obtained when entering the detention system. In addition, some health care decisions need to be made with the consideration that the alien is going to be removed to a country where he or she may not be able to get any follow-up care. Some contend that despite ICE's acknowledgment of the substantial burden of chronic diseases among the detained population, the ICE health plan focuses on an acute care model, and is not crafted for a population with significant chronic medical or mental health needs. Some aliens in detention, especially long-term residents, do have health insurance but are unable to use it. Some further allege that officers frequently view ICE detainees as criminals, even when they do not have a criminal record, and as such are sometimes quick to assume that the detainees are faking their illnesses, and sometimes slow to get the aliens care. Appendix A. Detention Statistics On an average day, up to 33,000 immigration detainees are in ICE's custody in more than 300 facilities nationwide. The average stay is 37.5 days. In FY2007, a total of 311,213 aliens were detained by ICE. As of April 30, 2007, ICE reported that, cumulatively, 25% of all detained aliens were removed within four days, 50% within 18 days, 75% within 44 days, 90% within 85 days, 95% within 126 days, and 98% within 210 days (see Table A -1 ). For FY2006, approximately 48% of the aliens in detention were criminal aliens. As Figure A -1 shows, the average daily detained population increased between FY2003 and FY2004 and then decreased between FY2004 and FY2006. The daily average detained population increased significantly between FY2006 and FY2007, from 20,594 to 30,295 detainees. As of December 31, 2007, the average daily detention population for FY2008 was larger than the FY2007 average daily population. For FY2008, as of December 31, 2007, the average daily detained population was 31,244. As illustrated in Figure A -1 , the total number of aliens detained by ICE during the fiscal year was fairly consistent between FY2003 and FY2005, and then increased in both FY2006 and FY2007. In FY2007, ICE detained 79,713 (34%) more noncitizens than in FY2003. Some of the increase in the total annual detention population was due to the expansion of expedited removal. Aliens in expedited removal are mandatorily detained but tend to be in detention for shorter periods of time than other aliens because they are not entitled to the same judicial review as aliens who are not subject to expedited removal (i.e., who are in removal proceedings under INA §241). Appendix B. Legislation in the 110 th Congress The Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009 ( P.L. 110 - 329 ) appropriated $2 million for the Office of Professional Responsibility to undertake an immediate comprehensive review of the medical care provided to ICE detainees. The Act also directed ICE to immediately implement the Government Accountability Office's recommendation to improve medical services. The Detainee Basic Medical Care Act of 2008, H.R. 5950 , was introduced by Representative Zoe Lofgren on May 1, 2008. The companion bill, S. 3005 , was introduced by Senator Robert Menendez on May 12, 2008. The bills would have required the Secretary of Homeland Security (DHS) to establish procedures for the timely and effective delivery of medical and mental health care to immigration detainees, designed to ensure continuity of care throughout the alien's detention. The procedures would have been required to address all health needs, including but not limited to primary care, emergency care, prenatal care, dental care, eye care, and mental health care. The procedures would have to have been designed to ensure that each detainee received a comprehensive medical and mental health screening upon intake; each detainee received a comprehensive medical and mental health examination and assessment within 14 days after arrival at the detention facility; each detainee taking prescribed medications was allowed to continue taking such medications on schedule and without interruption; and each detainee with a serious medical or mental condition, subject to immigration laws, been given priority consideration for release on parole, bond, or an alternative to detention program. The procedures would also have been required to ensure that medical records are accessible by the detainee or his or her designate, and were transferred if the detainee was moved to another detention facility. Also, H.R. 5950 / S. 3005 would have required the procedures to include "discharge planning" for aliens with serious medical or mental health conditions to ensure continuity of care, for a reasonable period of time, upon removal or release from detention. The bills would also have required the Secretary of DHS to establish an administrative appeals process for denials of medical or mental health care. The process would have included the opportunity to appeal the denial of services to an impartial board. H.R. 5950 / S. 3005 would have required that the Secretary report to the Inspector Generals of the Departments of Homeland Security and Justice information regarding a detainee's death no later than 48 hours after the death of the detainee. The bills would have also require an annual report to Congress detailing any detainee deaths during the previous fiscal year. | Congressional hearings and press coverage critical of the medical care received by those in the custody of the Department of Homeland Security's (DHS's) Immigration and Customs Enforcement (ICE) have raised interest in the subject. The law provides broad authority to detain aliens while awaiting a determination of whether they should be removed from the United States and mandates that certain categories of aliens are subject to mandatory detention by DHS. Aliens not subject to mandatory detention may be detained, paroled, or released on bond. The medical care required to be provided to aliens detained in ICE custody is outlined in ICE's National Detention Standards, which address standards for medical care; hunger strikes; suicide prevention and intervention; and terminal illness, advanced directives, and death. According to ICE's Detention Standards, "All detainees shall have access to medical services that promote detainee health and general well-being." In addition, every facility has to provide detainees with initial medical screening, "cost-effective" primary medical care, and emergency care. The Division of Immigrant Health Services (DIHS), which is detailed indefinitely from the U.S. Public Health Service to ICE, is responsible for the health care of noncitizens detained by ICE. In some detention facilities, DIHS provides all medical care; in others, DIHS is responsible only for approving medical services that are not provided by the detention facility. ICE has established a covered benefits package that delineates the health care services available to detainees in ICE custody. Detainees who require non-emergency medical care beyond that which can be provided at the detention facilities must submit a Treatment Authorization Request (TAR) to the DIHS Managed Care Program. TARs are reviewed by DIHS nurses in Washington, DC, who review the paperwork submitted by physicians and decide whether to allow the treatment. There have been press reports and congressional testimony of individuals in ICE custody who apparently received inadequate medical care. In addition, problems with access to medical care is one of the chief complaints of aliens in detention. However, others state that immigration detainees may receive better health care than some U.S. citizens, and assert that the death rate in ICE custody is lower than that of the prison and general populations. Overall, there seem to be two major policy questions: (1) do the Detention Standards and the covered benefits package allow for the provision of adequate services to the detained populations; and (2) are the procedures and standards for the provision of medical care being followed? The report does not investigate the veracity of claims of substandard medical care made in the press, or ICE's rebuttals of such claims. This report will be updated to reflect legislative activity. |
Key issues facing U.S. policy makers and members of Congress when considering U.S. security assistance in the context of U.S. policy toward Lebanon include: Assessing the effectiveness of U.S. assistance programs —Identifying the most urgent capabilities that are still lacking among the LAF and ISF and deciding whether to tailor pending assistance programs to create or improve them. Understanding the key political and organizational obstacles to the further expansion or improvement of Lebanon's security forces and developing strategies to overcome them. Assessing overall U.S. policy toward Lebanon —Prioritizing U.S. policy objectives in Lebanon including building state institutions, countering Sunni extremism, deterring Hezbollah, securing Lebanon's borders, limiting the influence of external actors on Lebanon's domestic political process, and mitigating the risk of instability in the Levant. Managing relations with other external actors —Preventing destabilizing actions by regional parties that could renew conflict. Limiting the threats against U.S. allies in the region, particularly Israel. Recognizing and seizing opportunities for the United States and its allies to influence the decisions of regional actors in support of U.S. objectives in Lebanon and the Levant. In 2005, after the Cedar Revolution in Lebanon prompted Syria to withdraw its occupation force and brought an anti-Syrian, pro-Western government to power, the United States increased its assistance to Lebanon. After the 2006 war between Israel and Hezbollah, the United States refocused its policy toward building state institutions including the Lebanese Armed Forces (LAF) and the Internal Security Forces (ISF) to enable them to fulfill the principals of U.N. Security Council resolutions. To that end, the Bush Administration requested and Congress appropriated an expanded amount of security assistance to the LAF and ISF. The Obama Administration and some members of the 111th Congress have supported the continuation of this program. They hope that continued support will help secure Lebanon's borders against smuggling and, in particular, against the flow of weapons to Hezbollah and other non-state actors. Over the long term, U.S. officials hope that building the security apparatus of the Lebanese state will improve internal stability and public confidence in the LAF and ISF, creating political space for the Lebanese government to address more complex, politically sensitive issues ranging from political reform to developing a national defense strategy. The Bush Administration's 2006 request for increased U.S. security assistance to Lebanon marked the third time in the last 25 years that the United States sought to expand military cooperation with the Lebanese government. In the early 1980s, the United States provided between $145 and $190 million in grants and loans to the LAF, primarily for training and equipment during the civil war. In the early 1990s, at the end of Lebanon's civil war, the United States again provided military aid in the form of non-lethal equipment (such as armored personnel carriers and transport helicopters) through the U.S. Department of Defense's sale of Excess Defense Articles (EDA). For the first time since 1984, President Bush requested Foreign Military Financing (FMF) grants to Lebanon in the FY2006 foreign affairs budget. Originally, his administration sought approximately $1.0 million in FMF for FY2006 and $4.8 million for FY2007 to help modernize the small and poorly equipped LAF following Syria's withdrawal of its 15,000-person occupation force in 2005. Then, the summer 2006 war between Israel and Hezbollah spurred Western donors to increase their assistance to the LAF. Drawing from multiple budget accounts, the Bush Administration ultimately reprogrammed an estimated $42 million to provide spare parts, technical training, and new equipment for the LAF. The FY2007 Emergency Supplemental Appropriations Act ( P.L. 110-28 ) included over $220 million in FMF for Lebanon, a significant increase from the previous year. The request also included $60 million in International Narcotics Control and Law Enforcement assistance (INCLE) to train and equip Lebanon's ISF. In addition, Section 1206 assistance to Lebanon increased in FY2007 to $30.6 million from the FY2006 level of $10.6 million (See " U.S. Defense Department-Administered Programs " below). According to the U.S. State Department, U.S. security assistance would: promote Lebanese control over southern Lebanon and Palestinian refugee camps to prevent them from being used as bases to attack Israel. The U.S. government's active military-to-military programs enhance the professionalism of the Lebanese Armed Forces, reinforcing the concept of Lebanese civilian control. To foster peace and security, the United States intends to build upon welcome and unprecedented Lebanese calls to control the influx of weapons. The Obama Administration has continued to support the long-standing goals of independence and stability for Lebanon through assistance to the LAF and ISF in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ) and in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ). The FY2011 request also reflects this commitment. The mandate of the LAF includes defending Lebanon and its citizens against external aggression, maintaining internal stability and security, confronting threats against the country's vital interests, engaging in social development activities, and undertaking relief operations in coordination with public and humanitarian institutions. U.S. assistance to the LAF is based on a 5-year (2010-2014), $1.1 billion plan to modernize and equip it. To professionalize the LAF, the U.S. government will continue a comprehensive training program designed to provide basic and advanced skills to the LAF and to shape it into a leaner, more efficient force. FMF is the largest program through which the United States supports the LAF. According to the State Department, FMF supports LAF implementation of U.N. Security Council Resolution 1701 which, among other things, calls for the establishment of a weapons-free zone south of the Litani River and an end to weapons smuggling across the Lebanon-Syria border. Another primary objective of FMF is to support the Lebanese government in its fight against terrorist groups. Since 2006, FMF has been used to provide tires for tactical vehicles, spare parts for helicopters, small arms, small arms ammunition, and to improve the LAF's communications system. FY2009 funds were used to deliver more sophisticated equipment to the LAF. In April 2009, one Cessna Caravan armed with Hellfire missile was provided to the LAF to bolster close air support and surveillance capabilities. The LAF has requested two additional Caravans. Twelve Raven tactical unmanned aerial vehicles (UAVs) were delivered to the LAF in May 2009 and are currently being used to deter rocket launches from south Lebanon and monitor areas of militant activity. Ten M60 tanks also arrived in May 2009 via a third-party transfer from Jordan. The tanks are intended to fill a gap in the LAF's fire support capabilities, with a plan to upgrade and transfer an additional 56 tanks once donor support is solicited. The LAF has only recently acquired limited secure communications capability and is attempting to gradually expand this capability to all sectors and levels of the LAF. The LAF currently relies on obsolete systems for radio communications between its headquarters and units in the field. The tactical units of the LAF do not have communications systems compatible with other agencies of the government and the lack of reliable capability and interoperability with other governmental agencies drives most commanders and staff officers to use land line or cell phones as their primary means of communication. The purchase of new tactical communications equipment is intended to address these shortfalls. After two years of preparation, FY2009 supplemental funds will allow the launch of a CENTCOM-directed comprehensive training program that over the course of several years will provide basic and advanced skills, streamline the LAF hierarchy, and serve as an important first step toward comprehensive security sector reform in Lebanon. Supplemental funding will also fund trainers, basic training equipment, and supplies to support the program. The FY2010 FMF spending plan, as submitted to Congress, includes $10 million for sustainment and repair of current equipment, $14 million for acquisition of air, ground, and naval systems, $36 million for personal equipment, weapons, and ammunition and $40 million for close air support. The plan includes light attack/armed reconnaissance aircraft (LAAR) that, according to the Defense Department, "will provide the LAF with the capabilities to perform border security aerial surveillance and target acquisition." This platform will be able to carry light support weapons and capable of independent finding, fixing, tracking, and engaging targets. The International Military and Education Training (IMET) program funds military education and training activities on a grant basis to foreign military and civilian officials from allied and friendly nations. According to the Defense Security Cooperation Agency, IMET training in Lebanon is designed to reduce sectarianism in the LAF and develop the force as a unifying national institution. U.S. Professional Military Education (PME) courses help foster one-on-one relationships with U.S. counterparts to improve interoperability, access, coordination, cultural sensitivity, and mutual understanding. In 2005, Congress provided the Department of Defense (DOD) with authority and funds for a major DOD-run train and equip program. Established by Section 1206 of the National Defense Authorization Act ( P.L. 109-163 , adopted January 6, 2006) as a pilot program, this authority allows DOD to transfer funds to partner governments to train and equip foreign militaries. According to the Department of Defense, traditional security assistance can take three to four years from conception to execution. Section 1206 responds to urgent and emergent threats and opportunities in six months or less. In Lebanon, Section 1206 funds have been used to move rapidly vehicle spare parts, ammunition, and other basic supplies to the LAF. In particular, equipment provided under Section 1206 was used to restock the LAF arsenal with basic ammunition after the 2007 siege at Nahr al Bared Palestinian refugee camp and, more recently, to begin to build the LAF's first secure communication system. The Internal Security Forces (ISF) is the primary police agency in Lebanon and is responsible for law enforcement, physical security, crime prevention, and investigations. Much like the LAF, the ISF was neglected under Syrian occupation. In 2007, the Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL) launched an assistance program for the ISF to address these weaknesses. The program is funded through a combination of Section 1207 and INCLE accounts. Specifically, the program is designed to increase the operational capacity of the force to combat crime, prevent and respond to terror attacks, monitor Lebanon's borders, and combat the infiltration of weapons and terrorists into Lebanon as called for in United Nations Security Council resolutions 1559 and 1701. There are four primary components of INL support to the ISF: training, equipment and vehicles, community policing assistance, and communications. As of August 2010, INL has trained more than 4,300 ISF police, including 260 ISF trainers and more than 200 supervisors, in its 10 week basic training and other advanced courses. Additional specialized training has been provided in narcotics investigation, Intellectual Property Rights (IPR) protection, and executive leadership. INL funds are also used to refurbish ISF training facilities. INL has provided non-lethal equipment including 4000 sets of basic duty gear, 3000 sets of riot control gear, 480 police cars, 60 police SUVs, 35 handheld radios, 20 computers, 20 new and 24 repaired Harley Davidson motorcycles, and refurbished 21 Armored Personnel Vehicles. To prepare the ISF for a new security role in the Nahr al Bared refugee camp, INL began an extensive community policing training and assistance program in FY2010. Assistance includes training of ISF officers who will serve in the camp and assistance to support the adoption of a community policing strategy. INL has also begun construction of an ISF police station near the camp. INL is developing a program to provide a secure, nationwide command, control and communications system for the ISF. The program will be funded with FY2011 funds. U.S. assistance to the LAF and ISF has improved the capability of those forces to provide for Lebanon's internal security needs (See " Recent LAF Accomplishments " and " Recent ISF Accomplishments " below), but broader political questions are unanswered about the purpose and potential limits of U.S. assistance. Some Lebanese leaders continue to question the appropriateness of U.S. and other international security assistance and characterize LAF/ISF cooperation with external parties as an infringement on Lebanese sovereignty. Statements from Lebanese leaders across the political spectrum suggest that most perceive Israel to be the primary external threat to Lebanon's security, even as some who hold this view simultaneously argue that Hezbollah's weapons and Syrian and Iranian support for Hezbollah are significant if not comparable transnational threats. To the extent that U.S. security assistance is limited to training and items designed to improve Lebanese government capability to contain and potentially disarm Hezbollah and other internal threats, they may become incompatible with the evolving threat perceptions and political intentions of Lebanon's political leadership. Events continue to suggest that Lebanese leaders are prepared to seek security assistance and weapons from non-U.S. sources to meet their perceived needs. On August 3, 2010, the LAF opened fire on an Israeli Defense Force (IDF) unit engaged in routine brush-clearing maintenance along the Blue Line, alleging that it had crossed over into Lebanese territory. Two Lebanese soldiers, a journalist, and an Israeli officer were killed in the confrontation. Soon after the incident, UNIFIL issued a report confirming that the IDF had not been in Lebanese territory. Although incidents along the Blue Line are not uncommon, UNIFIL called this incident the "most serious" along the Israeli-Lebanese border since 2006. In response, Representative Nita Lowey, chair of the State Foreign Operations Subcommittee of the House Committee on Appropriations placed a hold on the FY2010 $100 million FMF appropriation for Lebanon citing the need to "determine whether equipment that the United States provided to the Lebanese Armed Forces was used against our ally, Israel." Prior to the incident on August 3, Representative Howard Berman, chair of the House Foreign Affairs Committee, also placed a hold on the FY2010 assistance, pending a better understanding from the State Department about the strategy for U.S. assistance to Lebanon and assurances that the LAF is a responsible actor. Other members also publicly expressed concerns. The hold was lifted in November 2010 after congressional consultations with the State Department. It is unclear how current concerns will impact congressional consideration of the Administration's FY2011 request for Lebanon. U.S. State Department and Defense Department officials praise both the LAF and ISF for their performance and laud both forces' End-Use Monitoring (EUM) record, but larger questions remain about long-term strategy and the overall effectiveness of U.S. assistance in meeting challenging U.S. policy objectives. LAF Ranger Regiment and Marine Commandos secured downtown Beirut during the February 14 commemoration of the 5 th anniversary of the assassination of former Prime Minister Rafiq Hariri. In January and February 2010, LAF Marine Commandoes responded to the crash of Ethiopian Airlines flight ET 409, recovering 80 victims in addition to the black box flight recorder. In July 2009, the LAF arrested a Syrian citizen trying to smuggle out of Lebanon several people wanted in connection to attacks against the LAF in Tripoli. In June 2009, the LAF thwarted an attempt to drive a vehicle-borne improvised explosive device into the Ayn al Hilweh refugee camp in Sidon. A Fatah al Islam member was arrested in connection with the incident. In April 2009, in response to an ambush of the 8 th Brigade, the Ranger Regiment conducted operations in the Bekaa Valley from Riyak Airbase north to the Syrian border, which resulted in the arrest of numerous wanted men, in addition to the seizure and destruction of illicit crops. The Lebanese government complies with end-use, security, and retransfer obligations concerning military equipment and training. Equipment and training are subject to regular EUM by the U.S. Embassy's Office of Defense Cooperation (ODC), including visual inspections of LAF depots, serial number checks for equipment, and close monitoring of in-country, U.S.-sponsored training. According the Department of State, the Lebanese government has readily agreed to extensive EUM procedures at the request of the U.S. government for sensitive equipment such as night vision devices and sniper rifles. According to the State Department, the government of Lebanon is a "model" in end-use monitoring cooperation. Candidates for U.S.-sponsored training are subject to the vetting process for human rights abuses specified in the Foreign Assistance Act of 1961. Recent ISF accomplishments include: Public confidence in the ISF as a non-sectarian institution committed to a united, stable Lebanon increased by 17% from 2008 to 2009. Unlike the LAF, the ISF has not historically had the reputation as a cross-sectarian, national institution. The ISF has expanded its area of operation in the traditionally Hezbollah-controlled areas of South Beirut and the Bekaa Valley. During the June, 2009 elections, the ISF helped maintain security in Lebanon and facilitated a safe and secure election environment. End use monitoring of INL provided equipment shows that the equipment is being properly used and maintained by the ISF. INL requires EUM agreements for all equipment delivered and facilities refurbished under the INCLE program. Monitoring is conducted by U.S. Embassy Beirut. All information is compiled into INL's annual end-use monitoring report which includes information on location, use, condition, and program impact of the equipment provided. The reports also contain information on any problems encountered during the monitoring period and any program changes implemented. INL secures relevant binding commitments from the government of Lebanon through Letters of Agreement, setting forth extensive end-use, retransfer, and human rights related commitments, which the Lebanese government undertakes as a condition for receiving assistance. All ISF candidates selected for U.S. sponsored training are first vetted for human rights abuses as specified in the Foreign Assistance Act of 1961 as well as for connections to Foreign Terrorist Organizations (FTOs) through a process coordinated by the Terrorist Screening Center. Current U.S. policy toward Lebanon and U.S. assistance to the LAF has been built around the implementation of United Nations Security Council resolutions, particularly UNSCR 1701, adopted on August 11, 2006. Section 14 and other language in the resolution that bans the delivery of weapons to "any entity or individual" in Lebanon, except the Lebanese Army, have been interpreted as a call for Hezbollah to disarm and a mandate for the Lebanese government to prevent the flow of weapons to Hezbollah. Over the long term, U.S. officials hope that building the security apparatus of the Lebanese state will improve internal stability and public confidence in the LAF and ISF, creating political space for the Lebanese government to address more complex, politically-sensitive issues ranging from political reform to developing a national defense strategy. Advocates of U.S. assistance to the LAF/ISF have argued that rooting out Sunni extremism, like in the case of Nahr al Bared, along with other advancements in counterterrorism and counternarcotics are important measures of success for assistance programs. They also argue that assistance to the LAF and ISF is symbolic as well as functional; it demonstrates the U.S. commitment to the Lebanon and to and countering the influence of Iran and Syria. Some of these advocates also argue that cutting off U.S. assistance would do greater harm to U.S. interests and greater harm to Israel's security, since it would allow Syria and Iran to fill the vacuum left by the United States. The skirmish between the LAF and IDF on August 3, 2010 raised fundamental questions about U.S. strategy in Lebanon. On one hand, the United States is committed to building state institutions in Lebanon, including enabling the LAF to extend its control over all areas of the state and take up the mantle of national defense from Hezbollah, which has historically claimed it. The LAF's willingness to engage the Israeli Defense Forces (IDF) indicates that it is assuming more responsibility along its shared border with Israel but also exposes what critics have identified as an inherent tension in current U.S. policy—the U.S. aims to build a force strong enough to provide national defense for Lebanon, but the LAF, and arguably most Lebanese, view Israel as the greatest potential threat to Lebanese sovereignty. The LAF enjoys a positive image among a wide spectrum of Lebanese citizens. Observers say that most Lebanese, regardless of their affiliation, perceive the army as defending the country against foreign elements, particularly Israel. Many Lebanese view the LAF as the only national institution left in the country. While the United States and other members of the international community have trained and equipped the LAF, the Lebanese government has worked to define the role of the LAF and other militias through a series of discussions on national defense policy known as the National Dialogue. Following the 2006 war between Hezbollah and Israel, and the months of political gridlock that followed, Hezbollah claimed victory over Israel, and gained popular support through its relief and reconstruction efforts following the war. If a goal of U.S. policy is to increase the capacity of the LAF to such a size that it could compel Hezbollah to give up its weapons, then the LAF would first need to pass the political test of convincing the Lebanese that it could credibly defend the country against regional threats. This political reality raises questions about whether U.S. security assistance to the LAF is consistent with expressed U.S. policy goals, and whether U.S. policy fully considers the political position of the Lebanese and their elected leaders on issues of national defense. U.S. policy toward Lebanon has been further complicated by the fact that Lebanon's political process is now intensely focused on Hezbollah's future role in the country's political system and security sector. Hezbollah politicians won 10 seats out of 128 in parliament in the 2009 national elections, and Hezbollah currently controls the Agriculture and Administrative Reform ministries within Lebanon's cabinet. This reality has called into question how Hezbollah's growing influence in the Lebanese government does or does not extend its influence in the day-to-day operation of government institutions, including the LAF. Some critics of U.S. assistance, including the American Israel Public Affairs Committee (AIPAC), have alleged that the LAF and even UNIFIL have "allowed" Hezbollah to restock its arsenal since 2006 in violation of 1701. These same critics also might argue that the LAF and Hezbollah are, to a certain degree, natural allies, bound by a common threat perception and a regional outlook that is not shared by the United States. Recently, Israeli media sources reported that Israel was launching a campaign to end U.S. support for the LAF. Israel has, at times, opposed the transfer of certain equipment and weapons to the LAF based on concerns that the equipment could fall into the hands of Hezbollah or adversely affect its Qualitative Military Edge (QME). U.S. officials have repeatedly expressed their commitment to Israel's QME when discussing U.S. assistance to the LAF. U.S. officials have repeatedly stated that U.S. assistance to the LAF is not intended to enable the force to militarily confront Hezbollah. Rather, U.S. assistance to the LAF and ISF are part of a larger assistance package designed to strengthen the government in an effort to create the political space necessary for Lebanon to address the question of Hezbollah's weapons in the context of a national defense strategy. At present, however, clear solutions to the challenges that Hezbollah poses to the governments of Lebanon, Israel, and the United States are not evident. Administration reports state that Hezbollah has rearmed and expanded its arsenal in defiance of United Nations Security Council resolutions and in spite of international efforts to prevent the smuggling of weaponry from Iran and Syria into Lebanon. Lebanese border and maritime security capabilities remain nascent, and longstanding political conflicts continue to prevent the clear delineation of boundaries between Lebanon, Syria, and Israel. Administration reports state that Iran continues to provide Hezbollah with weapons, training, and financing, thereby sustaining the organization's ability to field an effective military force that threatens Israel's security and the sovereignty of the Lebanese government. Hezbollah's electoral success in the 2009 national elections and its seats in Lebanon's cabinet complicate U.S. and other international efforts to engage with Beirut on security issues and a number of key reform questions. Lebanon's domestic political environment remains fractured by sectarian and political rivalries and its leaders remain at an impasse with regard to the overarching questions of the country's security needs and the future of Hezbollah's weapons. | The United States has provided security assistance to Lebanon in various forms since the 1980s, and the program has expanded considerably in recent years. Since fiscal year 2007, the United States has provided more than $700 million in security assistance to the Lebanese Armed Forces (LAF) and Internal Security Forces (ISF) to equip those forces to combat terrorism and secure Lebanon's borders against weapons smuggling to Hezbollah and other armed groups. U.S. security assistance is part of a broader assistance program designed to foster a stable, independent Lebanese government. Primary components of the assistance program include: More than $490 million in Foreign Military Financing (FMF) designed to support the LAF's implementation of United Nations Security Council resolutions. More than $6 million in International Military and Education Training (IMET) training to reduce sectarianism in the LAF and develop the force as a unifying national institution. More than $117 million in Section 1206 funds to move rapidly vehicle spare parts, ammunition, and other basic supplies to the LAF. More than $100 million in support for the ISF for training, equipment and vehicles, community policing assistance, and communications. In 2005, after the Cedar Revolution in Lebanon prompted Syria to withdraw its occupation force and brought an anti-Syrian, pro-Western government to power, the United States increased its assistance to Lebanon. After the 2006 war between Israel and Hezbollah, the United States refocused its policy toward building state security forces to enable them to assert control over the entire territory of the country and implement U.N. Security Council resolutions. To that end, the Bush Administration requested and Congress appropriated an expanded program of security assistance. The Obama Administration has maintained this commitment, requesting for FY2011 more than $132 million for the LAF and ISF. For Congress, there are broader political questions about the purpose and potential limits of U.S. assistance to Lebanon. Some lawmakers are concerned that U.S.-provided equipment will be channeled to Hezbollah, while others suggest that it could be used by the LAF against Israel. At the same time, U.S. leaders and some members of Congress have questioned whether U.S. policy fully considers the political position of the Lebanese and their elected leaders on issues of national defense. On August 3, 2010, the LAF opened fire on an Israeli Defense Force (IDF) unit engaged in routine maintenance along the Blue Line, alleging that it had crossed into Lebanese territory. Two Lebanese soldiers, a journalist, and an Israeli officer were killed. In response, Representative Nita Lowey placed a hold on the FY2010 $100 million FMF appropriation for Lebanon citing the need to "determine whether equipment that the United States provided to the Lebanese Armed Forces was used against our ally, Israel." The hold was lifted in November after consultations with the State Department. On January 13, 2011, Hezbollah and its opposition allies withdrew from the Lebanese government, forcing its collapse. It is unclear how these developments will impact congressional consideration of the Administration's FY2011 request for Lebanon. See also CRS Report R40054, Lebanon: Background and U.S. Relations, by [author name scrubbed]. |
97-291 -- NAFTA: Related Environmental Issues and Initiatives Updated September 28, 2004 Environmental issues emerged early in NAFTA negotiations, and linkages between trade and environmental issues were reflected inthe outcome of these negotiations more so than in any previous trade talks. While not a new issue, the question ofwhether acountry's stricter environmental measures could be found to pose non-tariff trade barriers received an unprecedentedlevel of attentionduring the NAFTA debate. Additionally, the question was raised whether a country's weaker environmentalprotection measures ortheir ineffective enforcement would create a competitive advantage and provide an added incentive for businessesto relocateproduction to the least regulated country. A related concern was that expected NAFTA-driven industrialization andpopulation growthin the U.S.-Mexico border region would worsen the severe pollution problems already present. Although tradeofficials argued thatenvironment was not a customary trade matter and that NAFTA talks were not the best forum for resolving theseissues, the level ofconcern over environmental issues in Congress prompted NAFTA negotiators to respond to them. Ultimately, the NAFTA parties included language to conditionally protect a party's stricter environmental,health, and safetystandards for products and produce (provided that, among other things, such measures are scientifically based). NAFTA also includeshortatory language to discourage parties from lowering standards to encourage investment. Other NAFTA provisionsencourageupward harmonization of standards and encourage parties to integrate environmental protection and sustainabledevelopment intoeconomic decision-making. NAFTA's standards provisions do not affect a country's ability to determine its levelsof environmentalprotection for manufacturing and other process standards (such as water pollution controls and resource harvestingpractices). NAFTA set a precedent in addressing its relationship to multilateral environmental agreements (MEAs). It identifies threetrade-related MEAs that may take precedence over NAFTA if implementation conflicts arise, provided that the MEAis implementedin the least NAFTA-inconsistent manner. The listed agreements include the Montreal Protocol on Substances thatDeplete the OzoneLayer; the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal;and theConvention on International Trade in Endangered Species. U.S.-Mexico and U.S.-Canada bilateral waste-tradeagreements also areincluded, and the parties may agree to add others. Despite the inclusion of the above provisions, some in Congress remained concerned that NAFTA's effect on environmental lawscould be unpredictable. For example, an issue during the debate on renewing trade promotion authority concernedthe effect thatNAFTA may have on state and federal environmental laws, because some investors have challenged environmentalmeasures asconstituting a form of expropriation for purposes of the NAFTA investment chapter. These provisions allowcompanies to challenge,and potentially be compensated for, governmental measures that are viewed as harming their investments. At least20 cases have beenfiled, including 6 against the United States, one of which involves California's ban on methyl tertiary butyl ether(MTBE) in gasoline. Environmental concerns persisted after completion of the NAFTA text. To facilitate NAFTA passage, two related agreements werenegotiated, which are discussed below. A matter not addressed in the NAFTA text was whether lax enforcement of environmental laws in Mexico would provide an addedincentive for U.S. industries to relocate, and thus increase U.S. job losses, and increase border-area pollution. Manyin Congresscalled for side agreements that included an enforcement mechanism to address failures to enforce environmental(and labor) laws.Opponents of a side agreement argued that NAFTA-related economic growth would increase Mexico's resourcesavailable forenvironmental protection, and that NAFTA would increase environmental cooperation in North America.Nonetheless, congressionalsupport for NAFTA remained uncertain. In 1993, the three NAFTA governments adopted the North American Agreement on Environmental Cooperation(NAAEC), whichincludes dispute settlement provisions to address a party's failure to enforce environmental laws. The side accord'sobjectives cover arange of goals, including avoiding the creation of trade distortions or new trade barriers; enhancing compliance with,and enforcementof, environmental laws and regulations; and fostering environmental protection and pollution prevention. The side agreement created the North American Commission for Environmental Cooperation (NACEC) which includes a Council, aJoint Advisory Committee, and an independent Secretariat. The Council consists of cabinet-level representativesof the parties and haskey responsibilities regarding the side agreement's dispute settlement provisions. The Joint Advisory Committeeadvises the Counciland is comprised of nongovernmental groups. The Secretariat's duties include preparing reports and serving as apoint of inquiry forpublic concerns about NAFTA's possible environmental effects. The NACEC's major goal is to broadenenvironmental cooperationamong the parties. It provides a forum for the parties to consider ways to address environmental issues, and providesan avenue fordispute settlement panels to obtain environmental expertise. Perhaps most notable is the side agreement's dispute settlement process that, as a last resort, may impose monetary assessments andsanctions to address a party's failure to enforce its environmental laws. To invoke the dispute settlement process,a complaint mustconcern a party's persistent, systematic failure to enforce its laws, and the alleged failure must be trade-related orinvolve competinggoods or services. Only the NAFTA parties can initiate a NAAEC dispute settlement proceeding, and none havedone so. However,the Secretariat may consider a submission from any person or nongovernmental organization asserting that a partyis failing to enforceits environmental law, and may request that party to respond. The Secretariat may prepare a factual record andsubmit it to the Councilfor its consideration. Since 1995, 47 citizen submissions have been filed, and 9 factual records have been finalizedand made publiclyavailable. Throughout the NAFTA debate, many proponents and opponents noted the need to identify funding sources for financingenvironmental improvements in the border area. Much of the pollution there had been attributed to the effects ofunregulatedindustrial development and related population growth associated with Mexico's maquiladora program, and bothgovernmentsanticipated that NAFTA could further concentrate economic activity in the border region, and that existingenvironmental conditionswould worsen without a binational effort to address infrastructure needs. The Administration estimated that $8billion would berequired to address needs for sewage treatment, drinking water, and municipal solid waste infrastructure projectsalong the borderover the next decade and that NAFTA-related industrialization would create additional needs. (1) For many in Congress, support forNAFTA was partially contingent on the identification of a mechanism for financing border environmental projects. In October 1993, the United States and Mexico agreed to a new institutional structure to promote borderenvironmental cleanup. TheBorder Environmental Cooperation Agreement authorized the establishment of the North American Development Bank (NADB) andthe Border Environment Cooperation Commission (BECC) to assist bordercommunities in financing environmental infrastructureprojects. The agreement noted the need for environmental infrastructure, especially in the areas of water pollution,wastewatertreatment, and municipal solid waste. The BECC is directed to help border states and communities coordinate, design, and mobilize financing for environmentalinfrastructure projects, and to certify projects for financing. The NADB evaluates the financial feasibility ofBECC-certified projectsand provides financing as appropriate. Public involvement is fostered through representation on the BECC Boardof Directors andAdvisory Council, and through a public comment process on proposed projects. The NADB was designed to generate between $2 billion and $3 billion in loans or guarantees for financing environmental projects oneither side of the border. (Ten percent of the NADB's resources may be used for NAFTA-related communityadjustment andinvestment projects.) To leverage financing, the United States and Mexico each contributed $225 million over fouryears, for a total of$450 million in paid-in capital. The NADB is authorized to make only market-rate loans, however, and this hasbeen a major obstacleto the Bank's ability to finance projects in low-income border communities. Despite the creation of the NADB to provide financing for border environmental infrastructure projects, grants from theEnvironmental Protection Agency (EPA) have accounted for the vast majority of funding provided through theBank. In 1997, theNADB entered into an agreement with EPA, under which EPA contributes much of its annual border infrastructureappropriation tothe Border Environment Infrastructure Fund (BEIF). (Over the past decade, Congress regularly has provided EPAwith $75 million or$50 million each year for border water and wastewater projects.) The NADB established the BEIF to use EPA grantresources fordrinking water and wastewater projects to make the projects affordable for border communities. The NADBdevelops financingpackages using its loan and guaranty programs, EPA grants, and other sources. EPA grant funds may be used forBECC-approvedprojects on either side of the border. As of June 30, 2004, the NADB had approved 22 loans worth a total of $97.1 million, and had fully disbursed 9 loans. Overall, theNADB had authorized $662.4 million in grants and/or loans to partially finance 80 infrastructure projects estimatedto cost a total of$2.26 billion. In addition to the 22 loans, this assistance included $490 million in EPA grants that had beencommitted for 52 waterand wastewater projects. (2) Because of the low activity level of the NADB, and because most infrastructure funding for NADB projects has been providedthrough EPA grants rather than NADB financing, considerable interest emerged in recent years for reforming theNADB. Bothfederal governments, the border states, and other interested parties discussed possible reforms for these institutions,including changesin institutional structure, types of financial assistance provided, and types of projects eligible for assistance. In 2000, the NADB established a Low Interest Rate Lending Facility using part of its paid-in capital to provide lower-than-market rateloans to communities. In 2001, President Bush and President Fox directed a binational working group to developrecommendations tostrengthen the performance of the NADB and the BECC. In 2002, both Presidents accepted the working group'srecommendationsand directed their respective administrations to work with their legislatures to effectuate them. Therecommendations includemaintaining the focus on environmental infrastructure projects; giving the NADB more flexibility to make grantsandbelow-market-rate loans to finance projects; and expanding the geographic scope of BECC/NADB operations toinclude the area inMexico within 300 kilometers of the border. In August 2002, the NADB Board of Directors approved creation ofa WaterConservation Investment Fund to finance water conservation projects. As discussed below, H.R. 254 ( P.L.108-215 ),enacted in April 2004, authorizes several operational reforms to the NADB. Corresponding legislation was approved by the Mexicanlegislature in 2003. The NAFTA Implementation Act directed the President to report to Congress in 1997 on the effects of NAFTA and implementationof the side agreements. The resulting study concluded that it was premature to assess any environmental effects ofNAFTA anddifficult to determine whether further environmental degradation at the U.S.-Mexico border was due to NAFTA orother economicdevelopment and events. More recent studies have attributed increased border pollution and other environmentalimpacts to NAFTA,although the studies generally identify a number of other contributing factors. A March 2001 NAAEC study, North American Tradeand Transportation Corridors: Environmental Impacts and Mitigation, concluded that air pollution fromincreased freight traffic inNAFTA transportation corridors is significant and could double or quadruple by 2020. (3) Relatedly, the number of assembly factoriesin Mexico near the border grew from 2,114 in 1993 to 3,182 in 2003, while employment at these plants more thandoubled to 1.07million. (4) A report by EPA in 2000, Protectingthe Environment of the U.S.-Mexico Border Area, noted that the concentration ofindustry and people at the border was exacerbating pollution and health problems, and that many border citiesexpected to experienceserious water constraints by 2005. A NAAEC committee recently completed a ten-year review of the environmentalside agreement,and concluded that the NAAEC has facilitated trinational environmental cooperation and capacity building overall,and specificallyhas fostered environmental progress in Mexico. In the 107th Congress, the environment-related provisions of NAFTA and its side accord received attention during consideration oftrade promotion authority legislation and the U.S.-Jordan Free Trade Agreement (FTA); both adapted environmentalprovisions fromthe NAAEC and NAFTA. (5) Some in Congressexpressed particular concern regarding the effect that NAFTA-like investmentprovisions may have on domestic environmental protection efforts, because various investors have challengedenvironmentalmeasures as constituting a form of expropriation under the NAFTA investment chapter. (6) Also in the 107th Congress, the Housepassed H.R. 5400 to authorize changes in NADB and BECC operations, with a goal of increasing theseinstitutions'effectiveness. In the 108th Congress, efforts to reform the BECC and NADB continued, and in April 2004, the President signed into law P.L.108-215 ( H.R. 254 , H.Rept. 108-17 ). This law authorizes the President to agree to a change in the NADB'scharter topermit the Bank to make below-market-rate loans and a limited amount of grants in order to increase the numberof projects theseinstitutions support. It directs the U.S. members of the NADB board of directors generally to oppose projectproposals if grantsaccount for more than 50% of the project financing or if a project is not financed in part by loans. The law alsoauthorizes extendingthe operational area of the BECC/NADB on the Mexican side of the border from 100 kilometers to 300 kilometers.It requires anannual report to Congress, and includes a sense of the Congress relating to U.S. support for water conservationprojects. In otherlegislation, the conference report to H.R. 6 , the Energy Bill (Section 146) would amend NAFTAimplementinglegislation to direct U.S. NADB board members to encourage the Bank to finance infrastructure projects related toclean energy andenergy conservation. Interest in the 108th Congress also has continued regarding the implications of NAFTA and the NAAEC for new trade agreements.The U.S.-Chile and U.S.-Singapore FTAs both include an obligation for parties to enforce their environmental laws,and make thisobligation subject to dispute settlement procedures. Moreover, both agreements include environmental cooperationandcapacity-building provisions. The U.S.-Chile FTA further calls for parties to negotiate a U.S.-Chile EnvironmentalCooperationAgreement. The U.S.-Central America FTA (CAFTA), which the President has signed but which requiresimplementing legislation,includes similar provisions and also adapts the NAAEC provisions that allow citizens to file submissions concerninga party's failureto effectively enforce its environmental laws. While welcoming the heightened consideration of environmental matters since the NAFTA debate, some Members of Congress andenvironmental groups remain concerned that the provisions in the current TPA law and in recently negotiated tradeagreements maynot be sufficient to safeguard legitimate environmental measures from challenges, particularly those involvinginvestor-state disputes.Consequently, while the debate over whether environmental matters should be a part of trade negotiations generallyhas been settled,the debate over how to address such issues is likely to continue. The effect of the environment-related provisionsin recent U.S.bilateral trade agreements, and thus the shape of the debate, may become clearer with the ongoing implementationof NAFTA andsubsequent agreements that have incorporated NAFTA and NAAEC-like provisions. | The North American Free Trade Agreement (NAFTA) includes severalenvironment-related provisions, that while limited, were unprecedented for their inclusion in a trade agreement. However, furtherenvironmental (and labor) assurances were needed to secure passage of NAFTA, and ultimately, the negotiatingparties agreed to aside accord that promotes cooperation on environmental matters and includes provisions to address a party's failureto enforceenvironmental laws. Additionally, the United States and Mexico entered into the Border EnvironmentalCooperation Agreement(BECA), which authorized the establishment of the Border Environment Cooperation Commission (BECC) and theNorth AmericanDevelopment Bank (NADB) to help border communities finance environmental infrastructure projects. In the 108th Congress, NAFTA's environmental provisions and related institutions have continuedto receive attention. A key issuehas concerned the effectiveness of the NADB and the BECC, and especially the Bank's ability to finance projects.Enacted on April5, 2004, P.L. 108-215 (H.R. 254) authorizes several operational reforms to the NADB. Other issues involvetheenvironmental impact of NAFTA, and the effect that NAFTA and its environmental side agreement have had onthe negotiation ofother U.S. trade agreements, including the U.S.-Central America Free Trade Agreement (CAFTA) and U.S.-ChileFTA. This reportbriefly reviews NAFTA's environmental provisions, associated agreements, and related issues and congressionalactions. It will beupdated. |
Internet gambling is gambling on, or by means of, the Internet. It encompasses placing a bet online with a bookie, betting shop, or other gambling enterprise. It also encompasses wagering on a game played online. A few states ban Internet gambling per se. Most states, however, rely upon their generally applicable gambling laws. Gambling outlawed when conducted in person is ordinarily outlawed when conducted online. There are many federal gambling laws, most enacted to prevent unwelcome intrusions of interstate or international gambling into states where the activity in question has been outlawed. This is examination of principal federal criminal laws implicated by Internet gambling and of a few of the constitutional questions associated with their application. In very general terms, it is a federal crime (1) to use wire communications to place or receive bets or to transmit gambling information relating to sporting contests or events; (2) to conduct a gambling business in violation of state law; (3) to travel interstate or overseas, or to use any other facility of interstate or foreign commerce, to facilitate the operation of an illegal gambling business; (4) to conduct a gambling business and accept payment for illegal Internet gambling participation; (5) to systematically commit these crimes in order to acquire or operate a commercial enterprise; (6) to launder the proceeds of an illegal gambling business or to plow them back into the business; (7) to spend or deposit more than $10,000 of the proceeds of illegal gambling in any manner; or (8) to conspire with others, or to aid and abet them, in their violation of any of these federal laws. Commentators most often mention the Wire Act when discussing federal criminal laws that outlaw Internet gambling in one form or another. Early federal prosecutions of Internet gambling generally charged violations of the Wire Act. In fact, Cohen , perhaps the most widely known of federal Internet gambling prosecutions, involved the Wire Act conviction, upheld on appeal, of the operator of an offshore, online sports book. The courts have said that in order to prove a Wire Act violation, "the government must show that (1) 'the defendant regularly devoted time, attention and labor to betting or wagering for profit,' (2) the defendant used a wire communication facility: (a) to place bets or wagers on any sporting event or contest; or (b) to provide information to assist with the placing of bets or wagers on any sporting event or contest; or (c) to inform someone that he or she had won a bet or wager and was entitled to payment or credit, and (3) the transmission was made from one state to another state or foreign country." Offenders are subject to imprisonment for not more than two years and/or a fine of the greater of not more than twice the gain or loss associated with the offense or $250,000 (not more than $500,000 for organizations).They may also have their telephone service canceled at law enforcement request, and conduct that violates the Wire Act may help provide the basis for a prosecution under the money laundering statutes, the Travel Act, the Illegal Gambling Business Act, RICO, or the Unlawful Internet Gambling Enforcement Act. The Wire Act is addressed to those "engaged in the business of betting or wagering" and therefore apparently cannot be used to prosecute simple bettors. The government must prove that the defendant was aware of the fact he was using a wire facility to transmit a bet or gambling-related information; it need not prove that he knew that such use was unlawful. The courts have also rejected the contention that the prohibition applies only to those who transmit, concluding that "use for transmission" embraces both those who send and those who receive the transmission. As a practical matter, the Justice Department appears to have resolved the question of whether the section applies only to cases involving gambling on sporting events. The vast majority of prosecutions involve sports gambling, but cases involving other forms of gambling under the Wire Act are not unknown. One federal appellate panel concluded that the Wire Act applies only to sports gambling. A subsequent district court concluded that it applies to non-sports gambling as well. The Justice Department's Office of Legal Counsel, however, ultimately opined that "interstate transmissions of wire communications that do not relate to a 'sporting event or contest,' fall outside the reach of the Wire Act." An accomplice who aids and abets another in the commission of a federal crime may be treated as if he had committed the crime himself. The classic definition from Nye & Nissen explains that liability for aiding and abetting attaches when one "in some sort associates himself with the venture, participates in it as in something that he wishes to bring about, [and] seeks by his action to make it succeed." The Department of Justice advised the National Association of Broadcasters that its members risked prosecution for aiding and abetting when they provided advertising for the online gambling operations. In addition to such accomplice liability, a conspirator who contrives with another for the commission of a federal crime is likewise liable for conspiracy, any completed underlying crime, and for any additional, foreseeable offense committed by a confederate in furtherance of the common scheme. A complication in construction of the Wire Act arises in the context of horse racing. There are some suggestions that the Wire Act was amended sub silentio by an appropriations rider rewording a provision in the civil Interstate Horseracing Act. The Justice Department does not share this view. Uncertainty over the issue apparently led an Appellate Body of the World Trade Organization (WTO) to conclude that the United States permits domestic entities to offer Internet gambling on horse racing, but denies offshore entities such an opportunity. Section 1955, which outlaws conducting an illegal gambling business, appears on its face to reach any illegal gambling business conducted using the Internet. Commentators seem to concur. However, prosecutions under the Wire Act have been more prevalent, at least thus far. Violations of Section 1955 are punishable by imprisonment for not more than five years and/or fines of the greater of not more than twice the gain or loss associated with the offense or $250,000 ($500,000 for an organization). Moreover, the federal government may confiscate any money or other property used in violation of the section. The offense may also provide the foundation for a prosecution under the Travel Act, the money laundering statutes, and RICO. The courts have said that to prove a violation of the Illegal Gambling Business Act, "the government must show that the defendant conducted, financed, managed, supervised, directed, or owned a gambling business that: (1) violated state law; (2) involved five or more persons; and (3) was either in substantial continuous operation for more than 30 days or had gross revenue of $2,000 or more in a single day"). And they have noted that "numerous cases have recognized that 18 U.S.C. 1955 proscribes any degree of participation in an illegal gambling business except participation as a mere bettor." Or as more recently described, "'[c]onductors' extends to those on lower echelons, but with a function at their level necessary to the illegal gambling operation." The section bars only those activities that involve illegal gambling under applicable state law and that meet the statutory definition of such a business. Illegal gambling is at the threshold of any prosecution under the section, and cannot to be pursued if the underlying state law is unenforceable under either the United States Constitution, or the operative state constitution. The business element can be satisfied (for any endeavor involving five or more participants) either by continuity ("has been or remains in substantially continuous operation for period in excess of thirty days") or by volume ("has a gross revenue of $2,000 in any single day"). The volume prong is fairly self-explanatory, and the courts have been fairly generous in their assessment of continuity. They are divided, however, on the question of whether the jurisdictional five individuals and continuity/volume features must coincide. The accomplice and conspiratorial provisions attend violations of Section 1955 as they do violations of the Wire Act. Although frequently difficult to distinguish in a given case, the difference is essentially a matter of depth of involvement. "[T]o be guilty of aiding and abetting a Section 1955 illegal gambling business ... the defendant must have knowledge of the general scope and nature of the illegal gambling business and awareness of the general facts concerning the venture ... [and he] must take action which materially assists in 'conducting, financing, managing, supervising, directing or owning' the business for the purpose of making the business succeed." Unlike conspiracy, one may only be prosecuted for aiding and abetting the commission of a completed crime; "before a defendant can be found guilty of aiding and abetting a violation of Section 1955 a violation of Section 1955 must exist ... [and] aiders and abettors cannot be counted as one of the statutorily required five persons." As a general rule, a federal conspiracy exists when two or more individuals agree to commit a federal crime and one of them commits some overt act in furtherance of their common scheme. "A conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense. The partners in the criminal plan must agree to pursue the same criminal objective and may divide up the work, yet each is responsible for acts of each other. If the conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators." Conspiracy is a separate crime and thus conspirators may be convicted of both substantive violations of Section 1955 and conspiracy to commit those violations. In fact, under the Pinkerton doctrine, co-conspirators are liable for conspiracy, the crime which is the object of the conspiracy (when it is committed), and any other reasonably foreseeable crimes of their confederates committed in furtherance of the conspiracy. The operation of an illegal gambling business using the Internet may easily involve violations of the Travel Act, as several writers have noted. Like Section 1955, Travel Act convictions result in imprisonment for not more than five years and/or fines of the greater of not more than twice the gain or loss associated with the offense or $250,000 ($500,000 for an organization). The act may serve as the foundation for a prosecution under the money laundering statutes and RICO. It has neither the service termination features of the Wire Act nor the forfeiture features of Section 1955. The courts often abbreviate their statement of the elements to: "The government must prove (1) interstate travel or use of an interstate facility; (2) with the intent to ... promote ... an unlawful activity and (3) followed by performance or attempted performance of acts in furtherance of the unlawful activity." The Supreme Court determined some time ago that the Travel Act does not apply to the simple customers of an illegal gambling business, although interstate solicitation of those customers may certainly be covered. When the act's jurisdictional element involves mail or facilities in interstate or foreign commerce, rather than interstate travel, evidence that a telephone was used, or an ATM, or the facilities of an interstate banking chain will suffice. The government is not required to show that the defendant used the facilities himself or that the use was critical to the success of the criminal venture. It is enough that he caused them to be used and that their employment was useful for his purposes. Moreover, intrastate telephone communications constitute the use of "facilities in interstate or foreign commerce." Thus in the case of Internet gambling, the jurisdictional element of the Travel Act might be established at a minimum either by reference to the telecommunications component of the Internet, to shipments in interstate or foreign commerce (in or from the United States) associated with establishing operations on the Internet, to any interstate or foreign nexus to the payment of the debts resulting from the gambling, or to any interstate or foreign distribution of the proceeds of such gambling. A criminal business enterprise, as understood in the Travel Act, "contemplates a continuous course of business—one that already exists at the time of the overt act or is intended thereafter. Evidence of an isolated criminal act, or even sporadic acts, will not suffice," and it must be shown to be involved in an unlawful activity outlawed by a specifically identified state or federal statute. Finally, the government must establish some overt act in furtherance of the illicit business committed after the interstate travel or the use of the interstate facility. Accomplice and co-conspirator liability, discussed earlier, apply with equal force to the Travel Act. The act would only apply to "business enterprises" involved in illegal gaming, so that e-mail gambling between individuals would likely not be covered. And Rewis seems to bar prosecution of an Internet gambling enterprise's customers as long as they remain mere customers. But an Internet gambling venture, that constitutes an illegal gambling business for purposes of Illegal Gambling Business Act and is engaged in some form of interstate or foreign commercial activity in furtherance of the business, will almost inevitably have included a Travel Act violation. The Wire Act, the Illegal Gambling Business Act, and the Travel Act implicitly outlaw Internet gambling and related activity. The Unlawful Internet Gambling Enforcement Act (UIGEA) does so explicitly. More exactly, it prohibits those who engage in a gambling business from accepting payments related to unlawful Internet gambling. Violations are punishable by imprisonment for not more than five years and/or a fine of not more than $250,000 (not more than $500,000 for organizations). Offenders may be subject to civil and regulatory enforcement actions as well. The Unlawful Internet Gambling Enforcement Act declares that (1) No person, (2) engaged in the business of betting or wagering, (3) may knowingly accept, (4) in connection with participation of another person in unlawful Internet gambling, (5)(a) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card; or (b) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person; or (c) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or (d) the proceeds of any other form of financial transaction, as the Secretary and the Board of Governors of the Federal Reserve System may jointly prescribe by regulation, which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of such other person. UIGEA's proscription draws meaning from a host of definitions, exceptions, and exclusions—some stated, others implied. It does not define "person." Nevertheless, as elsewhere in the United States Code, "persons" for purposes of UIGEA means individuals as well as "corporations, companies, associations, firms, partnerships, societies, and joint stock companies." It does not define the "business of betting or wagering," although it defines what it is not and defines the terms that provide the grist for such a business: bets or wagers. The business of betting or wagering does not encompass the normal business activities of financial or communications service providers, unless they are participants in an unlawful Internet gambling enterprise. On the other hand, Congress chose the term "business of betting or wagering" rather than the term "illegal gambling business," found in the Illegal Gambling Business Act. This implies that UIGEA covers businesses regardless of whether they met the threshold requirements of Illegal Gambling Business Act, that is, (1) five participants and (2) continuous operations for at least thirty days or gross revenues in excess of $2,000 a day. To come within the statute's reach, a business must involve "bets or wagers" and must accept payment relating "unlawful Internet gambling." To bet or wager is to stake something on the outcome of a game or event. More exactly, "[t]he term 'bet or wager'—(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome." Earlier in UIGEA's legislative history, the definition of "bet or wager" used the phrase "a game predominantly subject to chance" rather than simply "a game subject to chance." The Justice Department questioned whether the original phrase was "sufficient to cover card games, such as poker." The change in language appears to accommodate that concern by extending coverage to games that have an element of chance, even if not necessarily a predominant element. The definition also explicitly covers lotteries and information relating to the financial aspects of gambling. The list of other common activities exempted from the definition includes securities and commodities exchange activities, insurance, Internet games and promotions that do not involve betting, and certain fantasy sporting activities. "Unlawful Internet gambling" refers to an Internet bet or wage that is illegal in the place where it is placed, received, or transmitted. The term does not encompass various forms of Internet use by the horse racing industry, regardless of their legal status over other provisions of law. If certain conditions are met, the definition also exempts from UIGEA's prohibitions certain intrastate and intratribal forms of gambling, like state lotteries and Indian casinos that operate under state regulations or compacts. To qualify for the intrastate exception a bet must (1) be made and received in the same state; (2) comply with applicable state law that authorizes the gambling and the method of transmission including any age and location verification and security requirements; and (3) be in accord with various federal gambling laws. The intratribal exception is comparable, but a little different. Compliance with the various federal gambling laws remains a condition, 31 U.S.C. 5362(C)(iv). And there are comparable security as well as age and location verification demands. The intratribal gambling, however, may involve transmissions between the lands of two or more tribes and need not be within the same state. Definitions aside, UIGEA's prohibitions can only be breached by one who acts "knowingly." As a general rule, "the word 'knowingly' means that the defendant realized what she was doing and was aware of the nature of her conduct and did not act through ignorance, mistake or accident." However, "the term 'knowingly' does not necessarily have any reference to a culpable state of mind or to knowledge of the law." There is nothing to shield UIGEA defendants from the same general accomplice and conspirator liability provisions that apply in the case of any other federal felony. Those who aid or abet a violation, that is, those who knowingly embrace the criminal activity and assist in its commission with an eye to its success, are liable to the same extent as those who commit the offense directly. Conspirators are liable for conspiracy, for any completed crime that is the object of the plot, and for any additional, foreseeable offense committed by a confederate in furtherance of the common scheme. Section 5362(2) excludes the activities of financial institutions, communications and Internet service providers from the definition of "business of betting or wagering." Section 5367 declares that such entities may nonetheless incur liability under the act if they are directly engaged in the operation of an Internet gambling site. Neither section precludes their incurring liability as accomplices or co-conspirators. As noted earlier, whether a federal law applies to conduct committed entirely outside the United States is ordinarily a matter of congressional intent. The most obvious indicia of congressional intent is a statement within a particular statute that its provisions are to have extraterritorial application. UIGEA contains no such statement. Its legislative history of the act, however, leaves little doubt that Congress was at least as concerned with offshore illegal Internet gambling businesses as with those operated entirely within the United States. Offenders may also suffer civil constraints. UIGEA creates a limited federal civil cause of action to prevent and restrain violations of the act. It authorizes federal and state attorneys general to sue in federal court for injunctive relief to prevent and restrain violations of the act. It does not foreclose other causes of action on other provisions of state or federal law, but it does preclude suits in state court to enforce the act. It does not expressly authorize a private cause of action. It does not expressly offer attorneys general or anyone else any prospect of relief other than the federal court orders necessary to prevent and restrain. Moreover, it expressly limits the instances when the attorneys general may institute proceedings against Internet service providers and financial institutions. They may only proceed civilly against financial institutions to block transactions involving unlawful Internet gambling unless the institution is directly involved in an unlawful Internet gambling business. Barring application of the same direct involvement exception, the attorneys general may sue Internet service providers under the act only to block access to unlawful Internet gambling sites or to hyperlinks to such sites under limited circumstances. Subject to an exception that mirrors the direct involvement exception, the act also removes providers from the coverage of the Wire Act provision under which law enforcement officials may insist that communications providers block the wire communications of Wire Act violators. Neither of the provisions restricting the civil liability of financial institutions and of Internet service providers explicitly immunizes them from criminal prosecution for aiding or abetting or for conspiracy. Although UIGEA restricts the civil liability of financial institutions, it binds them under a regulatory enforcement scheme outlined in the act. The act calls upon the Secretary of the Treasury and the Governors of the Federal Reserve Board in conjunction with the Attorney General to create a regulatory mechanism that identifies and blocks financial transactions prohibited in the act. Among its other features, the mechanism must admit to practical exemptions and ensure that lawful Internet gambling transactions are not blocked. Good faith compliance insulates regulated entities from both regulatory and civil liability. Regulatory enforcement falls to the Federal Trade Commission and to the "federal functional regulators" within their areas of jurisdiction, that is, the Governors of the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Commission, the Office of Thrift Supervision, the National Credit Union Administration, the Securities and Exchange Commission and the Commodities Exchange Commission. The Third Circuit has concluded that UIGEA is neither unconstitutionally vague nor unconstitutionally intrusive on any recognized right to privacy. Illegal Internet gambling may trigger the application of federal racketeering (RICO) provisions. Section 1955, the Wire Act, the Travel Act, and any state gambling felony are all RICO predicate offenses, which expose offenders to imprisonment for not more than twenty years and/or a fine of greater of not more than $250,000 (not more than $500,000 for an organization) or twice the gain or loss associated with the offense. An offender's crime-tainted property may be confiscated, and he may be liable to his victims for triple damages and subject to other sanctions upon the petition of the government. The courts have said that "to establish the elements of a substantive RICO offense, the government must prove (1) that an enterprise existed; (2) that the enterprise affected interstate or foreign commerce; (3) that the defendant associated with the enterprise; (4) that the defendant participated, directly or indirectly, in the conduct of the affairs of the enterprise; and (5) that the defendant participated in the enterprise through a pattern of racketeering activity by committing at least two racketeering (predicate) acts [ e.g ., 18 U.S.C. 1084 (Wire Act), 18 U.S.C. 1952 (Travel Act), 18 U.S.C. 1955 (illegal gambling business)]. To establish the charge of conspiracy to violate the RICO statute, the government must prove, in addition to elements one, two and three described immediately above, that the defendant objectively manifested an agreement to participate ... in the affairs of the enterprise." Congress has enacted several statutes to deal with money laundering. It would be difficult for an illegal Internet gambling business to avoid either of two of the more prominent, 18 U.S.C. 1956 and 1957, both of which involve financial disposition of the proceeds of various state and federal crimes, including violation of the Wire Act, the Illegal Gambling Business Act, the Travel Act, or any state gambling law (if punishable by imprisonment for more than one year). In fact, Santos , one of the landmark cases in the development of federal money laundering law, is a gambling case. In other instances, the lower federal courts have frequently upheld money laundering convictions predicated upon various gambling offenses. The crimes under Section 1956 are punishable by imprisonment for not more than twenty years or a fine of the greater of not more than twice the value of the property involved in the transaction or not more than $500,000; those under Section 1957 carry a prison term of not more than ten years or a fine of the greater of twice the amount involved in the offense or not more than $250,000 (not more than $500,000 for an organization). Any property involved in a violation of either section is subject to the civil and criminal forfeiture provisions of 18 U.S.C. 981, 982. Section 1956 creates several distinct crimes: (1) laundering with intent to promote an illicit activity such as an unlawful gambling business; (2) laundering to evade taxes; (3) laundering to conceal or disguise; (4) structuring financial transactions (smurfing) to avoid reporting requirements; (5) international laundering; and (6) "laundering" conduct by those caught in a law enforcement sting. In its most basic form the promotion offense essentially involves plowing the proceeds of crime back into an illegal enterprise. Section 1956 has two promotional offenses: those involving financial transactions and those involving international monetary transfers. The elements of the two are roughly comparable. The transaction offense applies to whoever "(1) knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, (2) conducts or attempts to conduct such a financial transaction, (3) which in fact involves the proceeds of specified unlawful activity, (4) with the intent to promote the carrying on of specified unlawful activity." The knowledge element is subject to a special definition which allows a conviction without the necessity of proving that the defendant knew the exact particulars of the underlying offense or even its nature. The "proceeds" may be tangible or intangible, for example, cash, things of value, or things with no intrinsic value, for example, checks written on depleted accounts. Nor need "proceeds" be confined to the profits realized from the predicate offense, i.e., the "specified unlawful activity." Section 1956 specifically defines "proceeds" as "any property derived from or obtained or retained, directly or indirectly through some form of unlawful activity, including the gross receipts of such activity." The "financial transaction" necessary to satisfy that element of the crime may take virtually any shape that involves the disposition of something represent the proceeds of an underlying crime, including a disposition as informal has handing cash over to someone else. The statutory definition of the necessary "financial transaction" provides the basis for federal jurisdiction. To qualify, the transaction must be one that affects interstate or foreign commerce or must involve a financial institution whose activities affect such commerce. The "intent to promote" element of the offense can be satisfied by proof that the defendant used the proceeds to continue a pattern of criminal activity or to enhance the prospect of future criminal activity. To establish an intent to promote, the courts have said, "the government must show the transaction at issue was conducted with the intent to promote the carrying on of a specified unlawful activity. It is not enough to show that a money launderer's actions resulted in promoting the carrying on of specified unlawful activity. Nor may the government rest on proof that the defendant engaged in 'knowing promotion' of the unlawful activity. Instead, there must be evidence of intentional promotion. In other words, the evidence must show that the defendant's conduct not only promoted a specified unlawful activity but that he engaged in it with the intent to further the progress of that activity." The government must also establish that proceeds of the transaction are derived from a predicate offense and that they are intended to promote a predicate offense. All RICO predicate offenses are automatically money laundering predicate offenses. The RICO predicate offense list includes state gambling felonies as well as violations of the Travel Act and the Illegal Gambling Business Act. The elements of the travel or transportation version of promotional money laundering are comparable, but distinctive. They apply to anyone who: "(1) transports, transmits, transfers, or attempts transport, transmit, or transfer, (2) a monetary instrument or funds, (3)(a) from a place in the United States to or through a place outside the United States or (b) to a place in the United States from a place outside the United States, (4) with the intent to promote the carrying on of an specified unlawful activity." One of the distinctive features of the transportation promotional money laundering provision is that the transported, transmitted, or transferred funds do not have to be the proceeds of a predicate offense. The defendant, however, must be shown to have transmitted, transferred, or transported the funds with the intent to promote a predicate offense. The measure by which that question will be judged is the same as that used in the case of a transactional promotion offense, discussed above. Section 1956 is subject to general federal law with regard to accomplice and conspirator liability, except that it permits the same punishment for conspirators as for simple launderers. The "concealment" offenses share several common elements with the promotion offenses. For instance, the courts have explained that transaction offenses, like the promotion transaction offenses in all but one aspect, apply to anyone who: "(1) knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity; (2) conducts or attempts to conduct such a financial transaction; (3) which in fact involves the proceeds of specified unlawful activity (A)(i); (4) knowing that the transaction is designed in whole or in part to conceal or disguise the nature, location, the source, the ownership, or the control of the proceed of specified unlawful activity ." The fourth and distinctive element of the transactional concealment offense covers more than simple spending and more than simple concealment of the proceeds. Concealment must be designed to concern, that is, it must be purposeful concealment. The courts have made it clear that conviction for the concealment offense requires proof of something more than simply spending the proceeds of a predicate offense. That having been said, the line between innocent spending and criminal laundering is not always easily discerned. "Evidence of a purpose to conceal can come in many forms including: [deceptive] statements by a defendant probative of intent to conceal; unusual secrecy surrounding the transactions; structuring the transaction to avoid attention; depositing illegal profits in the bank account of a legitimate business; highly irregular features of the transaction; using third parties to conceal the real owner; a series of unusual financial moves cumulating in the transaction; or expert testimony on practices of criminals." The transportation concealment offense tracks both the transportation promotional and the transaction concealment offenses. Like promotional offenses and unlike the transaction offenses, the government must prove that the defendant knew of the tainted nature of the transported funds. The transportation concealment offense covers anyone who: "(1) transports, transmits, transfers, or attempts transport, transmit, or transfer; (2) a monetary instrument or funds; (3)(a) from a place in the United States to or through a place outside the United States or (b) to a place in the United States from a place outside the United States; (4) knowing that the monetary instrument or funds represent the proceeds of unlawful activity; (5) knowing the transportation, transmission, or transfer is designed in whole or in part to conceal or disguise the nature, location, the source, the ownership, or the control of the proceed of specified unlawful activity." The concealment clause requires that concealment be the motivating force, at least in part, for the transportation. Subsection 1956(h) imposes the same penalties for conspiracy as for substantive violations of the section. Otherwise, the general accomplice and conspiracy principles of law apply throughout the section. The tax evasion and structured transactions or report evasion offenses shadow the promotion and concealment offenses. A tax evasion, laundering prosecution requires the government to show that the defendant acted intentionally rather than inadvertently, but not that the defendant knew that his conduct violated the tax laws. Similarly, conviction for the structuring offense does not require a showing that the defendant knew that his conduct was criminal as long as the government establishes that the defendant acted with the intent to frustrate a reporting requirement. Here too, the general principles of law applying to accomplices and conspirators apply. The final crime found in Section 1956 is a "sting" offense, the proscription drafted to permit the prosecution of money launderers taken in by undercover officers claiming they have proceeds in need of cleansing from illegal gambling or other predicate offenses. The provision has promotional, concealment, and report evasion components. Section 1956 does not make spending tainted money a crime, but Section 1957 does. Using most of the same definitions as Section 1956, the elements of 1957 cover anyone who: "(1) (a) in the United States, (b) in the special maritime or territorial jurisdiction of the United States, or (b) outside the United States if the defendant is an American, (2) knowingly engages or attempts to engage in a monetary transaction, (3) [in or affecting interstate commerce], (4) in criminally derived property that is of a greater value than $10,000 and derived from specified unlawful activity." The requisite monetary transaction may involve any number of "financial institutions"—a bank, credit union, any of the statutorily designated high-cash flow businesses, or any comparable business designated by the Secretary of the Treasury. The statute, however, expressly exempts monetary transactions of the accused, necessary to secure legal representation in criminal proceedings. | This is a summary of the federal criminal statutes implicated by conducting illegal gambling using the Internet. Gambling is primarily a matter of state law, reinforced by federal law in instances where the presence of an interstate or foreign element might otherwise frustrate the enforcement policies of state law. State officials and others have expressed concern that the Internet may be used to bring illegal gambling into their jurisdictions. Illicit Internet gambling implicates at least seven federal criminal statutes. It is a federal crime (1) to conduct an illegal gambling business under the Illegal Gambling Business Act, 18 U.S.C. 1955; (2) to use the telephone or telecommunications to conduct an illegal gambling business involving sporting events or contests under the Wire Act, 18 U.S.C. 1084; (3) to use the facilities of interstate commerce to conduct an illegal gambling business under the Travel Act, 18 U.S.C. 1952; (4) to conduct the activities of an illegal gambling business involving either the collection of an unlawful debt or a pattern of gambling offenses, the Racketeer Influenced and Corrupt Organizations (RICO) provisions, 18 U.S.C. 1962; (5) to launder the proceeds from an illegal gambling business or to plow them back into such a business under money laundering provisions of 18 U.S.C. 1956; (6) to spend more than $10,000 of the proceeds from an illegal gambling operation at any one time and place under the money laundering provisions, 18 U.S.C. 1957; or (7) for a gambling business to accept payment for illegal Internet gambling under the Unlawful Internet Gambling Enforcement Act (UIGEA), 31 U.S.C. 5361-5367. Enforcement of these provisions has been challenged on constitutional grounds. Attacks based on the Commerce Clause, the First Amendment's guarantee of free speech, and the Due Process Clause have enjoyed little success. The commercial nature of a gambling business seems to satisfy doubts under the Commerce Clause. The limited First Amendment protection afforded crime facilitating speech encumbers free speech objections. The due process arguments raised in contemplation of federal prosecution of offshore Internet gambling operations suffer when financial transactions with individuals in the United States are involved. This report is an abridged form, without footnotes, full citations, or supplementary material, of CRS Report 97-619, Internet Gambling: Overview of Federal Criminal Law. Related CRS reports include CRS Report RS22749, Unlawful Internet Gambling Enforcement Act (UIGEA) and Its Implementing Regulations, and CRS Report R41614, Remote Gaming and the Gambling Industry. |
On July 18, 2005, President Bush and Indian Prime Minister Manmohan Singh signed a jointstatement that announced the creation of a "global partnership," which would include "full" civilnuclear cooperation between the United States and India. This is at odds with nearly three decadesof U.S. nonproliferation policy and practice. President Bush committed to persuading Congress toamend the pertinent laws to approve the agreement, as well as persuading U.S. allies to create anexception to multilateral Nuclear Suppliers Group (NSG) guidelines for India to allow for nuclearcooperation. India committed to separating its civilian from its military nuclear facilities, declaringcivilian facilities to the International Atomic Energy Agency (IAEA) and placing them under IAEAsafeguards, and signing an Additional Protocol, which provides enhanced access and informationfor IAEA inspectors. (1) The United States is obligated under the Nuclear Nonproliferation Treaty (NPT) to ensurethat any cooperation it provides to a non-nuclear weapon state does not contribute to that state'scapability to produce nuclear weapons. In 1978, Congress passed the Nuclear Nonproliferation Act,which strengthened the restrictions on U.S. nuclear cooperation to include comprehensive(full-scope) safeguards on all nuclear material in non-nuclear weapon states, specifically to helpensure that peaceful cooperation would not be diverted to weapons purposes. The 1978 Actfollowed India's 1974 peaceful nuclear explosion, which demonstrated to most observers that nucleartechnology originally transferred for peaceful purposes could be misused. That test also providedthe impetus for creating the Nuclear Suppliers Group (NSG). (2) In 1992, the NSG adopted thefull-scope safeguards condition for nuclear exports, and the 1995 NPT Extension Conference andthe 2000 NPT Review Conference both endorsed the NSG's new requirement. India shares a unique status with Pakistan and Israel as de facto nuclear weapon statesoutside the NPT that have been treated politically, for nonproliferation purposes, as non-nuclearweapon states. (3) The threestates do not have comprehensive nuclear safeguards. Instead, they have safeguards agreements thatcover only specified facilities and materials. (4) Presently, very few of India's nuclear facilities are subject tointernational inspections. The Bush Administration made a "credible" and "defensible" -- from a nonproliferationstandpoint -- separation plan a prerequisite for asking Congress to create an exception to current lawfor nuclear cooperation with India. P.L. 109-401 , the law that provides the executive branch withauthority to waive restrictions under the Atomic Energy Act with respect to India, requires thePresident to determine that the following actions had occurred: India has provided the United States and the IAEA with a credible plan toseparate civil and military facilities, materials, and programs, and has filed a declaration regardingits civil facilities with the IAEA; India and the IAEA have concluded all legal steps required prior to signatureby the parties of an agreement requiring the application of safeguards in perpetuity in accordancewith IAEA standards, principles, and practices (including IAEA Board of Governors DocumentGOV/1621 (1973)) to India's civil nuclear facilities, materials and programs as declared in the plan,including materials used in or produced through the use of India's civil nuclearfacilities; India and the IAEA are making substantial progress toward concluding anAdditional Protocol consistent with IAEA principles, practices, and policies that would apply toIndia's civil nuclear program; India is working actively with the United States for the early conclusion of amultilateral treaty on the cessation of the production of fissile materials for use in nuclearweapons; India is working with and supporting U.S. and international efforts to preventthe spread of enrichment and reprocessing technology to any state that does not already possessfull-scale functioning enrichment or reprocessing plants; India is taking the necessary steps to secure nuclear and other sensitivematerials and technology through the application of comprehensive export control legislation andregulations, and through harmonization and adherence to Missile Technology Control Regime(MTCR) and Nuclear Suppliers Group (NSG) guidelines; and the NSG has decided by consensus to permit supply to India of nuclear itemscovered by the guidelines of the NSG. Indian and U.S. officials engaged for several months in discussions on identification ofcivilian facilities. U.S. officials encouraged India to make a comprehensive declaration of its civilianinfrastructure. (5) In variouswritten and oral statements to Congress, State Department officials seem to suggest that morefacilities under safeguards would be better than fewer, but critics (on both the U.S. and Indian sides)have suggested that some facilities would be more important to include or exclude. For example,the CIRUS reactor, reportedly the source of plutonium for the 1974 nuclear test, despite India'spledge to use it only for peaceful purposes, is important to some critics to declare as civilian and place under safeguards because of its controversial past. To U.S. officials, facilities associated withthe fast breeder reactor program, which could produce plutonium for weapons in the future,reportedly would be key to get under safeguards, particularly if the United States wants to cooperatewith India in the Global Nuclear Energy Partnership program. (6) To Indian officials, however,the fast breeder reactor program is key to the future of India's three-stage nuclear fuel cycle and mustbe kept out of safeguards for maximum flexibility and energy independence. (7) Several nonproliferation critics of the potential agreement have suggested that no matter howmany facilities India places under safeguards, the opening of the international uranium market --forbidden to India since 1992 by the NSG -- in effect frees up India's domestic uranium for itsnuclear weapons program, and therefore, would assist the Indian nuclear weapons program. (8) Consequently, only India's haltin the production of fissile material for nuclear weapons would ensure that U.S. assistance does notaid India's nuclear programs. (9) Indian officials note that the peaceful nuclear cooperationagreement is not about limiting their strategic program, just about expanding their peaceful nuclearprogram. Some critics have suggested various options for placing specific facilities under safeguardsto diminish the potential "surplus effect" of opening up that uranium market. (10) One observer, Robert Einhorn, has suggested that in the absence of a fissile materialproduction halt, safeguards on Indian facilities serve primarily a symbolic role in demonstratingIndia's commitment to nonproliferation. (11) Nonetheless, the safeguards approach, according toAdministration officials, is key to assuring that the United States complies with Article I of the NPT-- that U.S. cooperation does not in any way assist a nuclear weapons program in a non-nuclearweapon state. U.S. officials have stated that a voluntary safeguards arrangement like those of theother five nuclear weapon states would not meet our NPT Article I obligations. In their view, Indiamust accept some kind of safeguards arrangement that allow safeguards to endure in perpetuity. Indian officials, on the other hand, suggested that having the same responsibilities and practices asother advanced nuclear states translates into a voluntary safeguards arrangement. (12) This report provides background on India's nuclear fuel cycle, a discussion of various issuesinvolved in separating civilian and military nuclear facilities and potential concerns for Congress asit considers whether the United States has adequate assurances that its nuclear cooperation does notassist, encourage, or induce India's nuclear weapons development, production, or proliferation. India's nuclear program, from its inception in 1948, has been described as inherentlydual-purpose. (13) Withthe establishment of its Atomic Energy Commission in 1948, India pursued both civilian and militaryapplications of nuclear energy. The first indigenous research reactor, Apsara, was developed in the1950s. Canada provided early assistance under the Colombo Plan, as did the United States underthe Atoms for Peace program. A humiliating defeat in a border war with China in 1962, followedby China's first nuclear test in 1964, intensified India's drive for nuclear weapons. India turned tothe CIRUS (Canada-India Reactor United States) reactor, as the source for plutonium for its 1974"peaceful nuclear explosive" test. Foreign assistance dwindled after the 1974 test, but Canada hadalready transferred the blueprints for heavy water reactors under an agreement for peaceful nuclearcooperation. As a result, India developed a fairly independent nuclear infrastructure that supportedboth civilian and military purposes. For example, plutonium separated in India's reprocessing plantshas been used both for weapons and to make mixed oxide fuel (plutonium mixed with uranium) fornuclear power plants. India's nuclear fuel cycle development has been driven by an acknowledged lack of uraniumreserves. In India's view, energy independence could not be derived from domestic uranium reserves-- estimated at 0.8% of world reserves, or 50-60,000 tons -- but could be from production ofplutonium, recycling of spent fuel, and utilization of thorium (estimated at 32% of worldreserves). (14) As a result,India planned 40 years ago to develop a three-stage fuel cycle to reduce its reliance on uranium anduse thorium. The first stage would rely on natural uranium-fueled reactors to make plutonium; thesecond stage would use that plutonium in fast reactors blanketed with thorium to produce U-233(and more plutonium); and the third stage would use U-233 fuel and thorium fuel in fast reactorsblanketed with thorium to produce more U-233 for use for future fuel. India has not advancedbeyond the first stage of the fuel cycle, aside from running a fast breeder test reactor (40 MWth FastBreeder Test Reactor or FBTR) based on a French design and a small research reactor that usesU-233 fuel (Kamini). The Chairman of the Atomic Energy Commission, Dr. Anil Kakodkar, asserted in a speechin March 2005 that indigenous uranium resources would support 10 GWe of nuclear installedcapacity but that breeder reactors, using plutonium bred from indigenous uranium, could support 500GWe of power generation. (15) The current energy plan is to have 12 GWe installed capacityby 2015 and 20 GWe by 2020. Reportedly, the increase to 20 GWe would be achieved through amix of pressurized heavy water reactors (PHWRs), light water reactors and fast breeder reactors,including construction of 5 fast breeder reactors of 500 MWe each and the import of 8 light waterreactors of 1000 MWe each. (16) India's indigenous, pressurized heavy water reactors (fueled withnatural uranium) are planned to provide just half of that 20 GWe capacity (i.e., 10 GWe), but someobservers have suggested that indigenous supplies of uranium may not support that many reactorsand that India's uranium crisis is already acute. (17) For example, India's Jaduguda uranium mill produces just 220tons of yellowcake a year, whereas the 13 operating natural-uranium fueled reactors require 300 tonsper year, and consequently have reduced their operating capacity from 90% in 2002-2003 to 81%in 2003-2004 and 76% in 2004-2005. (18) According to two reports, the Department of Atomic Energy hasbeen unable to mine certain uranium deposits because local governments have not yet givenclearance. (19) Figure 1 depicts key sites and facilities of India's nuclear industry; not included are India'sheavy water plants and associated research facilities. Apart from two light-water reactors fueled withlow-enriched uranium from foreign suppliers (at Tarapur) and two under construction by Russia(VVERs at Kudankulam), India's power reactors rely on natural uranium in reactors that are cooledand moderated by heavy water, known as pressurized heavy water reactors, or alternatively asCANDU-type. (21) Canada built the first two CANDU-type reactors at Rajasthan, and India built the remaining eleven. Most of these produce about 220 MWe, whereas the new Russian reactors at Kudankulam willproduce 1000 MWe. The foreign-supplied reactors (Tarapur, Rajasthan and, eventually,Kudankulam) are under IAEA safeguards, but the remaining domestic facilities are, largely, notsafeguarded. Figure 1. Indian Nuclear Facilities Sources: Dr. Frederick Mackie, Lawrence Livermore National Laboratory, and the CongressionalResearch Service. At present, India's nuclear facilities include the following: research reactors (3); power reactors (15 operating, 8 under construction and 3planned); breeder reactors (1 operating, 1 under construction); uranium enrichment (1 operating) spent fuel reprocessing (3); heavy water production plants (6); uranium processing (3 mines; 2 copper-mine tailing extraction units, 1 mill(uranium ore concentration) many uranium conversion facilities, 3 or 4 fuel fabricationplants). Research Reactors. India has three operatingresearch reactors (CIRUS, Dhruva, and Kamini) and four decommissioned reactors. (22) In addition, India's oldestreactor, Apsara, may be considered operational, but is awaiting refurbishment, reportedly to test anew indigenous design of a 5-10 MWt research reactor. It has been used for various experiments,research and production of radioisotopes, and training. CIRUS and Dhruva are located at the BhabhaAtomic Research Center (BARC) in Trombay, while Kamini is located at Kalpakkam. The CIRUS reactor has been the subject of controversy between the United States and Indiafor much of its life. The United States supplied heavy water, which was not subject to a safeguardsagreement, under a 1956 contract in which India pledged to use the material for peaceful purposesonly. Yet this reactor reportedly produced the plutonium used in India's 1974 peaceful nuclearexplosion. Many nonproliferation experts maintain that India violated its 1956 contract with Canadaas well as its contract with the United States. Most recently, according to answers to questions forthe record submitted by the Senate Foreign Relations Committee on November 2, 2005, the StateDepartment notes that: At the time, the debate on whether India had violatedthe contract was inconclusive owing to the uncertainty as to whether U.S.-supplied heavy watercontributed to the production of the plutonium used for the 1974 device and the lack of a mutualunderstanding of scope of the 1956 contract language on "peacefulpurposes." Several nonproliferation experts have criticized the Administration for not taking thisopportunity to resolve this 30-year-old controversy. (23) The Canadian government in December 2005 encouraged theUnited States and India to declare the CIRUS reactor as a civilian reactor and place it under IAEAsafeguards. Doing so, would "respect the peaceful uses assurance of our original agreement." (24) The Dhruva reactor is a larger, 100 MWt reactor that began operation in 1985. It is the otherreactor that most observers assume is dedicated to India's nuclear weapons program. CIRUS andDhruva together can produce between 25 and 35 kg of plutonium per year, or enough for 3 to 4bombs. (25) The Kaminireactor is located at the Indira Gandhi Centre for Atomic Research (IGCAR) in Kalpakkam. Itbecome operational in 1996 and uses U-233 as fuel. Power Reactors. Table 1 shows India's 22 powerreactors (excluding the prototype fast breeder reactor, which is discussed below). Of the total 22,15 are currently operating, while 7 are under construction. Three more reactors are planned. Table 1. India's Power Reactors Sources: IAEA Power Reactor Information System, Dr. Frederick Mackie of Lawrence Livermore National Laboratory, and the Congressional ResearchService. Notes: Those in italic print are under IAEA safeguards (INFCIRC-66) now or are scheduled to be under safeguards, irrespective of the separation plan. Those reactors in bolded print are the reactors scheduled additionally to be placed under safeguards under the separation plan. The difference betweengross capacity and net capacity is the electricity needed to run the reactor. "Connected to Grid" means when the reactor is connected to the electricitygrid (versus commercial operation). Abbreviations: PHWR stands for Pressurized Heavy Water Reactor (CANDU-style); BWR stands for Boiling Water Reactor (use low-enriched uraniumfuel). Of the 15 operating power reactors, four are under safeguards -- the twoU.S.-supplied reactors at Tarapur and the two Canadian-supplied reactors atRajasthan. Two pressurized water reactors under construction by the Russians atKudankulam will be under IAEA safeguards also. There are 11 remaining reactorsoperating not under safeguards and five PHWRs under construction. In addition tothe reactors under construction, there are five more planned: two at Kaiga (Kaiga 5and 6); two at Rajasthan (RAPS 7 and 8); and the Advanced Heavy Water Reactorat Trombay. The 15 operating power reactors have a net capacity of 3602 MWe. Nuclearenergy now accounts for about 3% of India's electricity consumption, and India plansto increase the electrical generation capacity from the nuclear sector dramaticallyover the next few years. Estimates vary from an increase of 8000 MWe additionallyby 2015, (26) to a total of 20GWe by 2020. (27) However,India's indigenous pressurized heavy water reactors will likely account for less thanhalf of the total increase. Breeder Reactors. The breederreactor program is integral to the second stage of India's three-stage nucleardevelopment plan. "Breeder" reactors have the potential to make more fissilematerial than they burn up, hence the term "breeder." Stage two envisionsplutonium-fueled breeder reactors blanketed with thorium to produce uranium-233. India has run a 40 MWth (13 MWe) Fast Breeder Test Reactor since 1985 at theIndira Gandhi Centre for Atomic Research (IGCAR) and has successfullyreprocessed a small amount of the unique fuel irradiated in that reactor. Constructionof the 500 MWe prototype breeder reactor has begun, but the initial operatingcapability is not expected until 2010. Uranium Enrichment. India begana uranium enrichment program in the 1980s. A gas centrifuge uranium enrichmentfacility at Mysore (called Rattenhalli) reportedly enriches uranium for naval fuel. There is also a pilot-scale gas centrifuge plant at Trombay for research anddevelopment, some laser enrichment-related activities also located at Trombay, anda laser enrichment facility at the Center for Advanced Technology in Indore forresearch. Spent Fuel Reprocessing. Plutonium in India is produced for both civilian and military needs. The TrombayPlutonium Plant separates plutonium primarily for weapons purposes, whereasplutonium separation for civilian uses is performed at the Power Reactor FuelReprocessing Plant (PREFRE) at Tarapur and at Kalpakkam Reprocessing Plant(KARP). The Fast Reactor Fuel Reprocessing Plant and the Lead Minicell facility,both at Kalpakkam, also perform plutonium separation. Heavy Water Production. Indiahas six heavy water production plants in operation, all of which were developedindigenously. Such plants are not required to be safeguarded under comprehensivesafeguards agreements, because they do not contain source or special nuclearmaterial, but would be required to be reported under an Additional Protocol. Itremains to be seen whether India would report any of these under an AdditionalProtocol or perhaps just a portion of those that are not required for the militaryproduction of plutonium. The extent to which India requires more unsafeguardedplutonium for weapons or as fuel for unsafeguarded breeder reactors woulddetermine how many heavy water plants would remain unreported. Uranium Recovery and Conversion. India has three uranium mines, two copper-mine tailing extraction units, one mill, manyuranium conversion facilities, and three fuel fabrication plants. Under a comprehensivesafeguards agreement, the starting point of safeguards is when "any nuclear material ofa composition and purity suitable for fuel fabrication or for being isotopically enrichedleaves the plant or the process stage in which it has been produced." (28) In other words,the material would be inspected at the end of the uranium conversion process and at thestart of the fuel fabrication process. Under an Additional Protocol, a state is required toreport on all nuclear fuel cycle activities, including uranium ore, mining, milling, andconversion. It is not clear how or if India will declare some or all of those front end fuelcycle activities. On November 2, 2005, Under Secretary of State Joseph told members of theSenate Foreign Relations Committee that India's separation of facilities must becredible, transparent, meaningful, and defensible from a nonproliferation standpoint. Further, Under Secretary Joseph told Members that a separation plan and resultantsafeguards must contribute to U.S. nonproliferation goals, but did not elaboratewhich particular goals those might be. He noted that the more civil facilities Indiaplaces under safeguards, the more confident the United States can be that anycooperative arrangements will not further India's military purposes. Specifically,Under Secretary Joseph said that safeguards would have to be applied in perpetuity,and that voluntary safeguards arrangements would not be defensible from anonproliferation standpoint. The Administration also asserted that "The safeguardsmust effectively cover India's civil nuclear fuel cycle and provide strong assurancesto supplier states and the IAEA that material and technology provided or createdthrough civil cooperation will not be diverted to the military sphere." (29) One interpretation of those phrases suggests that a credible plan would (1) beperceived to strengthen the nonproliferation regime; (2) be a complete and defensibledeclaration of its civil nuclear facilities and programs; and (3) mitigate perceptionsof nuclear weapons status for India. (30) Such a plan would be guided by the assumptionthat power reactors, regardless of their potential to produce plutonium for weapons,have a civilian use and should be declared as civilian and safeguarded, as well astheir associated fuel fabrication and reprocessing and spent fuel storage facilities. India's breeder reactors would be safeguarded in this approach because thetest reactor has been connected to the electricity grid since 1997, and the prototypefast breeder reactor will have a rating of 500 MWe and thus is meant to be connectedto the electrical grid as a source of energy. (31) Since otheradvanced nuclear states with fast breeder reactors have placed them under safeguards(Japan and France), placing Indian breeder reactors under safeguards would mitigateperceptions of a double standard for India. Given their ability to produceweapons-grade plutonium, fast breeder reactors have been a proliferation concernfor many years. Moreover, safeguarding breeder reactors would limit the amount ofweapons-usable plutonium worldwide that is not safeguarded, which is clearly anobjective of U.S. nonproliferation policy. It can be argued that India also approached creating a separation plan that iscredible and defensible from its perspective. Although India had hoped for asafeguards arrangement like those of the nuclear weapon states, where facilities canbe put on and taken off a safeguards list at will, the United States has said that sucha voluntary safeguards arrangement would not be acceptable. Therefore, in thisscheme, placing a facility on the civilian list would eliminate it from any potentialuse for the weapons program. While Indian officials have said that the July 18thagreement is not about their weapons program, their decisions about the separationplan were fundamentally guided by their future needs in the weapons program. Prime Minister Singh told the Indian Parliament on February 26, 2006 that indeciding on the scope of the separation plan, India took into account its current and future strategic needs andprogramme after careful deliberation of all relevant factors, consistent with ourNuclear Doctrine...[which envisions] a credible minimum nuclear deterrent to inflictunacceptable damage on an adversary indulging in a nuclear first-strike. (32) From this perspective, a key factor for India is whether there is enough fissilematerial to meet the requirements of its minimal credible deterrent. If not, India mustconsider whether to "hedge" its future requirements by keeping some existingfacilities out of safeguards so that they can produce plutonium or highly enricheduranium for weapons in the future, or to build new production facilities in the future. The July 18 agreement does not restrict India from doing so, at least until a fissilematerial production cutoff treaty is in force, but there are obvious costs to such anapproach. Some Indian observers argued to keep a handful (1-2 or preferably 2-4)indigenous pressurized heavy water reactors (PHWRs) out of safeguards for futurefissile material production for weapons. (33) Others argued that a phased approach for placingPHWRs under safeguards would be sufficient to give India time to determine if itcould meet its minimal credible deterrent. (34) In a controversial interview, AEC Chairman AnilKakodkar suggested that some of the PHWRs could not be under safeguards becausethe breeder program, which he recommended not come under safeguards, wouldrequire unsafeguarded plutonium for fuel. (35) Other commentators in India took a different perspective on this point. In aDecember 13, 2005, discussion at the India International Center, former DefenseResearch and Development Organization (DRDO) scientist and Institute of DefenseStudies and Analysis (IDSA) Director K. Santhanam suggested that India couldcontinue to meet all of its weapons plutonium needs from the CIRUS and Dhruvareactors and that plutonium from power reactors was unsuited for weapons. In aDecember 12, 2005 article in The Times of India , K. Subrahmanyam suggested that"Given India's uranium ore crunch and the need to build up our minimum crediblenuclear deterrent arsenal as fast as possible, it is to India's advantage to categorize asmany power reactors as possible as civilian ones to be refuelled by imported uraniumand conserve our native uranium fuel for weapon-grade plutonium production." (36) India's need to exclude its breeder reactor program from safeguards appearsto be based several factors. Chairman of the Atomic Energy Commission (AEC) Dr.Kakodkar argued that the breeder program could not be put on the civilian list "fromthe point of maintaining long-term energy security and for maintaining the 'minimumcredible deterrent.'" (37) India's Prime Minister Manmohan Singh told theIndian Parliament on February 26, 2006, that We will ensure that no impediments areput in the way of our research and development activities. We have made it clear thatwe cannot accept safeguards on our indigenous fast breeder programme. Ourscientists are confident that this technology will mature and that the programme willstabilize and become more robust through the creation of additional capability. Thiswill create greater opportunities. (38) In general, Indian officials seemed guided by a strong predilection to continuewhat has been their past approach to safeguards -- to place under safeguards onlythose facilities that have a foreign component (e.g., fuel or technology). AECChairman Kakodkar noted in August 2005 that "Anything coming from...externalcooperation...will be put under facilities-specific safeguards," and that no researchand development will be put under safeguards, including the prototype fast breederreactor and facilities at the Indira Gandhi Centre for Atomic Research (IGCAR). (39) Another consideration influencing Indian views are the potential financial andeconomic costs of separation. In some cases, facilities serve both civilian andmilitary purposes. A. Gopalakrishnan, former chairman of the Atomic EnergyRegulatory Board, suggested that certain critical plants at the Nuclear Fuels Complexat Hyderabad were not duplicated and should be kept out of safeguards until theycould be replicated. (40) Finally, assumptions about India's prestige and independence may also haveplayed a role. Some Indian officials have rejected the notion of placing any researchand development facilities under safeguards because they equate such safeguardswith attempts to constrain India's independence. AEC Chairman Kakodkar told the Indian Express in February 2006 that: There is a more fundamental question. If I am treated as an advanced country, where is the compulsion for me to do it? Iwill do R&D in an autonomous manner, finished. (41) On March 2, 2006, during President Bush's visit to India, U.S. and Indianofficials agreed upon a final separation plan. According to India's official report,India was guided by the following principles: Credible, feasible, and implementable in a transparentmanner; Consistent with the understandings of the 18 JulyStatement; Consistent with India's national security and R&D requirementsas well as not prejudicial to the three-stage nuclear programme inIndia; Must be cost effective in its implementation;and Must be acceptable to Parliament and public opinion. (42) Regarding the application of safeguards, India identified its "overarching criterion"as whether "subjecting a facility to IAEA safeguards would impact adversely onIndia's national security." Moreover, facilities were excluded from the civilian listif they were located in a larger hub of strategic significance (e.g., BARC), even ifthey were not normally engaged in activities of strategic significance. (43) This lastcriterion appears to suggest that the plan did not really seek to separate facilities. The key elements of India's separation plan are (44) eight indigenous Indian power reactors (RAPS 3, 4, 5, 6; KAPS1, 2; NAPS 1, 2) in addition to 6 already under safeguards; future power reactors may also be placed under safeguards, ifIndia declares them as civilian; some facilities in the Nuclear Fuel Complex (e.g., fuelfabrication) will be specified as civilian in 2008; and nine research facilities and three heavy water plants would bedeclared as civilian, but are "safeguards-irrelevant." The following facilities and activities were not on the separation list: eight indigenous Indian power reactors (Kaiga 1, 2, 3, 4; MAPS1, 2; TAPS 3, 4); Fast Breeder Test Reactor (FTBR) and Prototype Fast BreederReactors (PFBR) under construction; enrichment facilities; spent fuel reprocessing facilities (except for the existingsafeguards on the Power Reactor Fuel Reprocessing (PREFRE)plant); research reactors: CIRUS (which will be shut down in 2010),Dhruva, Advanced Heavy Water Reactor; three heavy water plants; and various military-related plants (e.g., a prototype navalreactor). The eight additional reactors would be put under safeguards between 2007and 2014. The implementation document presented to Parliament stated that "India isnot in a position to accept safeguards on the Prototype Fast Breeder Reactor (PFBR)and the Fast Breeder Test Reactor (FTBR), both located at Kalpakkam. The FastBreeder Programme is at the R&D stage and its technology will take time to matureand reach an advanced stage of development." As for future reactors, the documentstated that "India has decided to place under safeguards all future civilian thermalpower reactors and civilian breeder reactors, and the Government of India retains thesole right to determine such reactors as civilian." (45) In responseto a question about whether it was possible for there to be non-civilian breederreactors that India would build in the future, Under Secretary of State Nicholas Burnsstated that "India could build reactors that would service their nuclear weaponsindustry...but the great majority of the growth we think will come on the civilianside." (46) As for research reactors, CIRUS would be shut down in 2010 and notsubjected to safeguards. The fuel core of the Apsara reactor would be taken out ofBARC and made available to be safeguarded. Some facilities in the Nuclear FuelComplex would be specified as civilian in 2008, and the Tarapur and Rajasthan spentfuel storage pools would be made available for safeguards (Tarapur 1-2 andRajasthan 1-2 reactors themselves are already safeguarded.) In addition, India woulddeclare 3 heavy water plants (Thal, Tuticorin and Hazira) as civilian, but these wouldnot be subject to safeguards; 9 research facilities would be declared as civilian also,but these would be considered "safeguards-irrelevant." India's enrichment facility would not be covered, and India's offering up theTarapur Power Reactor Fuel Reprocessing Plant (PREFRE) for "campaign" modesafeguards after 2010 is a continuation of its current policy. The Dhruva researchreactor is excluded. Under Secretary of State Burns stated that India "would enter into permanentsafeguard arrangements with the International Atomic Energy Agency." However,the Indian statement that an Indian-specific safeguards agreement would "guardagainst withdrawal of safeguarded nuclear material from civilian use at any time aswell as providing for corrective measures that India may take to ensure uninterruptedoperation of its civilian nuclear reactors in the event of disruption of foreign fuelsupplies"raises questions about exactly what kind of safeguards arrangement isenvisioned. Burns noted that the arrangement "achieved a degree of transparency andoversight and impact on the Indian nuclear program that was not possible for threedecades." (47) Figure 2 shows a rough depiction of how the final separation applies toIndia's civilian and military nuclear facilities. Figure 2. India's Separation Plan Sources: Dr. Frederick Mackie, Lawrence Livermore National Laboratory, and the Congressional Research Service. Congressional views on the separation plan, particularly whether it is credibleand defensible from a nonproliferation standpoint, may have an impact on Congress'sconsideration of the overall peaceful nuclear cooperation agreement. Quantity vs. Quality. UnderSecretary of State Nicholas Burns told reporters on March 2, 2006, that "It's not aperfect deal in the sense that we haven't captured 100 percent of India's nuclearprogram. That's because India is a nuclear weapons power, and India will preservepart of its nuclear industry to service its nuclear weapons program." (48) Althoughfew observers would have expected to get 100% of India's nuclear program undersafeguards, one question that arises is whether the 65% mark meets theAdministration's own standard that "The safeguards must effectively cover India'scivil nuclear fuel cycle." (49) The Administration has defended the separation plan most recently ascredible and defensible in this way: For [the separation plan] to be credibleand defensible from a nonproliferation standpoint, it had to capture more than justa token number of Indian nuclear facilities, which it did by encompassing nearlytwo-thirds of India's current and planned thermal power reactors as well as all futurecivil thermal and breeder reactors. Importantly, for the safeguards to be meaningful,India had to commit to apply IAEA safeguards in perpetuity; it did so. Once a reactoris under IAEA safeguards, those safeguards will remain there permanently and on anunconditional basis. Further, in our view, the plan also needed to include upstreamand downstream facilities associated with the safeguarded reactors to provide a trueseparation of civil and military programs. (50) It should be noted that although declaring 65% of India's reactors as civilianwill result in placing almost two-thirds of the current reactors under safeguards,power reactors constitute just one part of the nuclear fuel cycle. Reprocessingcapabilities are key to India's three-stage nuclear fuel cycle development plan, andthe separation plan provides nothing beyond the intermittent safeguards applied at thePower Reactor Fuel Reprocessing Plant (PREFRE) already. Some observers could argue that a strictly quantitative approach does notaddress the question of whether the plan is defensible from a nonproliferationstandpoint. Here too, the kinds of facilities included could be key. For example, interms of preventing terrorist access to fissile material, safeguarding facilities likereprocessing and enrichment plants and breeder reactors would provide a greaternonproliferation benefit because the materials produced by these plants are a fewsteps closer to potential use in a bomb. In addition, safeguards on enrichment,reprocessing plants, and breeder reactors would support the 2002 U.S. NationalStrategy to Combat Weapons of Mass Destruction, in which the United Statespledged to "continue to discourage the worldwide accumulation of separatedplutonium and to minimize the use of highly-enriched uranium." (51) Breeder Reactors. As notedearlier, breeder reactors, which are key to India's intended second stage of fuel cycledevelopment, have been generally regarded as a proliferation concern because of theirproduction of weapons-grade plutonium. (52) India plans to build at least five commercial-scalebreeder reactors and would have the option of dedicating any one or more of thoseto its military program. Public statements by Indian officials suggest that they haveconsidered the breeder reactor's usefulness in producing plutonium for the strategicarsenal, and some domestic critics have suggested that India should clarify thepurpose of the breeder program once and for all. A key obstacle may be the amountof unsafeguarded plutonium available as initial fuel, raising the question of howfuture civilian breeder reactors would be fueled. Would plutonium from the 10additional reactors India will be placing under safeguards be used to fuel the reactors,or would India purchase safeguarded plutonium from other states? If the latter case,would this conflict with the Administration's policy of discouraging the worldwideaccumulation of separated plutonium? Other Facilities. Prime MinisterSingh told the Indian Parliament on February 26 that "We will offer to place undersafeguards only those facilities that can be identified as civilian without damagingour deterrence potential or restricting our R&D effort." (53) AlthoughCIRUS, Dhruva, the Fast Breeder Test Reactor, and the planned Advanced HeavyWater Reactor have been described by Indian facilities as being research facilities,they are not included. The 9 research facilities that will be declared as civilian areconsidered safeguards-irrelevant, probably because they will have little if any nuclearmaterial in them to be safeguarded. The absence of research facilities could call into question how far India'sseparation plan has ventured into the mainstream of nonproliferation. IAEAsafeguards for non-nuclear weapon states include all facilities where nuclear materialis present, including research and development facilities. The case of precedents inother nuclear weapon states is not applicable, since the IAEA tends not to inspectvery many of the sites or facilities on the voluntary safeguards eligible lists.Likewise, the absence of reprocessing and enrichment facilities on the separation planalso could be interpreted by some as falling short of the objective of bringing Indiainto the mainstream of nonproliferation. In particular, the Bush Administration hasidentified enrichment and reprocessing technologies as sensitive parts of the nuclearfuel cycle that should be limited and has proposed specific arrangements for assuredsupplies of nuclear fuel that would obviate the need for states to conduct their ownenrichment and reprocessing. (54) India's one operating facility at Rattenhalli is reportedly used to enrichuranium for the prototype naval fuel reactor. Naval fuel occupies a curious place inIAEA safeguards. Full-scope safeguards agreements, the kind that non-nuclearweapon states have, include a provision for the non-application of safeguards tonuclear material to be used in non-peaceful activities -- and naval fuel would be onesuch non-peaceful activity. However, no non-nuclear weapon state has everimplemented this provision for the non-application of safeguards. Under Paragraph14 of the INFCIRC/153, a state is required to inform the IAEA that the use of the nuclear material in anon-proscribed military activity will not be in conflict with an undertaking the Statemay have given and in respect of which Agency safeguards apply, that the nuclearmaterial will be used only in a peaceful nuclear activity; and that during the periodof non-application of safeguards the nuclear material will not be used for theproduction of nuclear weapons or other nuclear explosivedevices. Brazil has placed its enrichment facilities under safeguards, despite havinga naval fuel program, which also raises the question of how far India's separation planconforms to the standards of the nonproliferation mainstream. The five nuclearweapon states have not encountered this problem thus far, since they have not placedany naval-related facilities on their safeguards-eligible lists. It is not clear whichprecedent would be less desirable -- placing India's naval fuel facilities undersafeguards and then going through steps for the nonapplication of safeguards, orsimply not safeguarding them at all on the grounds that they are of direct nationalsecurity significance. U.S. officials acknowledge the importance of a credible Indian separationplan for ensuring that the United States complies with its Article I obligations underthe Nuclear Nonproliferation Treaty (NPT) -- to not in any way assist a nuclearweapons program in a non-nuclear weapon state. For almost thirty years, the U.S.legal standard has been that only nuclear safeguards on all nuclear activities in a stateprovides adequate assurances. The Administration has sought, and Congress hasprovided, backing for a lower level of assurance by proposing that the separation plantake the place of comprehensive safeguards. From a broad perspective, Congress may consider whether opening upinternational cooperation to India after all these years has a net positive effect onIndia's nuclear weapons program. Under Secretary of State Nicholas Burns toldreporters on March 2, 2006, that the agreement will not have an impact on India'sstrategic program. (55) However, some observers believe that unlessIndia stops production of fissile material for weapons purposes, nuclear safeguardswill do little to ensure that assistance is not diverted. From a narrower perspective, the text of a peaceful nuclear cooperationagreement is necessary for Congress to assess whether or not the United States cancomply with its NPT obligations not to assist India's nuclear weapons program. P.L.109-401 , which gives the President authority to waive certain requirements of theAtomic Energy Act, still requires the Administration to send Congress not only thetext of a peaceful nuclear cooperation agreement, but also a Nuclear ProliferationAssessment Statement (NPAS), which must address the extent to which U.S. treatycommitments are met. Under P.L. 109-401 , the following sections require reports to Congressrelated to the separation plan: Under the Submission to Congress provision of Section 104(Section 104. (c) (2) (A)), the Administration will be required to provide "a summaryof the plan provided by India to the United States and the IAEA to separate India'scivil and military nuclear facilities, materials, and programs, and the declarationmade by India to the IAEA identifying India's civil facilities to be placed under IAEAsafeguards, including an analysis of the credibility of such plan and declaration,together with copies of the plan and declaration." Under the Reporting to Congress provision of Section 104(Section 104.(g)(1)) the Administration will be required to keep committees informedof (A)(ii): material noncompliance with the separationplan; (B): "construction of a nuclear facility in India after thedate of enactment of this title"; (C): "significant changes in the production by India ofnuclear weapons or in the types or amounts of fissile material produced";and (D): "changes in the purpose or operational status of anyunsafeguarded nuclear fuel cycle activities in India." Under the Implementation and Compliance Report provisionof Section 104 (Section 104.(g)(2)), the Administration is required to report, 180 daysafter entry into force of the Section 123 agreement and annuallythereafter: (A): a description of any additional nuclear facilities andnuclear materials that the Government of India has placed or intends to place underIAEA safeguards; (F): an analysis of whether U.S. civil nuclearcooperation with India is in any way assisting India's nuclear weaponsprogram; (H): an estimate relating to India's production ofuranium, fissile material for nuclear explosives; (I): an estimate of the amount of electricity produced byIndia's declared and undeclared reactors; and (J): an analysis of whether imported uranium hasaffected the rate of production in India of nuclear explosivedevices. In the President's signing statement on December 18, 2006, he noted that theexecutive branch would construe "provisions of the Act that mandate, regulate, orprohibit submission of information to the Congress, an international organization, orthe public, such as sections 104, 109, 261, 271, 272, 273, 274, and 275, in a mannerconsistent with the President's constitutional authority to protect and controlinformation that could impair foreign relations, national security, the deliberativeprocesses of the Executive, or the performance of the Executive's constitutionalduties." This could suggest that the executive branch might limit the scope ofreporting required by Congress in those sections. Limiting the scope of reportingcould have an adverse impact on Congress's ability to assess the nuclear cooperationagreement at three different times: when the agreement is submitted forcongressional approval; at random times when there are certain developments inIndia's nuclear fuel cycle; and on an annual basis when the Administration reports onimplementation and compliance. | On July 18, 2005, President Bush and Indian Prime Minister Manmohan Singh announcedthe creation of a "global partnership," which would include "full" civil nuclear cooperation betweenthe United States and India. This is at odds with nearly three decades of U.S. nonproliferation policyand practice. President Bush promised India he would persuade Congress to amend the pertinentlaws to approve the agreement, as well as persuade U.S. allies to create an exception to multilateralNuclear Suppliers Group (NSG) guidelines for India. India committed to, among other things,separating its civilian nuclear facilities from its military nuclear facilities, declaring civilian facilitiesto the International Atomic Energy Agency (IAEA) and placing them under IAEA safeguards, andsigning an Additional Protocol. See CRS Report RL33016 , U.S. Nuclear Cooperation With India:Issues for Congress , by [author name scrubbed], for further details on the agreement. The separation plan announced by Prime Minister Singh and President Bush on March 2,2006, and further elaborated on May 11, 2006, would place 8 power reactors under inspection,bringing the total up to 14 out of a possible 22 under inspection. Several fuel fabrication and spentfuel storage facilities were declared, as well as 3 heavy water plants that were described as"safeguards-irrelevant." The plan excludes from international inspection 8 indigenous powerreactors, enrichment and spent fuel reprocessing facilities (except as currently safeguarded), militaryproduction reactors and other military nuclear plants and 3 heavy water plants. Administrationofficials have defended the separation plan as credible and defensible because it covers more thanjust a token number of Indian facilities, provides for safeguards in perpetuity, and includes upstreamand downstream facilities. U.S. officials acknowledge the importance of a credible separation plan to ensuring that theUnited States complies with its Article I obligations under the Nuclear Nonproliferation Treaty(NPT) -- to not in any way assist a nuclear weapons program in a non-nuclear weapon state. Foralmost 30 years, the U.S. legal standard has been that only nuclear safeguards on all nuclear activitiesin a state provides adequate assurances. The Administration is apparently asking Congress to backa lower level of assurance by proposing that the separation plan take the place of comprehensivesafeguards. Congress is likely to consider this issue as well as others when the Administration eventuallysubmits its cooperation agreement with India for approval by both chambers. P.L. 109-401 , signedon December 18, 2006, provides waivers for a nuclear cooperation agreement with India fromrelevant Atomic Energy Act provisions, and requires detailed information on the separation plan andresultant safeguards. This report, which will be updated as necessary, provides background onIndia's nuclear fuel cycle, a discussion of various issues involved in separating civilian and militarynuclear facilities and potential concerns for Congress as it considers whether the United States hasadequate assurances that its nuclear cooperation does not assist, encourage, or induce India's nuclearweapons development, production, or proliferation. |
Lack of regular dental care can result in pain, infection, and delayed diagnosis of oral diseases. During the 2001-2004 period, one-fourth to one-third of children ages 2 to 19 in families with income below 200% of the federal poverty level (FPL) experienced untreated dental caries (decay), a sign that needed dental care was not received. In 2005, about one-third of all children living below 200% FPL did not have a recent dental visit. In a related study, GAO found that during the 1999-2004 period, roughly one in three Medicaid children ages 2 through 18 had untreated tooth decay, and data from 2004 through 2005 indicated that only 37% received any dental care over a one-year period. With respect to receipt of dental services, insurance matters. In 2006, 50.9% of individuals under the age of 21 in the United States had private dental coverage, another 30.4% had public dental coverage (primarily Medicaid and SCHIP), and 18.7% had no dental coverage. The percentage of individuals under age 21 that had a dental visit in 2006 varied by type of coverage—58.0% with private dental coverage had a dental visit that year, compared with 35.1% of those with public dental coverage and 26.3% of the subgroup with no dental coverage. The American Academy of Pediatric Dentistry (AAPD) recommends that every child be seen by a dentist following the eruption of the first tooth, but not later than 12 months of age. All other children should have additional periodic dental exams every six months (i.e., twice a year). Under Medicaid, states must adopt a dental periodicity schedule, which can be state-specific based on consultation with dental groups, or may be based on nationally recognized dental periodicity schedules, such as the AAPD's guidelines. One goal of the Healthy People 2010 initiative, a federal effort to increase quality and years of healthy life and eliminate health disparities, is that at least 66% of low-income children receive a preventive dental visit each year. Most Medicaid children under age 21 are entitled to Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services. The Medicaid statute (Section 1905(r)) defines required EPSDT screening services to include dental services that, at a minimum, include relief of pain and infections, restoration of teeth, and maintenance of dental health. In addition, care that is necessary to correct or ameliorate identified problems must also be provided, including services that states do not otherwise cover in their Medicaid programs. Beneficiary cost-sharing for services such as dental care is prohibited for children under age 18, and is optional for those ages 18-20. Federal law is intended to eliminate or significantly reduce major barriers to dental services for Medicaid children. Nonetheless, the research literature has identified several factors that affect the use of dental services among children. From a beneficiary perspective, barriers include, for example, ability to pay for care, navigating government assistance programs, finding a dentist who will accept Medicaid, locating a dentist close to home (especially in inner-city and rural areas), getting to a dentist office, cultural or language barriers, and lack of knowledge about the need for periodic oral health care. Most of the dental care provided in the United States is delivered by private dentists. In contrast to physician services, about half of all payments for dental services are made out-of-pocket, rather than through insurance. In addition, overhead in dental practices is high, averaging about 60 cents for every dollar earned, due in part to the need for expensive equipment. New dentists also face substantial debt because of the high cost of dental education. While there are questions about whether there is an overall shortage of dentists in the United States, there is general agreement that too few provide services to those who are publicly funded and those with special needs. Federal Medicaid law and regulations require that payment rates be sufficient to enlist enough providers so that services are available at least to the same extent that such services are available to the general population in the geographic area. Nonetheless, reimbursement rates are an obstacle to such participation. In addition to reimbursement rates, dentists typically cite two other reasons for their low participation rates in Medicaid: burdensome administrative requirements and patient behavior (e.g., infrequent care-seeking behavior and high no-show rates for dental appointments). A recent study of physicians also shows a negative relationship between administrative issues (delays in receiving payments) and participation in Medicaid. The Medicaid statute (Section 1902(a)(43)) requires states to inform and arrange for the delivery of EPSDT services to eligible children, and also includes annual reporting requirements for states. The tool used to capture these required EPSDT data is called the CMS-416 form. The current CMS-416 form (effective as of FY1999) includes the unduplicated count of EPSDT eligibles by age and basis of eligibility who receive (1) any dental services, (2) preventive dental services, and (3) dental treatment services. Classification into one of these measures is based on specific dental procedure codes recorded on provider claims. Across states in FY2006, use of dental services among Medicaid children was generally low, as shown in Table 1 . Receipt of any dental services among Medicaid children eligible for EPSDT ranged from 18.9% (in North Dakota) to 55.7% (in West Virginia). Receipt of preventive dental services ranged from 6.7% (in Utah) to 51.0% (in Vermont). Finally, receipt of dental treatment services ranged from 6.4% (in Nevada) to 40.8% (in West Virginia). During routine immunization and well-child visits, there are a number of opportunities for physicians to inform parents about the need for dental services for their children. Guidance from the American Academy of Pediatrics for well-child visits during 2006 (in effect since 2000) called for initial dental referrals at age three years, or as early as one year of age when indicated. Table 2 provides a more detailed analysis of the receipt of preventive dental services by age in FY2006. Across age groups within each state and for all reporting states as a whole, utilization patterns resembled a bell-shaped curve (see Figure 1 ). That is, children at the age extremes tended to receive fewer preventive dental services than children in the middle of the age range. Among nearly all states, the highest rates of preventive dental care were observed for the six- to nine-year-old age group. For this age group, 10 states had preventive dental rates over 50%, and one state (Vermont) met the Healthy People 2010 goal that at least 66% of such children receive a preventive dental visit. The higher rates of preventive dental care among children aged six to nine may be related in part to school entry requirements for childhood immunizations. In order to attend kindergarten at ages five and six, for example, all states require that children have received common childhood immunizations (e.g., vaccinations for diphtheria, tetanus, and acellular pertussis, or DTaP; measles, mumps, and rubella, or MMR; and polio). When children receive those immunizations, health care providers may make referrals for other health services, including dental care. Many states recognize that dental care is underutilized across most Medicaid sub-populations. In a September 2008 hearing before the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform, state officials and other representatives from Maryland, Virginia, North Carolina, and Georgia, and from the dental profession, described recent state actions to improve dental care for Medicaid children. Their recommendations included the following: increase dental reimbursement rates to make them more in line with private market-based rates; remove administrative barriers (e.g., prior authorization for certain procedures, simplified claims, and use of electronic billing); carve out dental benefits from managed care contracts and use a single dental vendor to establish a more stream-lined approach to processing claims and paying providers; when designing new dental program features, involve dentists and professional dental organizations; establish dedicated dental units in state governments to help guide policy decisions; and establish "dental extenders" to increase service capacity, including for example, (1) primary care medical professionals to provide oral evaluation and risk assessment, counseling for parents about oral hygiene, and application of fluorides, and (2) other allied dental providers that can do community outreach and education, and perform preventive services such as fluoride and sealant application, potentially expanding to additional dental treatment services. Other states may draw lessons from these experiences and recommendations. With respect to the final point above, provider groups hold varying opinions about the extent to which non-dentists can and should provide certain dental services. States may need to address such issues if they wish to expand access to dental care under Medicaid for children and other sub-groups. | According to guidelines published by the American Academy of Pediatric Dentistry, all youth should see a dentist for routine dental screening and preventive care twice a year. Dental care is a mandatory benefit for most Medicaid eligibles under the age of 21, however, nationwide, the majority of low-income children enrolled in Medicaid do not receive any dental services in a given year. There are many beneficiary and provider-related issues that contribute to inadequate access to and delivery of dental care. To address this problem, some states have undertaken new Medicaid initiatives to attract and retain dental providers that may serve as models for other state Medicaid programs. |
This report examines the federal laws and regulations relevant to entering into federal government employment from the private sector, with respect particularly to the potential conflicts of interest that may arise because of the past employment, affiliations, or financial interests or involvements of a nominee or new officer or employee in the executive branch of government. The report is intended to provide those conducting congressional oversight with an outline of some of the issues, rules, regulations, and oversight tools that may be available regarding this subject. Concerns have been expressed about the impartiality, bias, or fairness of government regulators, administrators, and other executive branch decisionmakers who, shortly before entering government service, represented, owned, or were employed by the industries, firms, or other entities which they must now regulate and oversee, or about whom they now provide advice to the government. Several instances of alleged conflicts of interest, "appearances" of conflicts of interest or bias, or "cozy relationships" between the regulated entities and the government official who formerly worked for or represented that regulated entity, have been examined in the press over the last several years. Additionally, concerns have been raised with regard to large cash pay-outs or "rewards" to personnel of private entities who are about to enter government service. The allegations and concerns in such instances are that loyalty to private economic and business interests, rather than fealty to the general public interest, is being served by such officials in their actions. Individuals entering federal service will bring with them existing financial investments, ownerships, properties, and other economic arrangements typical of anyone similarly placed in American society. Those entering federal service immediately from private industry will also enter with certain former affiliations, employment, or other financial, economic, or business associations with particular private interests. Federal conflict of interest law and regulation focuses primarily on current economic and financial interests of a government official and those closely associated with the official. However, there are some limited conflict of interest regulations and ethics standards which look also to previous employment and past associations of those becoming federal officers and employees. The term "conflict of interest" may have a broad meaning in general usage. However, under federal law and regulation a "conflict of interest," for the most part, deals with a conflict between a federal employee's official, governmental duties and responsibilities on the one hand, and the personal, financial, or economic interests of the employee on the other. When the official duties of a government employee may impact upon the outside, private business or economic interests of that employee, or the economic interests of those closely associated with the employee, a conflict of interest situation presents itself. The overall scheme of the conflict of interest laws adopted by Congress generally embodies the principle "that a public servant owes undivided loyalty to the Government," and that advice and recommendations given to the government by its employees and officials be made in the public interest and not be tainted, even unintentionally, with influence from private or personal financial interests. The House Judiciary Committee, reporting out major conflict of interest revisions made to federal law in the 1960s, found, The proper operation of a democratic government requires that officials be independent and impartial; that Government decisions and policy be made in the proper channels of the governmental structure; ... and that the public have confidence in the integrity of its government. The attainment of one or more of these ends is impaired whenever there exists, or appears to exist an actual or potential conflict between the private interests of a Government employee and his duties as an official. The concern in such regulation "is not only the possibility or appearance of private gain from public office, but the risk that official decisions, whether consciously or otherwise, will be motivated by something other than the public's interest. The ultimate concern is bad government ... " The conflict of interest laws are thus directed not only at conduct which is improper, but rather are often preventative in nature, directed at situations which merely have the potential to tempt or subtly influence an official in the performance of official public duties. As explained by the Supreme Court with regard to a predecessor conflict of interest law requiring disqualification of officials from matters in which they have a personal financial interest: This broad proscription embodies a recognition of the fact that an impairment of impartial judgment can occur in even the most well-meaning men when their personal economic interests are affected by the business they transact on behalf of the Government. The application of federal conflict of interest laws and regulations, particularly the laws requiring an official's recusal or disqualification from certain matters, or regulations or procedures requiring the divestiture of certain assets, have traditionally been directed at current and existing financial interests and ties of that official, and those closely associated with the official. The regulatory scheme regarding financial interests encompasses what has colloquially been called the "three-D" method of conflict of interest regulation, that is: disclosure, disqualification, and divestiture. Upon entering the federal government, and then annually on May 15 thereafter, high-level government officials must file detailed, public financial disclosure statements. Public financial disclosures were first required by law with the passage of the Ethics in Government Act of 1978 ( P.L. 95-521 , as amended), and were intended to serve the purpose of identifying "potential conflicts of interest or situations that might present the appearance of a conflict of interest" for government officials in policymaking positions. In addition to the purpose of merely identifying potential conflicts, and then attempting to resolve such conflicts of interest, the committees considering the ethics legislation adopted in 1978 recognized the fact that there was potentially a "deterrent factor" in requiring public disclosure of a government official's personal and family financial information,—both in deterring the holding of certain assets (and thus deterring certain potential conflicts of interest), but also possibly in deterring the recruitment of certain persons into the government because of such persons' uneasiness with the required details of public financial disclosure. As noted by the Senate committee, however, this latter deterrent effect was not necessarily a negative consequence of required public disclosures, but could be a positive consideration in the enactment of the financial disclosure requirement: Public financial disclosure will deter some persons who should not be entering public service from doing so. Individuals whose personal finances would not bear up to public scrutiny ... will very likely be discouraged from entering public office altogether, knowing in advance that their sources of income and financial holdings will be available for public review. Whether an employee of the federal government is required to file public financial disclosure statements is determined, in the first instance, by the rate of compensation that the employee receives or will receive from the federal government, and then, secondly, by the number of days such an employee works for the federal government. Any officer or employee of the executive branch of government who "occupies a position classified above GS-15," or, if "not under the General Schedule," is in a position compensated at a "rate of basic pay ... equal to or greater than 120 percent of the minimum rate of basic pay payable for GS-15," is generally subject to the public disclosure provisions. Those employees compensated at the rate of pay described above will be required to file public disclosure statements if the individual works for the government for more than 60 days in the calendar year. This requirement for detailed, public financial disclosure under the Ethics in Government Act of 1978 applies to nearly 30,000 officials in the federal government. In addition to the statutory mandate for public disclosure based on salary level, all "Schedule C" employees, regardless of salary, must file public financial disclosures unless exempted from such disclosure by the Office of Government Ethics. Anyone entering the federal service who is covered by the public financial disclosure laws generally must, within 30 days of appointment, file an entry report. Thereafter, covered employees must file annual reports by May 15. All presidential nominees requiring Senate confirmation must file public disclosure statements regardless of salary (but uniformed and foreign service nominees file only if they meet the pay threshold), and such reports incur other specific procedural steps. Their disclosure statements are not only filed with and reviewed by their department or agency, but are also "transmitted" to the Office of Government Ethics for review, and are "foward[ed]" for review to the committee of the Senate with jurisdiction over the particular individual's nomination. Once the President has transmitted to the Senate the nomination of a person required to be confirmed by the Senate, the nominee must within five days of the President's transmittal (or any time after the public announcement of the nomination, but no later than five days after transmittal), file a financial disclosure statement. This financial disclosure statement is filed with the designated agency ethics officer of the agency in which the nominee will serve, and copies of the report are transmitted by the agency to the Director of the Office of Government Ethics (OGE). The Director of OGE then forwards a copy to the Senate committee which is considering the nomination of that individual. A presidential nominee must file an updated report to the committee reviewing his nomination at or before the commencement of hearings, updating the information through the period "not more than five days prior to the commencement of the hearing," concerning specifically information related to honoraria and outside earned income. For most incoming federal officials filing their entry report, as well as for current employees filing their annual financial disclosure statements by May 15 of each year, such reports are filed with the designated agency ethics officer (most commonly in the office of general counsel) in the agency in which the reporting officer or employee serves or is to serve. The President and the Vice President, however, file their reports with the Director of the Office of Government Ethics. All financial disclosure reports filed by federal officials are open generally for public inspection upon request made in writing, subject to rules on the impermissible commercial or political use of the information contained in the reports. The repository agencies are instructed to retain the reports as public records for six years. Additionally, under legislation known as the STOCK Act, reports for the highest level officials in the government, including the President, Vice President, Members of and candidates to Congress, and executive officials compensated at level I of the Executive Schedule (Cabinet officials), and level II of the Executive Schedule (which includes deputy secretaries of the departments as well as the heads of many executive and independent agencies), are now also required to be posted on the Internet by their respective agencies. Most of the information required to be filed and publicly disclosed concerns current and existing financial information on assets, property, debts, income, and existing associations which may present or potentially involve a conflict of interest with the officer's or employee's official responsibilities for the government. The regular annual financial disclosure reports to be filed in May of each year generally require information concerning eight different categories of financial information. The disclosure statement requires public listing of the identity and/or the value (generally in "categories of value") of such items as: (1) the official's private income of $200 or more (including earned and unearned income such as dividends, rents, interest and capital gains) and the source of income; (2) gifts received over a certain amount (including reimbursements for travel over threshold amounts); (3) the identification of financial assets and income-producing property (such as stocks, bonds, other securities, rental property, etc.) of over $1,000 in value (including savings accounts over $5,000); (4) liabilities owed to creditors exceeding $10,000 (but generally not including one's home mortgage or car loans); (5) financial transactions, including purchases, sales or exchanges exceeding $1,000 in value, of income-producing property, stocks, bonds, or other securities; (6) positions held in outside businesses and organizations; (7) agreements for future employment or leaves of absence with private entities, continuing payments from or participation in benefit plans of former employers; and (8) the cash value of the interests in a qualifying blind trust. The reports from those just entering federal service—including the reports of incoming presidential appointees requiring Senate confirmation—include most of the information required in the annual reports under Section 102(a) of the Ethics in Government Act, but do not include the information on gifts and travel reimbursements (§ 102(a)(2)), the information on financial transactions during the previous year (§ 102(a)(5)), or the cash value of trusts (§ 102(a)(8)). The new entrant reports specifically require disclosure of private income received for the filing year and the preceding calendar year; ownership interests in assets and income producing property over $1,000 in value, and liabilities of over $10,000 owed, as of the date specified in the report, but which must be no more than 31 days before the filing date; the identity of positions held in private entities; and any future agreements for employment, leave of absence, continuing payments from or participation in benefit plans of former employers. Although most of the public financial disclosure requirements under the Ethics in Government Act of 1978, as amended, are directed at current and existing financial holdings and interests, there are certain provisions which look to past affiliations and interests. Perhaps most significantly for first-time filers, including nominees to Senate-confirmed positions, the public disclosure law requires non-elected reporting individuals to list in public reports the identity of persons, including clients, from whom the reporting official has received more than $5,000 in compensation in any of the two calendar years prior to the year in which the reporting official files his or her first disclosure report. Such listing of clients and others who paid the reporting individual compensation above the statutory threshold, should also include a statement of "the nature of the duties performed or services rendered" for such client or employer. Furthermore, new entrant reports, including reports of nominees, are to contain the required information concerning all private income received for the filing year and the preceding calendar year; and the identity of positions held in private entities must be disclosed not only for positions held during the current calendar year, but also during the two preceding years. The ethics officials to whom the annual disclosure reports are made are instructed to review the reports within 60 days to determine if the filer is in compliance with applicable conflict of interest laws and ethical standards of conduct regulations, and if so, to sign off on such reports. If there are assets, ownerships, income, or associations which indicate a conflict of interest or ethics problem, that is, that "an individual is not in compliance with applicable laws and regulations," then after consultation with the individual, the reviewing ethics official or office may recommend several steps which may be appropriate to rectify the ethics problems, including "divestiture," "restitution," the establishment of a "blind trust," the request for a personal conflict of interest exemption under 18 U.S.C. § 208(b), or a request for a "transfer, reassignment, limitation on duties or resignation." As noted, presidential nominees who are subject to Senate confirmation also file with the agency or department in which they will serve. That agency or department conducts an expedited ("accelerated") review of the disclosure report, and where appropriate, the reviewing official is to certify that there are no problems with the private financial interests of the nominee, that is, that there are "no unresolved conflict of interest" issues. Where there are real or apparent conflict of interest problems revealed in the financial disclosure reports, the reviewing official, consulting with the reporting officer, must determine what "remedial action" is to be taken. "Remedial action" may include divestiture where appropriate, agreements to recuse, and the establishment of a qualified blind trust or a diversified trust. Subsequently, a letter to the Director of the Office of Government Ethics must be provided setting out the apparent or real conflicts of interest, the remedial measures taken to resolve those issues, and any "ethics agreements" entered into to resolve such conflicts. Ethics agreements are specific agreements between the nominee or official and the agency, as approved by OGE, as to future conduct that the nominee or official will take, such as divestiture, recusal or resignation from an outside position, to resolve a conflict of interest problem. If the Director of OGE is satisfied that all conflicts have been resolved, the Director signs and dates the report form, then submits the form and any ethics agreement, with a letter to the appropriate Senate committee expressing the Director's opinion that the nominee has complied with all conflict of interest laws and regulations. All financial disclosure statements from presidential nominees who require Senate confirmation are forwarded to the committee of jurisdiction from the Office of Government Ethics. The nominee is also required to update the disclosure statement with respect to certain items within five days before nomination hearings. Committees of the Senate, because of the Senate's express constitutional power of approval of presidential nominations of officers of the United States, are not limited or restrained by the disclosure forms as to the information that they may request from a nominee to assist in their constitutional "advice and consent" function; and may require any additional information from a nominee that they deem necessary or desirable. Furthermore, a Senate committee, or the Senate, may require the nominee to agree to dispose of certain assets, and/or to recuse himself from participating in certain governmental matters, even beyond any "ethics agreement" made between the nominee and agency or OGE officials. The principal statutory method of dealing with potential conflicts of interest of an executive branch officer or employee is to require the disqualification (or "recusal") of the officer or employee from participating in any official governmental matter in which that official—or those close enough to the official such that their financial interests may be "imputed" to the official—has any "financial interest." The statutory provision requiring disqualification and recusal is a criminal provision of federal law, and covers only current or existing financial interests of the officer or employee. Under the law, criminal penalties may attach to an officer or employee who has the requisite financial interest in an official matter and who participates in that official matter. There is also a "regulatory" recusal requirement that may be broader in some aspects than the statutory restriction, and may apply to certain past affiliations and previous economic interests. Current regulations promulgated by the Office of Government Ethics expressly require in certain circumstances that the executive branch official refrain from participating in certain particular matters when businesses, entities, or economic enterprises with which the official had been affiliated in the past one year are parties to or represent parties in that matter; and require as well certain disqualifications for two years in cases where the private entity had made "extraordinary" payments to the government official upon the official's departure. Under the "ethics pledge" which presidential and vice-presidential appointees in the Obama Administration must take, the one-year recusal requirement for particular matters involving specific parties is increased to two years, and additional restrictions are added on participating in particular governmental matters for former lobbyists entering the Administration. The federal statutes deal with existing conflicts of interest of administrative or regulatory personnel principally by requiring the disqualification of such federal official from certain governmental matters in which the official may be financially interested, as opposed to specifically requiring the divestiture of conflicting interests. The federal statute at 18 U.S.C. § 208, which is the principal, general conflict of interest provision under federal law, requires an official's disqualification (recusal) from a particular governmental matter in which the officer, his or her spouse or dependent " has a financial interest," or where there is affected a financial interest of an outside entity "in which he [the government official] is serving" as an employee, officer or director, or with whom the official " is negotiating or has an arrangement" for future employment. The statutory language is thus stated in the present tense and is directed only to current financial interests and existing arrangements or current understandings for future employment, and the statutory provision does not require disqualification on a matter because of a past affiliation or previous economic interest. The statutory provision at 18 U.S.C. § 208 specifically bars a federal officer or employee in the executive branch of the federal government from taking official action "personally and substantially" through "decision, approval, disapproval, recommendation, the rendering of advice, investigation or otherwise," in any "particular" governmental matter, such as a proceeding, request for a ruling, claim, or a contract, which affects the financial interests of that officer or employee, that employee's spouse or dependents, or which affects the financial interests of an organization in which the employee is affiliated as an officer, director, trustee, general partner or employee, or "with whom he is negotiating or has any arrangement concerning prospective employment." Although there is no de minimis exception expressly stated, the law does provide that regulations may exempt certain categories of investments and interests which are deemed too remote or inconsequential to affect the performance of an official's governmental duties. The current Office of Government Ethics regulations exempt several such interests, including all interests in "diversified" mutual funds; interests in sector funds which include some companies affected by a governmental matter but where those companies are outside of the primary sector in which that fund specializes, and other sector funds even specializing in the particular sector but where one's interest in the fund is no more than $50,000; securities, stocks and bonds in a publicly traded company which is a party to and directly affected by a governmental matter if one's ownership value is no more than $15,000; securities, stocks and bonds in such a company which is not a specific party to a matter but is in a class affected by the governmental matter, if the employee's ownership interest is no more than $25,000 (if securities in more than one such company are owned, then the aggregate value cannot exceed $50,000 to be exempt from the statute). In addition to the statutory recusal requirement, there also exists regulatory requirements for disqualification which may reach other financial interests and connections. Although the range of private interests potentially affected by an official's governmental actions are broadened in the regulation, the regulatory recusal provision is more narrowly focused than the statutory provision as to those specific governmental matters covered. The regulations of the Office of Government Ethics provide this regulatory disqualification provision to help assure the avoidance of "an appearance of loss of impartiality in the performance of" official duties by a federal employee. The regulation, in comparison to the statutory recusal requirement, expands the persons and entities who are deemed to be so connected to the employee that their financial interests may be "imputed" to that employee (and, as such, would constitute cause for recusal or disqualification of the employee from a governmental matter affecting or involving those interests); but, as compared to the statutory disqualification, narrows those particular governmental matters that are included in the disqualification requirement. Even if covered by this particular regulatory provision, there are circumstances in which the employee may still be authorized by his or her agency to participate in the particular matter when warranted. The regulation requires a government employee in the executive branch to recuse himself or herself from a "particular matter involving specific parties" when (1) the employee knows that the matter will have a direct and predictable effect on the financial interests of a member of his or her household, or (2) when a person or entity with whom the employee has a "covered relationship" is a party or represents a party to the matter. Such recusal should be done under those circumstances when the employee believes that his or her impartiality may be questioned, unless the employee first advises his or her agency about the matter and receives authorization to participate in the matter. As to current and existing financial interests, the regulation provides that a "covered relationship" is one with: those persons or entities with whom the employee seeks a business, contractual or other financial relationship; a member of the employee's household, or a relative with whom the employee has a close personal relationship; a person or entity with whom the employee's spouse, child, or parent is serving or seeks to serve as an officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee; or an organization (other than a political party) in which the employee is an active participant. As noted, the regulatory recusal requirement, although broader as to the affected financial interests, applies to a narrower range of governmental matters than the statutory provision. The regulation applies only to particular governmental matters "involving specific parties," and as such would not cover such "particular matters" as general policymaking or drafting regulations affecting an economic or business sector; while the statutory recusal requirement applies to all governmental "particular matters," including even the drafting of such regulations. In addition to the Office of Government Ethics regulations applying a recusal requirement beyond the interests and relationships set out in the criminal conflict of interest statute concerning other current or existing interests, the regulations also expand and apply a potential recusal and disqualification requirement of a federal executive branch official for certain past business and economic associations. The regulations provide that a federal official should recuse or disqualify himself or herself from working on a particular governmental matter involving specific parties if a "person for whom the employee has, within the last year, served as an officer, director, trustee, general partner, agent, attorney, consultant, contractor or employee ..." is a party or represents a party in such matter. This one-year recusal requirement, concerning matters affecting an official's former employers, businesses, clients, or partners, applies to any officer or employee of the executive branch, but applies narrowly only to "a particular matter involving specific parties" when such former employer or business associate is or represents a party to the matter. As noted above, matters "involving specific parties" cover generally things such as contracts, investigations, or prosecutions or cases involving specific individuals or parties, as opposed to broader "particular matters" which may involve a number of persons or entities (such as most rule making). Notwithstanding the fact that a past employer, client, or business associate with whom the employee has a "covered relationship" may be a party or represent a party to such a matter, an employee may, as with the regulatory restriction on current interests, receive authorization by his or her agency to participate in the matter. An Executive Order issued by President Obama would, for full-time presidential and vice presidential appointees to non-career positions in the Obama Administration, apply a similar restriction for two years after entering the government concerning such appointees and their former employers or clients. In addition to the one-year recusal requirement for particular matters involving specific parties when a former client, employer, firm, or business is or represents a party in that matter (or two years by Executive Order if one is a presidential or vice presidential appointee in the Obama Administration), the regulations of the Office of Government Ethics also provide for a two-year recusal requirement which bars an official in the executive branch from participating in a particular matter in which a "former employer" is or represents a party when that former employer had made an "extraordinary payment" to the official prior to entering government. An "extraordinary payment" is one in excess of $10,000 in value made by an employer after the employer has learned that the employee is to enter government service, and one which is not an ordinary payment, that is, is a payment other than in conformance with the employer's "established compensation, benefits or partnership program." This disqualification provision may be waived in writing by an agency head, or if the individual involved is the head of an agency, by the President or his designee. There have been concerns raised in the media about large cash payments or "rewards" given to employees and officers of private firms when such persons are about to enter the federal government. The concern is that such large cash payments or rewards would unduly influence those individuals to make policy decisions, recommendations, or otherwise take actions favorable to the donor private firm when they enter federal employment. As noted above, "extraordinary payments" from a private employer to an individual who is to become a federal official may encounter the two-year disqualification requirement under OGE regulations. Such regulations require the recusal of that incoming employee for two years from participating in any particular governmental matter involving that former employer as a party, or if the former employer or partner represents a party to the matter. Additionally, there is a criminal provision of federal conflict of interest law, at 18 U.S.C. §209, which prohibits a federal employee from receiving any outside, additional, or supplemental compensation from a private source for his or her official government duties as a federal employee. One who has already entered federal service may not, therefore, accept a salary supplementation from a business or organization intended to "make up the difference" between private sector and federal government salaries, or to otherwise reward or compensate the new federal employee for his or her public service. This statutory restriction originated in 1917 from an initial legislative concern over private foundations paying the compensation of persons who were serving under a cooperative agreement in the Bureau of Education within the Department of the Interior, and the undue and, to some, "noxious" influence of such foundations on national educational policy. The law at §209 has been described as a conflict of interest statute "in the strictest sense," that is, an "employee does not have to do anything improper in his office to violate the statute," but rather his or her special status as a government employee "makes an unexceptionable act wrongful—wrongful because of the potential dangers in serving two paymasters." The law thus seeks to assure that a federal employee is compensated for his or her services to the government only by the government, is not placed in a position of "serving two masters," and is not, nor appears to be, beholden or grateful to any outside group or private interest which "could affect the independent judgment of the employee." This provision of criminal law at 18 U.S.C. § 209 might come into play, therefore, regarding certain "severance" payments, packages, or plans from a former private employer to an individual who has entered federal service if there is evidenced an "intent to compensate" an individual for that person's federal employment. The provision is not as broad in its application to severance payments as it may seem at first glance, however, since the language of the statute applies expressly only to "an officer or employee of the executive branch of the United States Government," and has been interpreted by the courts as applying only to persons who at the time payments were received were federal employees. That is, the restriction does not apply to severance payments which are made at the time one leaves or is contemplating leaving private employment, but before the individual actually becomes an officer or employee of the government. Even if the payment is made to reward the employee for taking a public service job, or is intended to or has the effect of instilling in the about-to-become-official a sense of gratitude or goodwill towards the private employer, there is apparently no violation of this criminal conflict of interest provision for severance payments made before one is a federal official, since federal employment status is an express element of the statute. One of the issues that arises with respect to current or past associations under the statutory recusal or disqualification requirement is the treatment of pensions from outside entities. Pensions generally involve current payments or vested interests from a fund controlled by an outside entity, but in recognition of or as compensation for past services. There are thus questions raised as to whether an employee's vested interest in a pension is a current financial interest or association with or in the entity making the payment, subject to all of the disqualification restrictions and limitations on current and existing financial interests, or whether pensions are excluded from being a disqualifying interest of an employee. The issue under the statutory recusal requirement is, as stated by the Office of Government Ethics, the concern "about an employee's participation in a Government matter that could have an effect on the sponsoring organization that is responsible for funding or maintaining the Government employee's pension plan." In interpreting the law at 18 U.S.C. § 208 and the regulations under it, the Office of Government Ethics has distinguished between two common types of pension plans, the "defined benefit plan," and the "defined contribution plan." In a "defined benefit plan," the employer typically "makes payments to an investment pool which it holds and invests for all participating employees"; and such plans are the "obligation of the employer" which pays the former employee an amount generally based on some percentage of what the employee's compensation had been. A "defined contribution plan," however, typically involves contributions by the employer and/or the employee to a specific, individual retirement account, and the payout of income or annuity is based on the amounts, earnings, gains or losses generated by such account. The conflict of interest concerns thus generally arise more typically with a "defined benefit plan" type of pension where the employer itself is obligated to make the pension payments, but not so in a "defined contribution plan" where the pension payments come out of an already established and funded retirement account. For purposes of the statutory disqualification requirement, therefore, the Office of Government Ethics would not consider a "defined contribution plan" as a "disqualifying" financial interest of the employee: "For matters affecting the sponsor of a defined contribution plan, an employee's interest is not ordinarily a disqualifying financial interest under section 208 because the sponsor is not obligated to fund the employee's pension plan." If the employee's pension is based on a "defined benefit plan," then the Office of Government Ethics would consider such a pension as a current, disqualifying interest under 18 U.S.C. § 208, in some circumstances. A defined benefit plan will be considered a disqualifying interest in governmental matters relating to the sponsor of the employee's pension if the governmental matter involved is so significant to the pension's sponsor that it could actually affect the employee's pension plan, that is, that "the matter would have a direct and predictable effect on the sponsor's ability or willingness to pay the employee's pension benefit," such as if the matter could result in "the dissolution of the sponsor organization." OGE notes that in a practical sense, it is unlikely that a governmental matter will have such an effect on a private pension sponsor, since even large contracts worth, for example, $500,000 to a firm, would not materially affect a sizable corporation's ability to pay its pension obligations to former employees. In most cases it is therefore unlikely that a current interest in or receipt of payment from a pension plan, either a defined benefit or defined contribution plan, would trigger the broad statutory, criminal recusal or disqualification requirement of 18 U.S.C. §208, for a federal employee as to the sponsor of his or her private pension; and the Office of Government Ethics has advised agencies to no longer "automatically presume that employees have a conflict of interest in matters affecting the sponsor of their defined benefit plans." The private sponsor of a defined benefit pension plan would, however, for purposes of the regulatory "impartiality" requirement, be one with whom the federal employee has a "covered relationship." In such a case, absent a disclosure to and authorization from the agency, the employee should therefore disqualify himself or herself concerning any official governmental matter which involves the sponsor of the pension plan as a "specific party." On January 21, 2009, President Obama issued an Executive Order requiring the signing of an "ethics pledge" by all presidential and vice presidential appointees to full-time, non-career positions in the executive branch, including all non-career SES appointees, and appointees to positions excepted from competitive service because they are of a confidential or policymaking nature (such as Schedule C appointments) The "ethics pledge" places two additional restrictions on such appointees entering the executive branch, with respect to their former employers or clients. Initially, such "appointees" may not participate in, and must recuse themselves for two years after entering federal service from any particular governmental matter involving specific parties when a former client or former employer of the appointee is a party to or represents a party in that particular matter. This extends a similar regulatory recusal and disqualification requirement applicable to all executive branch officials from one year to two years for such "appointees." Secondly, any such "appointees" who were registered "lobbyists" prior to entering the executive branch, are under additional and further restrictions. Such appointees/former lobbyists may not, for two years after entering the government: (1) participate in any particular matter on which the appointee had lobbied within the two years prior to his or her appointment; (2) participate in the specific issue area in which that particular matter falls; or (3) seek or accept employment with any agency that the appointee had lobbied within the two years prior to entering government service. In a similar fashion as other disqualification rules and laws, this disqualification and recusal requirement of the "ethics pledge" may be waived in certain circumstances. A waiver may be granted when the Director of the Office of Management and Budget, in consultation with the Counsel to the President, provides a written waiver that the strict application of the provision is inconsistent with its purposes, or when such a waiver "is in the public interest to grant." A further restriction on "lobbyists" serving in federal positions was announced by the Obama Administration in September of 2009, explaining the Administration's intention to prohibit federally registered lobbyists from serving on federal advisory boards and commissions used by federal executive agencies and officials. This position was made a formal policy of the Administration in a Presidential Memorandum to the heads of executive agencies and departments on June 18, 2010, in which the heads of agencies and departments were instructed not to reappoint or appoint federally registered lobbyists to "advisory committees and other boards and commissions." There is no federal statute which expressly implements a general, over-all requirement for federal employees to divest particular private assets or holdings to resolve likely or potential conflicts of interest with employees' public duties. Occasionally, a statutory provision, often the organic act establishing an agency, bureau, or commission, will provide expressly that the directors or board members of such entities shall have no financial interests in the business or sector which the agency, bureau, or commission is to regulate or oversee. Furthermore, an agency may by regulation prohibit or restrict the ownership of certain financial assets or class of assets by its officers and employees where, because of the mission of the agency, such interests would "cause a reasonable person to question the impartiality and objectivity with which agency programs are administered." In such instances, these statutory and regulatory provisions would, in their effect, require the divestiture of particular assets and holdings of certain individuals to be appointed to such positions or who are incumbents in such positions. Although there is no general statutory divestiture requirement, the divestiture of assets, properties, or holdings may be required as a conflict of interest avoidance mechanism by administrative provisions and oversight, as well as by a Senate committee or the Senate as a whole as a condition of favorable action on a presidential nominee requiring Senate confirmation. As noted earlier, the principal statutory method of conflict of interest avoidance, with respect to particular assets and holdings of a federal official, is to require the disqualification of that official from a governmental matter affecting those financial interests. However, under current regulations of the Office of Government Ethics, as part of the ethics review process, an agency may require the divestiture of certain assets of an individual employee where those interests would require the employee's disqualification from matters so central to his or her job that it would impair the employee's ability to perform his or her duties, or where it could adversely affect the agency's mission because another employee could not easily be substituted for the disqualified employee. When divestiture is required for ethics reasons, a current employee should be afforded a "reasonable amount of time" to effectuate the disposal of the asset; furthermore, it is possible to ameliorate potential unfair tax burdens that may arise because of such required sale of an asset by receiving a certificate of divestiture and postponing capital gains taxes. In some instances, a "qualified blind trust" may be used to avoid a conflict of interest as an alternative to "divestiture." While the underlying assets in a trust in which one has a beneficial interest must normally be disclosed in annual public financial disclosure reports, and would generally be "financial interests" of the employee/beneficiary for disqualification purposes, federal officials may, as a conflict of interest avoidance measure, place certain assets with an independent trustee in what is called a "qualified blind trust." The nature of a "blind trust," generally, is such that the official will have no control over, will receive no communications about, and will (eventually as existing assets are sold and new ones obtained by the trustee) have no knowledge of the identity of the specific assets held in the trust. As such, an official will not need to identify and disclose the particular assets in the corpus of a "blind trust" in future financial disclosure reports, and such assets will not be "financial interests" of the employee for disqualification purposes. The conflict of interest theory under which the blind trust provisions operate is that since the official will not know the identity of the specific assets in the trust, those assets and financial interests could not influence the official decisions and governmental duties of the reporting official, thus avoiding potential conflict of interest problems or appearances. Assets originally placed into the trust by the official will be known to that official, and therefore will continue to be "financial interests" of the public official for conflict of interest purposes until the trustee notifies the official "that such asset has been disposed of, or has a value of less than $1,000." The standards of conduct regulations promulgated by the Office of Government Ethics and derived from Executive Orders, provide generally that an employee in the executive branch must "act impartially and not give preferential treatment to any organization or individual." As to past associations, the Office of Government Ethics has noted that "It has long been recognized that former employment with a private organization can raise impartiality concerns. Members of the public, the press, and even the Congress sometimes have questioned whether a particular public official might be subject to continuing influence by a former employer." The "general principles" in the OGE regulations regarding financial interests and connections, outside employment or activities, and "impartiality," are fleshed out and covered in the more specific regulations promulgated by OGE. Although the basic impartiality language is fairly broad on its face, the "impartiality" actually required of a federal employee in a governmental matter by the specific conflict of interest and federal ethics standards, is a disinterestedness in the matter from the point of view of any financial impact that such a matter may have upon the employee personally, or upon certain entities, persons, or organizations which are closely associated with the employee, such that the financial interests of such entities or persons may be fairly "imputed" to the employee. As noted by the Office of Government Ethics, Questions regarding impartiality necessarily arise when an employee's official duties impact upon the employee's own financial interests or those of certain other persons, such as the employee's spouse or minor child. Thus, while past employment or other past professional affiliations or connections to private entities may suggest conflict of interest concerns and trigger certain restrictions under regulations, the current ethical standards of conduct and conflict of interest rules do not necessarily imply a prohibited "favoritism" or "impartiality" by the mere fact of past employments or past professional associations or positions beyond those past employment connections that are specifically covered and dealt with in the regulatory disqualification restrictions. That is, no matter how philosophically predisposed an administrative official may arguably seem towards an issue because of his or her professional or employment background, a specific "bias" or "partiality" in a decision cannot be gleaned, as a matter of federal law, merely by the past associations and /or past employment of a federal regulatory or administrative official beyond the specific regulatory restrictions. In general, the "impartiality" required of a federal employee in a matter does not mean that every federal employee must be completely "neutral" on an issue or matter before him or her, in the sense that the employee has no opinion, view, position, or predilection on a matter based either on past associations, or based upon current noneconomic factors such as the ethical, religious, ideological, or political beliefs in the background or in the current affiliations of the employee. In the specific regulations on "impartiality" and participation in outside organizations, in fact, the Office of Government Ethics notes, "Nothing in this section shall be construed to suggest that an employee should not participate in a matter because of his political, religious or moral views." As to the issue of "bias" or "impartiality" generally in decision making of federal officials, federal cases dealing with the alleged bias of a federal official have arisen on occasion in a "due process" context with respect to rule making of an agency. In such cases there had been alleged a lack of due process or fairness in the agency proceeding because of some claimed "bias" of a federal agency official. The courts have found, however, that when a federal official is not acting in an adjudicatory capacity, that is, in a similar position as a judge, then judicial standards of impartiality need not apply. The Court of Appeals for the District of Columbia Circuit has noted: "We must not impose judicial roles upon administrators when they perform functions very different from those of judges." The disqualification requirement for those who are part of formal adjudications was "never intended ... to apply in a rulemaking procedure," even a formal rulemaking procedure. In an earlier case in the District of Columbia Circuit, the court had explained, Agencies are required to consider in good faith, and to objectively evaluate, arguments presented to them; agency officials, however, need not be subjectively impartial. Going beyond specific statutory or regulatory restrictions on employees' economic interests and attempting to judicially apply very broad bias or impartiality standards upon regulators and administrators beyond those standards, noted one court, "is to invite challenges to officials based not upon true conflicts of interest but upon their philosophical or ideological leanings.... " Limiting "conflict of interest" regulation to current personal financial interests of employees—and the financial interests of those imputed to the employee—may also ameliorate some First Amendment issues regarding attempts to regulate the outside, private associations, memberships, or organizational activities of public employees. While there could be concerns raised about general notions of "bias" or partiality in a governmental function based on alleged associations, past or present, of particular employees involved in a particular matter, issues involving the ethics and conflict provisions in internal governmental standards of conduct regulations are generally not amenable to legal resolution by private litigants. That is, those regulations do not raise an actionable standard for litigation by outside private parties, but rather are generally considered internal, discretionary or disciplinary matters within the agency. | Ethics and conflict of interest concerns have been raised concerning the impartiality or bias of government regulators or administrators who, shortly before entering government service, represented, owned, were employed by, or were given large cash payments or "rewards" by private firms or other entities that such officials must now regulate and oversee. Federal conflict of interest law and regulation, for the most part, deal with the potential influence of existing financial assets, properties, and relationships of a federal official. There are, however, some limited conflict of interest regulations and standards which look also to previous employment and past associations of those entering federal service. Additionally, in 2009, by Executive Order, certain "appointees" of President Obama must, during the Obama Administration, file an "ethics pledge" agreeing to further limitations on participating in governmental matters affecting some former employers and/or clients. In 2010, the Administration's policy of not having registered lobbyists serve on advisory committees was formalized. The regulatory scheme regarding financial interests and federal officials encompasses generally what has colloquially been called the "three-D" method of conflict of interest regulation, that is: disclosure, disqualification, and divestiture. Public financial disclosure is required of incoming federal officials who will be compensated above certain amounts, including those officials nominated by the President who must receive Senate confirmation. Disclosure information covers not only existing assets, property, debts, and income, but also pertains to certain information about past clients and employers, and positions held in organizations. Disqualification or "recusal," the principal statutory method of dealing with potential conflicts of interest in the executive branch, prohibits a federal official from participating in any particular governmental matter in which that official, or those close to the official, has any financial interest. While the statutory disqualification provision is a criminal law covering only current financial interests of the official, there are also "regulatory" recusal requirements that may apply to certain past affiliations and previous economic interests. Such regulatory recusals are limited in time and generally apply to particular matters involving specific parties when entities or organizations previously affiliated with the federal official are now parties to or represent parties in those matters. There are also recusal requirements in regulations concerning such particular matters when a party (or one representing a party) had made an "extraordinary payment" to the official prior to the official's entry into government. Further limitations on participation in governmental matters have been imposed on certain presidential and vice presidential "appointees" in the Obama Administration who are required to take an "ethics pledge" concerning past clients and employers. Other than certain specific and narrow divestiture requirements on particular regulatory officials that are generally part of the organic act establishing the regulatory entity, there are no overall, general divestiture requirements in federal law. Divestiture, however, may be an important device in conflict of interest avoidance, and can be required under regulatory authority by agency ethics officers to deal with potential conflicts of interest regarding ownership of particular private assets by those entering government service. |
Established in 2010, "Feed the Future" (FTF) is a major Obama Administration foreign assistance initiative designed to alleviate global poverty and improve health and food security. It supports both implementation of President Obama's 2010 Policy Directive on Global Development and U.S. food security pledges made at the G8 Summit in 2009. FTF employs a whole-of-government approach to achieve these ends. While FTF adds to the suite of existing U.S. international development programs and outlays, it has pioneered new approaches for achieving cross-sectoral international development goals and for aligning existing U.S. food and agriculture programs. The Administration views FTF as promoting a range of international agricultural development best practices and strategies. FTF acts as a coordination mechanism for all U.S. international agricultural and food security development programs. FTF is a new federal investment paradigm targeting sustainable reductions in international hunger, malnutrition, and food insecurity. FTF seeks to foster transparency and accountability and track and assess program implementation progress through the use of publicly released metrics to justify U.S. investments in each recipient country and each development program, indicators to monitor and evaluate progress, and annual reports to Congress. The U.S. Agency for International Development (USAID) selects the main FTF recipient countries—known as "focus countries" under the initiative—based on country ownership potential, need, and opportunity for reducing food insecurity. Under USAID's selection process, FTF aid targets some of the world's poorest countries, but also channels investments to countries that show the greatest potential to achieve progress. FTF also emphasizes sustainable and collaborative approaches to development. Key FTF operating principles include recipient-country ownership of and commitment of resources to country-specific investment plans; reliance on measurable indicators to assess initial needs; monitor progress toward targets; and evaluate whether corrections, adjustments, or wholesale changes are needed mid-course; use of a whole-of-government implementation strategy that cuts across existing U.S. international development programs to facilitate coordination and potentially prevent duplication and gaps; and an emphasis on coordinating and partnering with recipient-country organizations and private sector entities, as well as with other donors and international organizations. This report discusses these and other features of FTF. Key issues addressed include the origin, intent, and government-wide inter-agency development approach of FTF; FTF program implementation, including monitoring and evaluation issues; and funding. This report also raises possible oversight issues for Congress relating to FTF implementation. Possible matters of interest to Members include the limited availability of USAID reporting on program impact results by country, and long-term institutional prospects for FTF, given its status as an ad hoc Obama Administration presidential initiative. Congress is presently evaluating the overall merits of FTF and whether to permanently authorize the initiative. The Administration established FTF to support implementation of President Obama's 2009 pledge to reduce global hunger—a multi-year U.S. food security commitment made at the G8 Summit in 2009—and his 2010 Policy Directive on Global Development. FTF was also motivated by the recognition that global investment in the agricultural sectors of many of the world's poorer nations had declined in recent decades. Investment in developing-country agriculture by the international donor community had fallen off sharply over the previous two decades—the share of total official development assistance devoted to agriculture had fallen to 6% by 2008, down from 17% in the late 1980s. Matters were made worse by the global financial crisis that began in 2008 and the subsequent global recession, which left an international wake of rising unemployment and ever-tightening budgetary resources. The Administration established FTF, in part, as a vehicle for delivering on U.S. commitments to the international response to these challenges. The Administration also created FTF to act as a key framework for enhancing U.S. agricultural development assistance focused on food security and poverty alleviation goals, key foreign policy priorities of the Obama Administration. In his first inaugural address, President Obama signaled that alleviating global hunger would be a top priority of his Administration. Later, in 2010, he issued a Presidential Policy Directive (PPD) on Global Development, which defined socioeconomic development as "vital to U.S. national security" and as "a strategic, economic, and moral imperative for the United States." Three interrelated presidential initiatives, the Global Climate Change Initiative, the Global Health Initiative, and FTF, are the core policy and program tools for achieving the goals of the PPD, which lays out the key precepts that define the operation of FTF. The global food price crisis of 2007-2008 pushed food prices for many basic staples out of reach for many of the world's poorest, most vulnerable people. The result was an increase in the proportion and absolute number of hungry people worldwide to historic levels. In 2009, the United Nation's Food and Agriculture Organization (FAO) estimated that the total number of undernourished people in the world had reached more than 1 billion. This estimate, later revised downward to 870 million, triggered new interest in global food security issues. In July 2009, at the G8 Summit in L'Aquila, Italy, President Obama pledged to provide at least $3.5 billion over three years (FY2010 to FY2012) to global food security programs as part of the Global Partnership for Agriculture and Food Security (hereinafter the Global Partnership), a component of the L'Aquila Food Security Initiative, which was intended to promote global agricultural development, improved nutrition, and food security ( Table 1 ). The G8 summit leaders and other countries and institutions in attendance announced the launch of the Global Partnership and established a goal of mobilizing at least $20 billion over three years to finance the initiative. In September 2009, in Pittsburgh, the G20 Summit endorsed the L'Aquila Food Security Initiative and, in addition, called for the establishment of a World Bank food security trust fund to finance medium- and long-term investments in agricultural productivity and market access in low-income countries. The fund, called the Global Agriculture and Food Security Program (GAFSP), was established in 2010. Also, countries that did not attend the earlier G8 Summit—Belgium, Finland, Norway, and Switzerland—pledged to support the Global Partnership and to commit an additional $2 billion to the effort, making a new total of $22 billion pledged by the international donor community. By the end of 2014, U.S. commitments of $4.3 billion were in excess of the initial L'Aquila pledge of $3.5 billion ( Table 1 ). The U.S. commitment to the Global Partnership spurred U.S. efforts to create a novel, comprehensive response spanning the suite of existing U.S. international development programs that address poverty, health, and food security. In May 2010, the Administration launched such a response, in the form of a new global hunger and food security initiative that it called Feed the Future (FTF). Later that year, the U.S. Agency for International Development (USAID) was named the lead agency responsible for implementing FTF, which was established on the basis of existing authorities set out in the Foreign Assistance Act of 1961 (FAA, P.L. 87-195), as amended. The Administration created the Bureau for Food Security within USAID in November 2010 to manage both the FTF initiative and other previously established USAID agricultural development programs. To date, FTF has been led by USAID's Administrator, acting as U.S. Global Food Security Coordinator. FTF also has two deputy coordinators: a Deputy Coordinator for Development, based at USAID, who coordinates implementation of FTF across the U.S. government, oversees its execution and reports on results, and leads engagement with the external community to ensure that food security remains high on the development agenda; and a Deputy Coordinator for Diplomacy, based at the State Department, who leads all aspects of U.S. diplomacy related to food security and nutrition, including in support of FTF. According to USAID, the overarching goal of FTF is to sustainably reduce global hunger and poverty by tackling their root causes using proven strategies and management approaches. These approaches include the development of strategies and interventions in coordination with stakeholders; a commitment to sound investments in coordination with reliable partners; and the adjustment of program elements and activities based on analyses of performance reports. USAID also requires that host governments demonstrate commitment to the efforts that they agree to pursue under FTF. FTF focuses on countries that have placed high priority on poverty and hunger reduction and have adopted national plans—called Country Investment Plans (CIPs)—to achieve these ends. According to USAID's F eed the Future Guide , FTF prioritizes investments that have the potential to achieve lasting and large-scale impacts—that is, outcomes that can most easily be expanded beyond a FTF activity's initial zone of influence (ZOI, i.e., the area within a country where FTF operates) and be sustained over time. To implement FTF, the United States works with host governments, international and regional development partners, and other stakeholders. According to USAID's F eed the Future Guide, FTF investments are prioritized for those countries where the Rome Principles can best be realized in practice. FTF "Focus Countries" are the primary recipients of assistance under FTF. The FTF initiative also includes "aligned" agricultural programs in additional countries. These countries receive some assistance for agricultural development, but they are not FTF focus countries. FTF also funds cooperative agricultural development programs with "strategic partner countries," which include Brazil, India, and South Africa. Strategic Partner programs seek to further enhance and "leverage the significant expertise, research capabilities, investment, and leadership" of strategic partner countries with respect to increasing global food and nutrition security "for the benefit of FTF focus countries." A U.S. governmental interagency process, led by USAID, selects focus countries based on assessments that measure suitability using the following set of five criteria: 1. Level of need . Need is based on income levels, prevalence of stunting, poverty, the Global Hunger Index compiled and published annually by the International Food Policy Research Institute (IFPRI), and the IFPRI categorization of level of food security, among other factors. 2. Host government commitment, governance, leadership, and political will. FTF assessments are based on a range of factors, including basic political stability and the absence of conflict; the quality of governance; the overall economic policy environment; the commitment to design and implement a high-quality strategy to enhance food security; and the willingness to invest in agriculture, to place a high priority on food security for all of their citizens, and to commit to working in partnership with, among others, donors, civil society, international organizations, and the private sector. 3. Potential for agricultur e -led growth . Within the FTF strategy, the principal mechanism for reducing extreme hunger and poverty is agricultural-led growth. Thus, it prioritizes countries where poverty is still predominantly rural and where significant potential for improvements in agricultural productivity, income generation for the poor, and market development exists. 4. Opportunity for regional synergies through trade and other mechanisms . Priority is given to countries that present strong opportunities to strengthen regional trade and development corridors, integrate markets, accelerate regional growth, and play a major role in regional trade. 5. Country r esource availability and commitment . A central tenet of the FTF strategy is that creating lasting progress in food security will require deep investments in agricultural, economic, and social systems. To achieve this, USAID targets FTF resources toward countries that commit their own resources toward achieving the Millennium Development Goals (MDGs); however, USAID takes resource constraints into consideration. Based on these criteria, FTF has prioritized investment in 19 focus countries ( Table 2 ). Africa, with 12 focus countries, has been the leading recipient of FTF investments. See Table 5 for a breakout of FTF outlays by focus country. As of January 2016, no new focus country selections were planned. All focus countries must have in place a Country Investment Plan (CIP), a multi-year investment strategy for achieving food security and related goals, such as poverty reduction and agriculturally led growth. Each CIP is developed by the focus country government in collaboration with development partners and national stakeholders. When a focus country is selected to participate in FTF, country government officials and FTF teams—usually also in collaboration with other stakeholders—assess CIP priorities and areas of weakness and strength in CIP planning or implementation. Particular issues that are prioritized for evaluation include patterns and sources of investment, the management and coordination of resources, and program implementation efficacy. Based on resulting findings and country priorities, the country and FTF staff develop a FTF-specific multi-year strategy (MYS), which sets out a five-year strategic implementation plan intended to ensure a coordinated U.S. whole-of-government approach for supporting the selected CIP goals targeted in the MYS. The proposed MYS plan then undergoes a strategic review by FTF agencies active in a given country, including representatives from the field and Washington, DC, as well as the country government. Such reviews center on program target selection, returns on investment, and related issues. The MYS is then adjusted, if necessary, and approved for implementation. MYS may vary, but they generally assess development challenges and opportunities (e.g., set out commodity value chains and regions that are to receive targeted assistance, lay out cost-benefit considerations, and identify opportunities for synergy and collaboration); set out program structures and implementation plans built around a set of projected results (such as improved agricultural productivity, expanded markets and trade, and improved nutrition, among a host of other potential goals); lay out core investment targets, usually by commodity, or with respect to capacity-building, market or productivity gains, or institutional or policy outcomes; and establish monitoring and evaluation, financial planning, and management plans. MYS undergo annual program implementation and portfolio reviews to assess relative efficacy and, if necessary, may be modified. Internally, FTF maintains MYS policy goal and implementation matrices that aid tracking and assessment of MYS implementation progress. Most aligned countries also have in place a CIP; if they do not, a key FTF goal is to help them formulate a CIP—or improve an existing CIP if it is not robust—including through peer review processes. Aligned countries do not develop a formal MYS, but FTF-aligned country programming supports a targeted country investment and spending plan. Such programming must comply with FTF results framework requirements, including by incorporating a monitoring and evaluation plan linked to the FTF Monitoring System (FTFMS). The FTFMS is an inter-agency, indicator-based data collection and reporting mechanism that is used to assess program progress, inform decisions on prospective programming, and allocate budget resources. Initially, before the MYS planning paradigm was fully elaborated, FTF employed a transitional two-phase investment approach, under which countries that lacked a CIP received "foundational" technical, financial, and political support to help them develop or hone a robust CIP, as well as conduct policy reform as needed and build country capacity necessary for scalable implementation of a CIP. If and as warranted, Phase I countries then moved on to become Phase II countries. This graduation required that a technically robust CIP be in place; that there be demonstrable coordination and consultation with key stakeholders centering on CIP formulation; and that the CIP focus country government demonstrate the commitment and capacity to implement the CIP. Phase II countries received so-called "core" investments in support of CIP implementation, new projects and/or the expansion of effective existing projects, increased project-specific support and improvement assistance, and other higher-level capacity-building support. According to FTF discussions with CRS, the Phase I/Phase II designation was assessed in 2013 and, based on a mix of initiative-wide learning, program evolution, and budget availability factors, was dropped as a formal FTF program structuring and allocation paradigm. In early 2016, FTF was undertaking an internal review of the implementation of the MYS approach across countries, as well as of other initiative activities, and was slated to contract and award an initiative-wide external evaluation later in 2016. In addition to partnering with FTF recipient country governments, FTF works with a broad range of development stakeholders and multilateral institutions. An important feature of FTF is USG engagement with a range of development and investment partners in joint development ventures relating to the design, implementation, monitoring, and evaluation of FTF-related activities. In addition to host country governments, such partners may include a wide range of international-development stakeholders, including affected populations, non-governmental organizations (NGOs), foundations, universities, local civic and religious groups, private sector entities, labor unions, women-focused organizations, and donors and multilateral institutions. The aim of extensive partnering under FTF is to leverage U.S. resources by coordinating their use with—and otherwise linking them to—the diverse, often unique capacities and resources of a wide range of stakeholders in order to achieve synergies, economies of scale, cost and program efficiencies, and similar benefits. Such stakeholders often have close ties to local communities, and in many cases may already have made commitments toward the FTF goals of reducing poverty and hunger. Extensive partnerships for planning and implementing activities are also intended to help foster more targeted, locally tailored interventions. The joint commitment of resources by multiple actors is also aimed at creating a greater potential for sustainable results than might be the case if the USG were the sole investor. Under shared stakeholder-backed projects, the USG co-designs, co-funds, and co-implements projects, thus sharing the risks, responsibilities, and results based on the resources and expertise that are available to each focus country. An additional potential result of this partnering approach is the strengthening of focus country capacity to engage in results-based planning and robust stakeholder consultation. According to USAID's F eed the Future Guide , robust multilateralism improves coordination among development partners and reduces the management burden of host governments. Thus, FTF emphasizes coordination at the global level with donors and multilateral institutions, particularly as relates to advocacy, resource mobilization, sharing information and best practices, tracking investments and results, and supporting country-owned processes. Given their convening authority and technical expertise, these institutions play a central role in efforts to enhance food security. They provide emergency assistance, undertake analysis and research, offer a platform for sector-wide investments in agriculture, and provide a significant portion of the external financing for investment projects and programs in developing countries. Relevant multilateral institutions include a number of United Nations (U.N.) agencies, funds, and programs; international financial institutions, including the World Bank and regional development banks; and the OECD, among others. In an effort to institutionalize coordination among such institutions, the G-20 leaders, meeting in a summit held in Pittsburgh in 2009, called for the establishment of a multi-donor trust fund called the Global Agriculture and Food Security Program (GAFSP). For the United States, GAFSP is the multilateral component of FTF. According to USAID's F eed the Future Guide, regional coordination allows countries to share experiences, provide peer support, address cross-border trade issues, harmonize regulatory standards and practices, and benefit from trade flows, and FTF supports such ends in its three core regions, Africa, Asia, and Latin America and the Caribbean, and in the Middle East. In 2003, African leaders made a historic pledge to develop rigorous agricultural development strategies and to increase their own investments in agricultural-led growth through the African Union's Comprehensive Africa Agriculture Development Program (CAADP), a pan-continental initiative of the African Union. Through CAADP, FTF works with the African regional economic communities—Southern African Development Community (SADC), Economic Community of West African States (ECOWAS), and Common Market for Eastern and Southern Africa (COMESA)—to aid agricultural development at both the sub-regional and country levels. In addition, many individual FTF country multi-year strategies are premised on or align with separate national agricultural development CAADP "compacts" that also guide country agricultural development goals and activities. In other regions of the world, FTF works with organizations, such as the Asian Development Bank and the Inter-American Institute for Cooperation on Agriculture, to encourage technical and political support for the development of regional strategies that link to country-level planning and implementation around food security. Although USAID is the lead FTF agency, the initiative operates within a whole-of-government framework and is charged with coordinating efforts across 11 U.S. government agencies that have programs addressing an aspect of international poverty, health, and food security (see box below and Figure 1 ). Six of the FTF implementing agencies—USAID, USDA, Millennium Challenge Corporation (MCC), Treasury, Peace Corps, and U.S. African Development Foundation (USADF)—support field activities and report into the FTF Monitoring System (FTFMS), which aggregates a wide range of monitoring and evaluation (M&E) indicators ( Table 4 ). According to the 2015 FTF progress report, FTF "began tracking results in FY2011, when the initiative developed multi-year strategies, defined its zones of influence, and implemented its monitoring and evaluation system." Although USAID leads FTF implementation, it does not directly control all agencies' FTF funding (see Table 4 ), in part because each agency's program and spending authorities are uniquely defined. Instead, USAID seeks to increase collaboration and complementarities between various agencies' program activities as they relate to FTF, including with respect to focus country selection, partnering, and monitoring and evaluation. A key goal of USAID coordination is to create synergy and alignment between disparate agencies' development efforts. The FTF implementation strategy includes a monitoring and evaluation (M&E) component designed to enable monitoring of FTF implementation progress and to hold FTF investments and their stakeholders accountable. USAID provides FTF funding and technical assistance to focus countries in support of M&E. M&E tracks the progress of FTF investments against a Results Framework ( Figure 2 ) that maps linkages between program activities and their intended outcomes. USAID evaluates the performance of FTF investments within a focus country zone of influence (ZOI, i.e., the area within a focus country where FTF operates) by assessing changes in key performance indicators. Measured results are compared against initial baseline values to assess progress, and against pre-established targets to determine the degree of any progress. USAID and the focus country cooperating sponsors use the M&E system to provide regular feedback to facilitate planning and help improve the design and operation of ongoing programs. Key questions that M&E activities are intended to answer include the following: What are FTF investments buying? Are FTF activities, projects, and programs accomplishing what was intended? Are FTF efforts impacting the overall goal to reduce poverty and hunger? Are barriers hindering the progress or performance of FTF programs? What changes would support broader or deeper FTF program impacts? Which FTF activities are working and can be scaled up within the ZOI? To make such determinations, FTF employs the following M&E tools: (1) a Results Framework, which is the conceptual and analytic structure that establishes FTF goals and objectives and links them to specific indicators; (2) a performance monitoring process and standard performance indicators, which are used to track progress toward desired results; (3) local capacity-building to improve the quality and frequency of data collection and use; (4) evaluations to determine the measureable effects of FTF investments; and (5) knowledge-sharing activities to foster learning and use of M&E findings. The FTF Results Framework maps linkages between program activities and their intended outcomes as they relate to the overall goal of sustainably reducing global hunger and poverty. The Framework outlines linkages through four levels of desired results that are intended to feed into each other from bottom to top ( Figure 2 and Table A-1 ): first, the overall goal—sustainably reductions in global hunger and poverty; second, two objectives—promotion of inclusive agricultural sector growth and enhanced nutritional status, especially among women and children; third, eight intermediate results (IR), all relating directly to the two objectives; and fourth, several sub-intermediate results (Sub IR) that act as building blocks toward achieving progress at the IR level. Each objective or result within each level has its own set of indicators. For example, for the Expanding Markets and Trade "intermediate result," indicators include the value of farm-level incremental sales and the value of exports of targeted agricultural commodities. The indicators used to date measure a combination of FTF outcomes, outputs, and impacts. According to USAID, by assessing the link between an intervention and an outcome, the impact evaluation process provides empirical evidence on the effectiveness of an intervention to inform policy and investment decisions. For a full list of FTF indicators, see the Appendix . The FTF strategy advocates and supports investment in strengthening national statistical systems and capacity in data use to inform policy, development priorities, and program design. To facilitate the development and execution of impact evaluations by the focus country, USAID engages local groups or host government agencies in FTF program design and implementation from the beginning of programming in a given area, with the goal of ensuring appropriate formulation of evaluation priorities and building local knowledge of data collection and analysis, and program evaluation methodologies. In addition, certain tools used for data collection of performance indicators—such as household or farm-level surveys or population sampling—include local groups or host government staff, such as the national statistics office, to build capacity to conduct the same methodologies in the future. USAID also collaborates with USDA's National Agricultural Statistics Service (NASS) and Economic Research Service (ERS) to assess countries' data needs and then develop programs to train staff and strengthen statistics systems. Ideally, with a strengthened system for program-specific data collection, USAID, cooperating sponsors, and focus countries will be better able to measure progress and make adjustments to FTF country strategy implementation. In addition to annual reporting to Congress, FTF is increasingly sharing its M&E findings regarding progress toward overall FTF goals externally, with both development stakeholders and the general public. Vehicles for doing so include the Feed the Future website ( http://www.feedthefuture.gov ), USAID's website ( https://www.usaid.gov ), and the Foreign Assistance Dashboard ( http://www.foreignassistance.gov/ ). FTF includes investments in research in support of its food security and nutrition goals as delineated by the Results Framework. A consultative process among USAID, USDA, university partners, and other stakeholders was used to develop an explicit FTF-funded research strategy. Key considerations for FTF food security and nutrition goals are the constraints of limited agricultural land availability and increased climate variability. In this regard, the FTF research strategy calls for additional resources to be directed toward support for and development of scientific and technological innovations that increase agricultural productivity in an environmentally sound manner while improving the availability of nutritious foods. The FTF Food Security Innovation Center (FSIC) leads USAID's implementation of the FTF research strategy. The FSIC has organized projects around seven key program areas: climate-resilient cereals; legume productivity; advanced approaches to combat pests and diseases; research on nutritious and safe foods; markets and policy research; sustainable intensification; and human and institutional capacity development. Investments in the FTF research strategy are done through research partnerships across the USG, the private sector, U.S. and non-U.S. universities, Consultative Group on International Agricultural Research (CGIAR) centers, focus-country national and regional research programs, and NGOs. In the past, USAID-funded research collaborations with U.S. land-grant universities as the principal implementing partner were referred to as Collaborative Research Support Programs ( CRSP s). Under FTF, CRSPs are now called Innovation Labs. Currently there are 24 FTF Innovation Labs, each of which focuses on a different agricultural production activity. In line with the capacity-building strategy of FTF investments, FTF collaborative research arrangements are to be designed to engage developing country partners in ways that build the capacity of both women and men. In addition to Innovation Labs, USAID and USDA collaborate under the Norman Borlaug Commemorative Research Initiative (NBCRI). The NBCRI is intended to strengthen international public goods research in ways that generate technologies and knowledge that support agricultural productivity both in the United States and developing countries. A related effort, the Borlaug 21 st Century Leadership Program, announced in June 2011, represents a new effort to train individuals and strengthen developing country public and private institutions. Other USG agencies, such as the National Science Foundation and the National Institutes of Health, may also contribute to the broader research objectives and goals of FTF. FTF plans and strategies identify gender equity, environmental stewardship and protection, and climate change as key priorities that it says all initiative investments and activities must address. Empowerment of women through gender integration is a major theme of the FTF initiative. The FTF implementation strategy contends that (1) reducing gender inequality and recognizing the contribution of women to agriculture are critical to achieving global food security, and (2) consistent and compelling evidence shows that improvements in the status of women are associated with increases in agricultural productivity, reductions in poverty, and improvements in household nutrition. As a result, FTF integrates gender-based analysis into all of its investments and employs the Women's Empowerment in Agriculture Index (WEAI) to measure women's empowerment and gender equality. The WEAI also seeks to identify ways to overcome the obstacles and constraints that limit women's inclusion in the agriculture sector. The WEAI is a measure of the roles and extent of women's engagement in the agricultural sector in five domains: (1) decisions about agricultural production; (2) access to and decisionmaking power over productive resources; (3) control over use of income; (4) leadership in the community; and (5) time use. In addition to the WEAI, gender-specific data are available for several of the other performance indicators, thus permitting comparisons of how FTF program effects vary across gender. Working in concert with the U.S. Global Climate Change Initiative, USAID contends that FTF investments in agricultural productivity support assessment of the potential vulnerabilities and impacts of climate change; development and deployment of climate-smart technologies and management practices; and policies that encourage the necessary investments and enabling environments to mitigate risk, improve resilience, and increase food security despite changing climate patterns. Congress has provided funding for FTF programs through the annual Department of State, Foreign Operations and Related Programs (SFOPS) appropriations bill. Congress does not specify a funding level for Feed the Future as a whole, but rather allocates funds for bilateral food security and agricultural development activities (implemented by USAID, MCC, and other agencies such as the Peace Corps), for multilateral food security accounts, and for global health programs implemented by USAID. Since 2010, Congress has allocated nearly $1 billion annually to food security and agricultural development activities under SFOPS appropriations. The Administration then determines whether or how to allocate these appropriations within the FTF framework. As a result, it can be difficult to determine FTF funding patterns based on appropriations acts. Data reported in Table 4 rely on FTF funding reported by the Administration. Under the whole-of-government approach, FTF's operational strategy applies to other federal programs that invest in international agricultural development, even those that derive funding outside of FTF funding in the SFOPS appropriation. Whole-of-government outlays on food security and agricultural development programs grew nominally (i.e., in non-inflation adjusted terms) from an estimated $1.7 billion in FY2010 to $2.6 billion in FY2013 before declining to $2.4 billion in FY2014 ( Table 4 ). In addition, FTF efforts are complemented by U.S. spending for nutrition-specific activities under other global health programs and multilateral institutional investments in both health and food security. USAID publishes an annual FTF progress report that includes data measuring progress made from baseline measures and toward aspirational targets based on select indicators. USAID publishes FTF progress reports as part of its effort to establish a transparent set of overarching guidelines for justifying and implementing U.S. non-emergency food aid and agricultural development activities. In 2012, USAID set as aspirational five-year targets, to be achieved by 2017, the reduction by 20% of the prevalence of extreme poverty and the prevalence of stunted children less than five years of age in the ZOI where FTF programs are concentrated. USAID expects these reductions to remove about 12 million people from the ranks of the extremely poor and prevent stunting in about 1 million children. Based on preliminary data through 2014, USAID reports that progress had been made in three of the focus countries with respect to a reduced prevalence of poverty, and in five countries with respect to reductions in stunting. No final interim data points have been published, and USAID has not yet reported on the status of progress toward these aspirational goals in any of the remaining focus countries. See Table 6 for reported progress by country. The most recent FTF progress report includes performance indicator data that track the impact of investments made through FY2014. USAID uses a combination of data that tracks both the effects of FTF in focus countries on direct beneficiaries, as well as both direct and indirect beneficiaries in the geographic ZOI within focus countries where programs are being implemented and resources coordinated ( Table 7 ). FTF supports targeted efforts to ensure and increase gender equity in FTF hunger and poverty reduction programs, with the goal of enhancing the socioeconomic prospects of women. The first joint FTF/IFPRI focus country report on gender—referred to as the Women's Empowerment in Agriculture Index (WEAI) baseline report—was released in May 2014 and contained the initial baseline values for 13 of the 19 focus countries. FTF expects to use changes in future year WEAI Index measures to assess progress with respect to women's empowerment in agriculture made as a result of FTF investments. In addition to the WEAI, several FTF performance indicators include disaggregation by gender, which allows gender-specific comparison ( Table 7 ). According to the WEAI baseline report, greater access to resources for women and more equitable access to resources between males and females can foster large improvements in reaching program goals. FTF primarily uses the WEAI to prioritize and target activities with respect to improving gender-related program design. The first WEAI report found that baseline WEAI values revealed substantial differences in the relative empowerment of women relative to men across focus countries; WEAI scores had a large distribution (in a range of 0 to 1), from a low of 0.66 in Bangladesh to a high of 0.98 in Cambodia, with higher numbers indicating greater empowerment; the greatest constraints on empowerment among women in agriculture were a lack of access to credit and the power to make credit-related decisions; excessive workloads; and a low prevalence of membership in social groups or agriculture-related associations; and baseline WEAI values indicated substantial variability among the primary constraints to women's empowerment across regions; in Asia, for instance, the main limitation was lack of group membership, while in East and Southern Africa it was access to and decisions on credit and excess workload. FTF was created as an ad hoc Obama Administration initiative. According to the Administration, the Foreign Assistance Act of 1961, as amended, provides authority for FTF. Concerned that future administrations might not recognize or use that authority to pursue programs broadly akin to those being pursued under the FTF, Members of Congress introduced legislation in the 113 th Congress to permanently authorize an agriculture-focused global food and nutrition security strategy and programs. H.R. 1567 was enacted by Congress and signed into law as P.L. 114-195 in July 2016, establishing a specific statutory foundation for global food security assistance. Under this law, the President must develop a whole-of-government strategy to promote global food security, resilience, and nutrition, and submit the strategy, including agency-specific plans, to Congress by October 1, 2016. Congressional consideration of that strategy may be on the agenda of the 115 th Congress. Furthermore, the law authorizes funding to support the strategy (just over $1 billion per year) only for FY2017 and FY2018, potentially requiring congressional action in the 115 th Congress to extend the funding authorization. The FTF initiative adopted a whole-of-government approach ostensibly to ensure coordination of related activities and to tap expertise residing outside of the principal agencies in charge of development assistance, USAID and MCC. The extent to which FTF capitalizes on the expertise and budgetary resources of different U.S. government agencies is difficult to measure. According to one analyst: Success will depend on the lead agency's ability to overcome inherent problems, and that often depends on the nature of the lead agency's political position within the administration. Collaborating is time consuming particularly in the beginning when time must be spent defining interagency roles and responsibilities. Every agency within a whole of government construct has its own structure, culture, and decision making process that may not be compatible in terms of budgeting, transparency or accountability. Each agency's congressional oversight and appropriations panels may be unevenly committed to the effort. The programs of various agencies do not always lend themselves to common frames of evaluation, monitoring, and correlating adjustments. Each of these challenges is mirrored and often amplified within U.S. embassy country teams. Similarly, in a September 2013 report, GAO found that administration of FTF has remained dominated by USAID: USAID leads the whole-of-government approach by better coordinating and integrating partner agencies' knowledge and expertise at three levels: at headquarters in Washington, D.C.; in each of the 19 FTF focus countries; and between the countries and headquarters. In headquarters, USAID and FTF partner agencies established joint strategies and new data management systems to track funding and results across the U.S. government. At the country level, in GAO's survey of U.S. FTF partner agency representatives in 19 FTF focus countries, 93 percent reported coordinating with USAID. The FTF 2010 Guide characterizes "country-led planning" of FTF activities as a key process for ensuring country ownership, program relevance, and sustainability of impacts over time. In the past, some Members of Congress have voiced concern over country-led planning because it diminishes donor control and oversight, specifically with respect to relative alignment with broad, global donor development and foreign policy objectives. Others have voiced concern that some developing countries lack the capacity to develop robust strategic plans, and may have a limited capacity to carry out accountability and transparency measures required by donors. Still others within civil society have voiced concerns over the possibility that country-led planning processes may privilege government-led strategies and not adequately include the inputs and perspectives of civil society and nongovernmental organizations (CSOs and NGOs), or private sector actors, or citizens. While the FTF Guide emphasizes partnering across a range of civil society organizations within focus countries, the actual measurement of their level of effective participation is likely subjective. GAO, in its September 2013 report, found that (at that time) USAID had facilitated a country-led approach but had not systematically assessed risks associated with this approach. It reported that USAID has facilitated the approach by providing assistance to the host governments in developing country plans and coordinating on FTF with country stakeholders, including nonprofit and for-profit organizations. U.S. FTF partner agency representatives answering GAO's survey reported working with multiple country stakeholders on FTF. In its March 2010 report, GAO found that the country-led approach was vulnerable to a number of risks, including insufficient capacity of host governments to meet funding commitments for agriculture. USAID has since made some progress in monitoring these risks, including tracking the number of focus countries that increase public expenditure for agriculture. However, GAO's current study found that USAID's FTF multiyear country strategies did not systematically assess risks to the country-led approach. Although USAID country guidance documents indicate that country teams must assess risks associated with USAID's development objectives, the agency does not require country teams or FTF programs to systematically respond to and mitigate such risks, potentially raising opportunity cost losses associated with not doing so. Under the FTF whole-of-government approach, Food for Peace (FFP) development food aid programs are considered to be part of the FTF initiative, at least to the extent that they are coordinated with FTF goals and monitoring and evaluation strategies. FFP development programs include non-emergency Title II activities. The funding for FFP development programs derives primarily from non-FTF appropriations. For example, FFP Title II and McGovern-Dole (Food for Education) funding derives from annual agricultural appropriations. Food for Progress receives mandatory funding through USDA's Commodity Credit Corporation. FFP Title II food aid (historically referred to as P.L. 480) is arguably a larger component of U.S. food security assistance than FTF. The Administration's FY2016 request includes $1.4 billion for FFP Title II food aid compared with an FTF budget request of $0.9 billion. The majority of FFP funds, however, must be used to purchase and deliver emergency food supplies rather than address long-term food security. The independent nature of such appropriations, as well as the dedicated authorities under which these programs operate, may mean that they are not well suited or structured for integration with FTF or other complementary programs. This likely does not pose major challenges to the goals set out under FTF. In practice, there has long been at least some coordination and complementarity between these programs. In some cases, USAID has played a key or lead role in their administration. USAID, for instance, is the implementing agency for both FFP Title II and FTF. The broad application of FTF guidelines to FFP programs closely dovetails with the preexisting objectives of FFP. This may ensure more effective joint coordination, monitoring, and reporting on progress toward common, measurable goals. In some countries FTF Community Development Funds are programmed jointly by FTF and FFP. A separate concern is the FFP program's continued use of in-kind donations, the use of which may conflict with FTF goals of improving agricultural productivity and enhancing rural incomes in focus countries that receive both donations under FFP and investments under FTF. The United States continues to rely primarily on in-kind transfers of domestically purchased commodities (acquired by USDA and transferred to USAID for shipment), shipped primarily on U.S.-flag vessels, as the basis for international food aid (referred to as "tied food aid"). FFP programs are, by law, restricted to in-kind transfers of U.S.-sourced commodities, even though multiple studies and GAO reports over the past decade have provided evidence of economic inefficiencies and potential market distortions associated with in-kind food aid compared with cash-based assistance. In particular, monetization of in-kind food aid—in which imported food aid is sold on local markets to generate funds for development programs—has the potential to depress local market prices, as well as small farmer revenues and production incentives. Both the George W. Bush and Obama Administrations (via their annual budget requests), as well as certain Members of Congress, via bills in the 113 th ( H.R. 5656 and S. 2909 ) and 114 th ( S. 525 ) Congresses, have proposed making changes to the structure and intent of U.S. food aid programs. Proposed changes include, among others, expanding flexibility in the use of cash-based forms of assistance and eliminating both cargo preference and monetization. The 2014 farm bill ( P.L. 113-79 ) provided some additional flexibility, increasing the maximum amount of allowable cash assistance for administrative costs for USAID's food assistance programs from 13% to 20%, with the purpose of limiting monetization. However, other proposed changes have yet to be approved by Congress. Since 2010, USAID's Office of Food for Peace has managed funds appropriated through the International Disaster Assistance (IDA) account in addition to P.L. 480 FFP program funds. These funds complement USAID's in-kind food aid and may be used where cash assistance is most appropriate due to local market conditions or when in-kind food aid cannot arrive in time. In FY2014, the Office of Food for Peace contributed approximately $865 million in IDA funds (both base and overseas contingency operations funds) to support local and regional food procurement as well as cash transfers and vouchers to address emergency food security needs. Adjusting the relative funding levels for P.L. 480 and non-P.L. 480 humanitarian accounts, such as IDA, is one way in which Congress may address the limitations of the FFP program. Another issue related to FFP Title II food aid concerns whether its substantial emergency donations are purely humanitarian in nature, rather than substantially related to FTF development goals, and to the extent, if any, to which they are subject to FTF monitoring and evaluation. USAID may use FFP Title II in-kind donations for both emergency and non-emergency (or development) assistance. Since 2003 nearly 75% of Title II food aid has consisted of emergency food aid. Despite the emphasis on coordination of U.S. food aid programs, little mention is made of whether and how U.S. emergency food aid fits into the overall FTF strategy. Key questions relating to FFP food aid programs may include the following: Do emergency food aid activities effectively reinforce the objectives of FTF? Conversely, could there be adverse effects for FTF activities from in-kind food aid projects? Finally, to what extent are FTF guidelines being applied to McGovern-Dole and Food for Progress programs when they are implemented in non-focus countries? Program evaluation involves the use of measurable criteria described and measured by a performance indicator to assess program efficacy. Examples of evaluation tracking indicators include improvements in a child's physical growth, expanded crop area under a new technology or management practice, output per unit of an agricultural production activity, or the percent of national budget allocated to nutrition or agriculture. FTF currently uses 53 indicators to measure progress toward each result in the four levels of the Results Framework (RF) ( Table A-1 ). To prioritize FTF investments, each focus country determines which section of the RF is most applicable in its country context and which linkages will have the greatest potential for change. All countries must seek to achieve the overall RF Goal and Objectives. They then select from among eight potential Intermediate Results those that are most likely to help them meet their particular needs. Under the second level—the objectives—the RF posits six indicators (three for each objective) for measuring results with respect to achieving the objective. Accelerating inclusive agricultural growth is assessed by (1) agriculture sector GDP; (2) per capita expenditures of rural households; and (3) the women's empowerment in agriculture index (WEAI, discussed earlier). Similarly, to measure progress toward the objective of improving nutritional status, especially of women and children, the RF lists three nutrition-oriented indicators: (1) prevalence of stunted children, (2) prevalence of wasted children, and (3) prevalence of underweight women. The third RF level of eight intermediate results (IRs) is specified under the two objectives. For example, IRs for agricultural sector growth are measures of improved agricultural productivity and expanding markets and trade. IRs for the nutrition objective include improved use of maternal and child health and nutrition services and improved access to diverse and quality foods. The fourth level of the RF—specific Sub-IRs—varies by country and region. Each focus country selects project-level indicators from the set of 53 indicators to best measure progress against the chosen sections of the RF. A baseline for each indicator assesses initial need and provides a reference for measuring progress. For each indicator selected, countries set targets and routinely track progress toward them. While countries monitor performance against applicable output and outcome indicators for their projects and programs, an M&E contractor monitors higher-level impact indicators, such as "prevalence of poverty," to maintain consistency in reporting across focus countries and to reduce workload in the field. FTF performance management plans (PMPs) are developed by the FTF mission (i.e., the whole-of-government U.S. team) for each country. In addition, FTF implementing partners will develop PMPs for all projects supported by the mission. Of the 53 FTF performance indicators, 8 are required, and 21 are required, if applicable, to enable FTF missions to ensure comprehensive reporting on FTF objectives. Additional indicators, including custom indicators tailored to measure specific projects, can be used as needed. USAID identifies 9 indicators as whole-of-government indicators ( Table A-2 ). These are indicators that other U.S. government agencies supporting food security programs and services with non-FTF funding (e.g., MCC, USDA, etc.) have pledged to use. USAID encourages use of as many of the 53 indicators as applicable to their work. | The Obama Administration's Feed the Future (FTF) Initiative is a U.S. international development program launched in 2010 that invests in food security and agricultural development activities in a select group of developing countries in an effort to reduce hunger, malnutrition, poverty, and food insecurity. The bulk of FTF funding supports 19 "focus countries" selected based on country ownership potential, needs, and opportunities to achieve success. FTF supports additional countries under aligned and regional programs and through assistance to three "strategic partners"—Brazil, India, and South Africa—to increase regionally based sustainable development capacities. The FTF initiative originated largely as the U.S. component of the international response to the heightened food insecurity resulting from the global food price crisis of 2007-2008. In July 2009, at the G8 Summit in L'Aquila, Italy, President Obama pledged to provide at least $3.5 billion over three years to a global agriculture and food security initiative referred to as the Global Partnership. In total, the international donor community pledged $22 billion to promote global agricultural development, improved nutrition, and food security. Since its origin, FTF has expanded into a whole-of-government effort. In addition to the Global Partnership, FTF also supports implementation of President Obama's 2010 Policy Directive on Global Development and coordination of previously existing U.S. agricultural development policies. Key features of FTF include a published set of metrics to justify U.S. investments in each recipient country and each development program; emphasis on coordination and partnering with recipient-country organizations, private sector entities, and international organizations to implement FTF activities; reliance on a set of common goals and measurable indicators to monitor and evaluate progress; and annual reports to Congress. Furthermore, the FTF strategy is being extended, under a whole-of-government framework, to all U.S. international agricultural development programs, including the Food for Peace Title II non-emergency (i.e., development) food aid, the Food for Progress program, and McGovern-Dole International Food for Education and Child Nutrition program. From FY2010 through FY2014, the U.S. Agency for International Development (USAID) has invested $4.7 billion in direct food security and agricultural development activities under FTF. Other federal agencies active in implementing FTF have invested as much as $6.6 billion in development activities under the initiative. Over these five years, USAID has reported some initial success in reducing the prevalence of poverty and chronic malnutrition in several of the focus countries; however, results to date are available for only a select group of focus countries. Because FTF is a presidential initiative, its institutional longevity beyond the current Obama Administration is uncertain. Congress is presently evaluating the overall merits of FTF and whether to permanently authorize it in statute. Several issues related to FTF are of potential interest to Congress. The FTF whole-of-government approach, which involves the coordination of activities across different government agencies in 19 focus countries, can be difficult to implement and monitor if interagency roles and responsibilities are not clearly defined. Authorities and appropriations underpinning FTF may also be incongruent with those governing long-standing separate programs, such as Food for Peace. In addition, some civil society actors have expressed concerns that FTF's goal of country-led planning could privilege government-led planning and marginalize citizen and civil society-focused development efforts. |
This report provides summary and analysis of H.R. 3964 , the Sacramento-San Joaquin Valley Emergency Water Delivery Act, as passed by the House of Representatives on February 5, 2014. It contains an update of information contained in a CRS report on a bill in the 112 th Congress (CRS Report R42375, H.R. 1837—The Sacramento-San Joaquin Valley Water Reliability Act , by [author name scrubbed]). It includes a brief summary overview of H.R. 3964 , followed by a more in-depth discussion of each title, including some of the key provisions within each section and analysis of some of these provisions. H.R. 3964 , the Sacramento-San Joaquin Valley Emergency Water Delivery Act, was introduced on January 29, 2014. It passed the House on February 5, 2014. H.R. 3964 is similar to H.R. 1837 (introduced in the 112 th Congress) with some notable additions. Below is a summary of each title in H.R. 3964 . Each title addresses a different aspect of California water policy. Title I , Central Valley Project Water Reliability. Overall, Title I would make numerous changes to management and operation of the federal Central Valley Project (CVP), primarily by amending the Central Valley Project Improvement Act (CVPIA). Among other things, it would alter CVPIA in the following ways: broaden the purposes for which water previously dedicated to fish and wildlife can be used (by removing the directive to modify CVP operations to protect fish and wildlife with dedicated fish flows and making this action optional); add to the purposes a provision "to ensure" water dedicated to fish and wildlife purposes is replaced and provided to CVP contactors by the end of 2018 at the lowest "reasonably achievable" cost; changing the definitions of fish covered by the act; broaden purposes for which Central Valley Project Restoration Fund (CVPRF) monies can be used; reduce revenues into the CVPRF; mandate that the CVP be operated under a1994 interim agreement, the Bay-Delta Accord; and mandate development and implementation of a plan to increase CVP water yield by October 1, 2018. Title II , San Joaquin River Restoration. Title II would direct the Secretary to cease implementation of the San Joaquin River Restoration Settlement Agreement, which was agreed to in 2006 and authorized under the San Joaquin River Restoration Settlement Act (SJRRS) in 2010. It would declare that the new legislation satisfies all obligations of the Secretary and others to keep in good condition any fish below Friant Dam, including obligations under the California Fish and Game Code, the state public trust doctrine, and the federal ESA. It would also remove the salmon restoration requirement in the SJRRS that was authorized in P.L. 111-11 . Title III , Repayment Contracts and Acceleration of Repayment of Construction Costs . This title would direct the Secretary of the Interior, upon request from water contractors, to convert utility-type water service contracts to repayment contracts, and then allow accelerated repayment of those outstanding repayment obligations. Irrigation repayment obligations for the CVP for 2012, the last year for which such data are readily available, total approximately $1.18 billion; municipal & industrial (M&I) repayment obligations for 2012, the last year for which such data are readily available, total approximately $121 million. Allowing this accelerated (or early) repayment would allow irrigators to be exempt from certain Reclamation requirements sooner than under current repayment schedules. Title IV , Bay-Delta Watershed Water Rights Preservation and Protection . Title IV would provide assurances of water rights protections for those with water rights senior to the CVP, including Sacramento River Valley Settlement Contractors. It would also direct a new shortage policy for certain north-of-Delta CVP water service contracts, which would aim to limit maximum reductions to these supplies. Title V , Miscellaneous . Title V declares that the unique circumstances of coordinated operations of the CVP and California State Water Project (SWP) "require assertion of Federal supremacy to protect existing water rights throughout the system" and that as such shall not set precedent in any other state. Title V also declares that nothing in the act shall "affect in any way" the State of California Proclamation of State Emergency and associated executive order issued by the Governor on January 14, 2014. It would also adjust a Wild and Scenic River boundary, potentially allowing for increased storage at Exchequer Dam. Title I of H.R. 3964 would make numerous changes to the CVPIA, and includes other provisions that are not alterations to CVPIA but relate to water availability in California's Central Valley. When enacted, the CVPIA made broad changes to the operations of the Bureau of Reclamation's Central Valley Project. The act set protection, restoration, and enhancement of fish and wildlife on par with other project purposes (such as delivering water to irrigation and M&I contractors), dedicated a certain amount of water for fish and wildlife purposes (e.g., 800,000 acre-feet of Sec. 3406(b)(2) water and certain levels for valley refuges), established fish restoration goals, and established a restoration fund (Central Valley Project Restoration Fund) to pay for fish and wildlife restoration, enhancement, and mitigation projects and programs. It also made contracting changes and operational changes. The CVPIA was quite controversial when enacted and has remained so, particularly for junior water users whose water allocations were ultimately limited due to implementation of the act and other subsequent factors, such as revised biological opinions protecting certain threatened and endangered species. Compounding the controversy over CVP water allocation are other factors that limit water deliveries—namely state water quality control requirements, variable hydrological conditions, the state system of water rights priorities, and implementation of other laws. Title I of H.R. 3964 addresses many of the provisions of the CVPIA that are opposed by some irrigators, namely dedication of project water to address fish and wildlife purposes, enhancement and mitigation activities, water transfer limitations, tiered pricing formulas, and other restoration and mitigation charges. Some of these changes are controversial. A summary of the main changes in the bill is provided below. Section 101 would add two purposes to the CVP under CVPIA: to ensure that the water used for fish and wildlife purposes is replaced and available for CVP water contractors, and to facilitate water transfers under the act. Existing CVP purposes as identified by CVPIA include protection, restoration, and enhancement of fish and wildlife habitats in the Central Valley and Trinity River basins, operational flexibility of the CVP, expanded use of water transfers, achieving balance among competing demands, and related uses. Section 102 would narrow the scope and definition of fish stocks provided protection under CVPIA. It would change the definition of "anadromous fish" to limit coverage to those found in the Sacramento and San Joaquin Rivers as of October 30, 1992 and eliminate coverage for non-native species, including striped bass and shad. Some stocks were already absent or in severe decline by 1992, including winter run Chinook salmon, which were listed as endangered under the Endangered Species Act (ESA) in 1990, and some (San Joaquin River runs) had become extinct by the 1950s. Thus, the section would change the baseline for fish protection and restoration, to set restoration goals at population levels after some species were already listed as endangered. Section 102 would also add a new term, "reasonable flows," which as used in Section 105 could potentially lead to flows for fish and wildlife under the CVPIA being constrained due to the inclusion of other considerations. (See below section, " Facilitated/Expedited Water Transfers "). Section 103 of the bill would make a number of changes to contracting provisions under CVPIA. Specifically, Section 103(1) would remove a qualified limitation under CVPIA that prohibits the signing of new CVP contracts until a number of other conditions are satisfied. This would allow new contracts to be issued without some of these conditions being met. Section 103(2) would increase the maximum contract term, from 25 years to 40 years, thereby returning the duration of these contracts to pre-CVPIA levels, if requested by contractors. It would also direct the Secretary to renew these contracts successively over a 40 year term. It is not clear if such a renewal would be subject to negotiation or review (as is done now), or whether such direction would preclude further National Environmental Policy Act (NEPA) review and Endangered Species Act consultation on contract renewal. Section 103(2) would direct that existing long-term repayment of water service contracts be administered under the Act of July 2, 1956. The 1956 act provides for contracts to have a provision allowing conversion of water service contracts (9(e) contracts) to repayment contracts (9(d) contracts), and provides that contractors who have repaid obligations shall have a "first right" to a stated share of project water for irrigation "(to which the rights of the holders of any other type of irrigation water contract shall be subordinate) ... and a permanent right to such share or quantity ... ", subject to state water rights laws and provided "[T]hat the right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated and beneficial use shall be the basis, the measure, and the limit of the right." This would give water service contractors long-term certainty over water supplies from the CVP. Finally, this section would also direct that all projects include a provision that parties are charged only for water actually delivered. Currently, some contractors pay for water based on acreage irrigated under certain contracts with the Bureau of Reclamation (or Reclamation) and must pay whether water is delivered or not, which, in case of drought years can be onerous. Several provisions of Section 104 deal with water transfers. Section 104(1) would direct the Secretary to "take all necessary actions" to facilitate and expedite water transfers in the CVP and would add a provision requiring a determination by reviewing parties as to whether the proposal is "complete" within 45 days. Further, it would add a new section that would prohibit environmental or mitigation requirements as a condition to any transfers. These mitigation requirements are sometimes employed for transfers that have been determined to affect third parties. This section would also add a new subsection to Section 3405 of CVPIA, which would allow for transfers that could have been made before enactment of CVPIA to go forward without being subject to the requirements of that act's requirements for water transfers. Section 104 would also add language that specifies that water use related to the CVP must only be measured by contracting district facilities up to the point where surface water is commingled with other water supplies. It would also eliminate the tiered pricing requirement and other revenue streams that fund fish and wildlife enhancement, restoration, and mitigation under the CVPRF, thus reducing CVPRF revenue collections. A number of provisions in Section 105 address fish, wildlife, and habitat restoration under CVPIA. First, Section 105 would remove the existing mandate that the Secretary modify CVP operations to provide flows to protect fish, making this action optional rather than required and stipulating the new term "reasonable water flows" to provide further guidance for this authority. Section 105 would further direct that any such flows shall be provided from the 800,000 acre feet of water for fish and wildlife purposes under Section 3406(b)(2) of the CVPIA (also known as "(b)(2) water"). Thus, flows in excess of this amount for fish and wildlife purposes would appear to not be authorized under this legislation. The 800,000 acre feet for fish and wildlife purposes would be a "ceiling," rather than a floor under this provision. The section would remove the requirement that the Secretary of the Interior consult with the California Department of Fish and Game regarding modification of CVP operations for fish and wildlife, and substitute instead, consultation with the U.S. Geological Survey. Section 105 of H.R. 3964 would also allow (b)(2) flows to be used for purposes other than fish protection. Under this section, fish and wildlife purposes would no longer be the "primary" purpose of such flows. It would also adjust accounting for (b)(2) water, by directing that all water used under that section be credited based on a methodology described in the legislation. It appears that state water quality requirements, ESA, and all other contractual requirements would now need to be met via use of the (b)(2) water; however this is not entirely clear in the language. This section also would direct that (b)(2) water be reused. Section 105 would alter the provisions of the CVPIA related to reductions in deliveries for (b)(2) water. It would mandate an automatic 25% reduction of (b)(2) water when Delta Division water supplies are forecast to be reduced by 25% or more from the contracted amounts. Currently under CVPIA, the Secretary is allowed to reduce (b)(2) deliveries by up to 25% when agricultural deliveries of CVP water are reduced. Thus, whereas as the reduction was optional under CVPIA and can be up to 25%, under this section there would be a mandatory trigger for reductions, and said reductions would be required to be 25%. Finally, Section 105 would deem pursuit (as opposed to accomplishment) of fish and wildlife programs and activities authorized by the amended Section 3406 as meeting the mitigation, protection, restoration, and enhancement purposes of Section 2 of the CVPIA, as amended. Section 106(a) would strike the CVPIA direction that not less than 67% of funds made available to the Central Valley Project Restoration Fund (CVPRF) be set aside to carry out habitat restoration and related activities. The funds would presumably be made available for any purposes under the act. The section would also prohibit as a condition to providing for the storage or conveyance of non-CVP water, delivery of surplus water, or for any water that is delivered for groundwater recharge, the requirement of donations or other payments or any other environmental restoration or mitigation fees to the CVPRF. Finally, it would amend Section 3407(c) of CVPIA to strike the requirement for the collection of payments to recover mitigation costs. The Secretary would retain general authority to collect and spend payments as provided for other activities under Title I of CVPIA. Section 106(d) of the legislation would set a limit of $4 per megawatt hour for payments made to the CVPRF by CVP power contractors. Historically these payments have fluctuated. It also would require completion of fish, wildlife and habitat mitigation and restoration actions by 2020, thus shortening the likely time such payments would be in place and thereby reducing water and power contractor payments into the CVPRF. Currently, the CVPRF payments will continue until such actions are complete; then payments would be cut substantially. Section 106(d) would also establish an advisory board responsible for reviewing and recommending CVPRF expenditures. The board is to be primarily made up of water and power contractors (10 of 12), with the other two members designated at the discretion of the Secretary. Section 108(a) would direct that the CVP and the State Water Project (SWP) be operated per principles outlined in a previous agreement, the 1994 Bay-Delta Accord. Among other things, that agreement set maximum restrictions on water which were, in some cases, less restrictive than those in place today. This section of the legislation provides that the accord should be implemented, "without regard to the [ESA] or any other law pertaining to operation of the [CVP] and [SWP]." However, pursuant to Title IV, Section 401 of the bill, states water rights priorities would remain intact (See below section, " Title IV—Bay-Delta Watershed Water Rights Preservation and Protection "). How these two sections would be reconciled is unclear. Section 108(b) would prohibit federal or state imposition of any condition restricting the exercise of valid water rights in order to conserve, enhance, recover, or otherwise protect any species that is affected by operations of the CVP or SWP. It also prohibits the state of California, including any agency or board of the state from restricting water rights to protect any "public trust value" pursuant to the state's "Public Trust Doctrine." Section 108(c) would provide that no costs associated with this section may be imposed on CVP contractors, other than on a voluntary basis. Finally, Section 108(d) would preempt state law regarding catch limits for nonnative fish that prey on native fish species (e.g., striped bass) in the Bay-Delta. Section 107 would make a number of other changes, including amending the CVPIA to provide the Secretary with authority to utilize CVP facilities to transfer, impound, or otherwise deliver nonproject water for "beneficial purposes." It also provides that rates charged for this water shall not be provided to the CVPRF. Section 107 would also require a least-cost plan by the end of FY2015 to increase CVP water supplies by the amount of water dedicated and managed for fish and wildlife purposes under CVPIA, as well as to otherwise meet all purposes of the CVP, including contractual obligations. This section would also require implementation of the increased water plan (including any construction of new water storage facilities that might be included in the plan), beginning on October 1, 2015, in coordination with the state of California. If the plan fails to increase the water supply by 800,000 acre feet by the end of FY2016, implementation of any non-mandatory action under Section 3406(b)(2) would be suspended until the increase is achieved. Section 107(e) would authorize the Secretary to partner with local joint power authorities and others in pursuing storage projects (e.g., Sites Reservoir, Upper San Joaquin Storage, Shasta Dam and Los Vaqueros Dam raises) authorized for study under P.L. 108-361 (also known as "CALFED"), but would prohibit federal funds to be used for financing and constructing the projects. It would authorize non-federal construction of these facilities (so long as no federal funds are used). The fishing of non-native anadromous fish in California is regulated by the state of California. State regulations limit the size of fish that can be caught as well as number of fish caught per season, among other things. Some popular non-native anadromous fish in state include striped bass and largemouth bass. In the past few years, there have been proposals to loosen restrictions for fishing non-native anadromous fish, such as striped bass. Those in favor of lowering regulations (e.g., increasing bag limits and decreasing size limits for striped bass) contend that non-native anadromous fish are harming native species such as salmon and Delta smelt, both listed on the Endangered Species List. Those opposed to changing limits are concerned that without limits, these sport fisheries could decline. Section 114 of H.R. 3964 would establish a pilot program to remove non-native predator fish in the Stanislaus River and eliminate any state restrictions on catch, take, or harvest of any non-native or introduced aquatic or terrestrial species that preys upon anadromous fish that is found in the Stanislaus River. Specifically, Section 114 would direct the Commissioner of Reclamation, along with Oakdale and South San Joaquin Irrigation Districts, to develop and implement a pilot program to remove non-native striped bass, smallmouth bass, largemouth bass, black bass, and other non-native predator fish from the Stanislaus River. The program is to be scientifically based; include methods to quantify fish removed and impact of non-native anadromous species on native species; use specific control methods such as electrofishing; obtain relevant permits; and be implemented for seven years; among other things. The Commissioner and two districts are to manage the program jointly. The Districts would be responsible for 100% of the funding for this program. Costs for Reclamation are to be deposited in the Reclamation Fund by the Districts. Reports are to be made annually on the fishery data and a final report describing the program's effectiveness is to be provided at the end of the program. The permits are to be issued in the name of Reclamation and the Districts. Further, this provision is largely similar to H.R. 2705 (The Stanislaus River Native Anadromous Fish Improvement Act) , introduced July 2013. Under subsection (i), anadromous fish as applied to the Stanislaus River and New Melones Dam, would be defined as those native stocks of salmon (including steelhead) that were present in the Stanislaus River as of October 30, 1992, among other conditions. This sets a baseline number for native salmon population stocks in the Stanislaus River. The section further states that the definition of anadromous fish under Section 3403(a) of CVPIA does not apply to the operation of New Melones Dam and Reservoir, or any federal action in the Stanislaus River. This would alter the application of actions for anadromous fish under CVPIA for the Dam and River. Title I of the bill contains several other significant provisions which are summarized below: Section 109 would mandate that hatchery fish be included in making determinations regarding anadromous fish covered by H.R. 3964 under the ESA. Currently, hatchery fish are not included in population estimates of protected species, due largely to their different genetic makeup from wild fish. The inclusion of these fish could lessen some ESA restrictions compared to current levels. Section 110 would expand the CVP service area to cover a portion of Kettleman City. The Secretary is directed to enter into a long-term contract with the Kettleman City Community Services District for up to 900 acre-feet of CVP water; however, similar to other areas, actual deliveries would depend on annual allocations by Reclamation. Under this section, the district would be responsible for additional infrastructure and costs to implement this section. Section 111 would deem compliance under the California Environmental Quality Act to suffice for compliance with NEPA for any project related to the CVP or related deliveries, including permits under state law. This would allow CVP projects and deliveries that conform to state law to circumvent traditional NEPA requirements. A potential benefit of this approach might be to speed up project approval processes. A potential downside might be a less thorough – or at least different – assessment of the environmental impacts of the proposed project or action. Section 112 would direct the Secretary to offer a contract under its authorities in the Warren Act for impoundment and storage of up to 200,000 acre-feet of Oakdale Irrigation and South San Joaquin Irrigation districts' Stanislaus River water rights in New Melones Reservoir. The Secretary must first determine that such storage will not adversely affect other CVP water contractors with regard to operation of the CVP to meet legal obligations related to ESA, CWA, or state water quality laws. This section also provides other conditions for the provision of these contracts, including minimum storage requirements, and that contracts must be for at least 10 years. Section 113 would direct the Secretary to offer a Warren Act contract for impoundment and storage of up to 100,000 acre-feet of Calaveras County Water District Stanislaus River water rights in New Melones Reservoir. This section also includes other conditions for the provision of these contracts, including minimum storage requirements, and requires that contracts must be for at least 10 years. Section 115 directs the Secretary to allow certain south-of-Delta water service or repayment contractors to reschedule unused CVP water for storage and subsequent use in the following year. The section also includes timelines and conditions, including that such rescheduling shall not interfere with CVP operations in the contract year into which the water has been rescheduled. This direction appears to be consistent with the approach of Reclamation in recent years in making available rescheduled water from the San Luis Reservoir, subject to that year's CVP operations. Many of the provisions in Title I have tradeoffs embedded in them. For example, provisions in Section 102 limiting the scope and definition of fish stocks receiving protection by the act may benefit some stakeholders, but are strongly opposed by others. Similarly, expanding the use of dedicated fish flows and funding for fish and wildlife restoration under Section 105 may provide more water to irrigators or other water users, but may contribute to the decline of salmon and other fish populations. This tradeoff may also be applicable to some of the more controversial sections of the bill, such as directing renewal of existing contracts (Section 103), which could be viewed on one hand as an attempt to circumvent future NEPA review, but on the other hand as a way to guarantee supplies of water and streamline the regulatory process. Section 108 of H.R. 3964 , which directs the Secretary to operate the CVP and SWP according to principles outlined in the 1994 Bay-Delta Accord, also would benefit some water users (e.g., to the extent that more water would be made available for use than under current law), but may harm other stakeholders (e.g., to the extent such operation would negatively affect Delta water quality or fish viability) The provisions of the bill under Title I raises several key questions regarding CVP water supplies for users and the environment. Selected questions include: How much more water would be available to CVP water users under H.R. 3964 in various scenarios? Specifically, how much more water would be available for export from the Delta, and how would the bill affect reservoir releases? Would there be more water also available at desirable times for CVP and SWP contractors in the Sacramento watershed (and if so, how much)? How would the bill affect the viability of listed species? What effects would it have on water quality, recreation, and commercial and sport fishing? Historically, Central California's San Joaquin River supported large Chinook salmon populations. Since the Bureau of Reclamation's Friant Dam on the San Joaquin River became fully operational in the late 1940s, much of the river's water has been diverted for agricultural uses. As a result, approximately 60 miles of the river became dry in most years, making it impossible to support Chinook salmon populations upstream of the Merced River confluence. In 1988, a coalition of environmental, conservation, and fishing groups advocating for river restoration to support Chinook salmon recovery sued the Bureau of Reclamation. A U.S. District Court judge subsequently ruled that operation of Friant Dam was violating state law because of its destruction of downstream fisheries. Faced with mounting legal fees, considerable uncertainty, and the possibility of dramatic cuts to water diversions, the parties agreed to negotiate a settlement instead of proceeding to trial on a remedy regarding the court's ruling. A settlement agreement was reached in the fall of 2006. Implementing legislation was debated in the 110 th Congress ( H.R. 4074 , H.R. 24 and S. 27 ) and 111 th Congress and became law in the spring of 2010 (Title X of P.L. 111-11 ). The Settlement Agreement and its implementing legislation call for new releases of water from Friant Dam to restore fisheries (including salmon) in the San Joaquin River and for efforts to mitigate water supply losses due to the new releases, among other things. As of 2014, Reclamation (with partners) had undertaken a number of implementation actions, including reintroduction of spring-run Chinook salmon in the San Joaquin River for the first time in more than 60 years. Because increased water flows for restoring fisheries (known as restoration flows) reduce diversions of water for off-stream purposes, such as irrigation, hydropower, and municipal and industrial uses, the settlement and its implementation have been controversial. The quantity of water used for restoration flows and the quantity by which water deliveries would be reduced are related. However, the relationship would not necessarily be one-for-one due to flood flows in some years and other factors that affect water flows. Under the Settlement Agreement, no water would be released for restoration purposes in the driest of years; thus, the Settlement Agreement would not reduce deliveries to Friant contractors in those years. Additionally, in some years, the restoration flows released in late winter and early spring may free up space for additional runoff in Millerton Lake, potentially minimizing reductions in deliveries later in the year—assuming Millerton Lake storage is replenished. Consequently, how deliveries to Friant water contractors might be reduced in any given year depends on many factors. Regardless of the specifics of how much water might be released for fisheries restoration versus water diverted for off-stream purposes (such as irrigation), there will be impacts to existing surface and groundwater supplies in and around the Friant Division Service Area. Although some opposition to the Settlement Agreement and its implementing legislation remains, the largest and most directly affected stakeholders (i.e., the majority of Friant water contractors, their organizations, and environmental, fisheries, and community groups) supported the Settlement Agreement and publicly supported the implementing legislation. On the other hand, others opposed the Settlement Agreement and have continued to oppose its implementation. Title II of H.R. 3964 would address the ongoing controversy associated with the San Joaquin River Restoration Settlement (SJRRS) by declaring that the Title "satisfies and discharges" all obligations of the Secretary and others to keep in good condition any fish below Friant Dam, including obligations under Section 5937 of the California Fish and Game Code, the state public trust doctrine, and the federal ESA. While many of the underlying authorities provided for in the P.L. 111-11 would remain, Title II of H.R. 3964 would remove most references to the Settlement Agreement itself, and would amend the San Joaquin River Restoration Settlement Act's purpose to be restoration of the San Joaquin River, instead of implementation of the Settlement Agreement. A summary of some of the key provisions in each section is provided below. Sections 201-203 provide for the general repeal of the San Joaquin River Restoration Settlement Act (SJRRSA), and make changes to the purposes and definitions of P.L. 111-11 . Section 201 of H.R. 3964 would repeal the San Joaquin River Restoration and direct the Secretary of the Interior to "cease any action" to implement the stipulated Settlement Agreement on San Joaquin River Restoration. Section 202 would amend the "Purpose" section of P.L. 111-11 to change the purpose of that act from "implementation of the Settlement" to "restoration of the San Joaquin River." Section 203 makes alterations to the definitions in P.L. 111-11 , including adding new terms for 'Restoration Flows,' 'Water Year' and 'Critical Water Year' that are referenced in other sections (see below). It also strikes most of the other terms originally defined in P.L. 111-11 . Section 204 of Title II would make a number of significant changes to the restoration settlement authorized under Section 10004 of P.L. 111-11 . Among other things, it would remove several provisions from P.L. 111-11 that authorize physical restoration of the San Joaquin River such as channel and structural improvements. It also employs the new definition for "Restoration Flows" provided in Section 203. Pursuant to the new definition, the additional water released or bypassed from Friant Dam must not result in a target flow entering the Mendota Pool below 50 cubic feet/second (cfs), except in a Critical Water Year (also defined in Section 203). This approach contrasts with the Settlement, which calculates Restoration Flows based on a water year type. Section 204 would also direct the Secretary to develop and implement within one year a "reasonable plan" to fully recirculate, recapture, reuse, exchange, or transfer all restoration flows (defined as a target of 50 cfs entering Mendota Pool, 62 miles below Friant Dam). It would also provide such flows to contractors within the units of the CVP that relinquished such restoration flows. This would allow for restoration water supplies to be replenished for users, thus potentially increasing their water supplies. However, it is unclear where this replenished water would come from and how it would be distributed to users. It would also direct the Secretary to identify impacts associated with implementation of modified restoration flows and create and implement mitigation actions to address those impacts before restoration flows begin. It is not clear how impacts would be defined, nor how they would be addressed by this section. Finally, Section 204 would also preempt and supersede state law from providing more restrictive requirements than what is contained in the bill. It includes a qualified preemption of Section 8 of the Reclamation Act of 1902 (which establishes deference to state law, as long as state law is not inconsistent with the act's purposes) and specifically "preempts and supersedes any State law, regulation, or requirement that imposes more restrictive requirements or regulations on the activities authorized under this part." It does, however, make an exception for certain state water quality rules. Section 207 of the bill would provide that certain obligations under California state law and the federal ESA as they pertain to fish below Friant Dam are satisfied by carrying out P.L. 111-11 . This provision refers to the basis of the Stipulated Settlement Agreement, in that a federal court had found that Reclamation was in violation of state law by not protecting and keeping in good condition fish below Friant Dam. This language would deem those state obligations, as well as those under the federal ESA, to be met. Several other provisions would make significant changes to the implementation of the SJRRSA. Examples of these changes include: Section 208 would amend Section 10008(a) of the P.L. 111-11 to provide protections to third parties and allow CVP contactors to bring action against the Secretary for injunctive relief or damages, or both, for failure to comply with the new requirements of Section 10004(a)(3) of P.L. 111-11 . In addition to creating a mechanism to mitigate impacts, this section would also set up a process for filing claims for damages. Both provisions would provide support to water users affected by a reduction in flows. Section 209 would significantly alter the authorization of appropriations under Section 10009 of P.L. 111-11 , including repealing the authorization of $250 million in discretionary appropriations for implementation of the settlement. It would also remove other directions and references to repealed sections of P.L. 111-11 . Section 210 would make limited changes to Section 100010 of P.L. 111-11 , which pertain to repayment contracts and accelerated repayment. It would remove references to the settlement and conform references to changes made under Sections 203 and 204 of H.R. 3964 pertaining to the new definition for "restoration flows." Section 211 would repeal in its entirety Section 10011 of P.L. 111-11 , which addresses implementation issues associated with the re-introduction of Central Valley spring run Chinook salmon. Under that section, Congress had previously provided specific instructions in regards to congressional intent for the introduction of these fish under the Endangered Species Act. Section 212 would alter the authority provided in P.L. 111-11 for the Secretary to provide financial assistance for certain water supply projects related to San Joaquin River restoration. The authority would be amended as to reference the newly defined restoration flows defined under Section 203. Section 213 would repeal P.L. 111-11 's authorization of appropriations for the Secretary to provide financial assistance to the California Water Institute for a study to conduct a study regarding the coordination and integration of sub-regional integrated regional water management plans into a unified Integrated Regional Water Management Plan. It is not clear how the proposed changes to SJRRSA would affect the Stipulated Settlement Agreement itself. Parties who helped author the settlement's implementing legislation have opposed Title II of the bill. They have argued that the benefits of restoration are just beginning to accrue, and that the settlement itself has not in practice resulted in significantly reduced water deliveries. However supporters of these provisions disagree, and argue that the settlement has harmed irrigators. Limited information from both sides is available that indicates how exactly enactment of the bill would affect ongoing restoration efforts. Since the passage of the Reclamation Act of 1902, reclamation law has been based on the concept of project repayment—reimbursement of construction costs—by project water and power users (also known as project beneficiaries). Typical "repayment contracts" were made for terms of 40 or 50 years, with capital costs amortized over the long-term period and repaid in annual installments (without interest for irrigation investments and with interest for M&I investments). According to one account, because the CVP is a "financially integrated" system, a different type of contract was used, known as a "water service contract." Under water service contracts, contractors pay a combined capital repayment and operations and maintenance (O&M) charge for each acre-foot of water actually delivered. This water service payment is different from repayment contracts, in that under repayment contracts the annual repayment bill is due regardless of how much water is used in a given year. Repayment contracts tend to be the norm outside of California; however, some other projects do have some water service contracts. Water service contracts in the CVP were also typically written for 40-year terms. However, in 1992, with the passage of the Central Valley Project Improvement Act (CVPIA, Title 34 of P.L. 102-575 ), contract terms were reduced to a maximum of 25 years. Another early tenet of reclamation law still in existence is a limit on how much land one can irrigate with water provided from federal reclamation projects. The idea behind the limitation was to prevent speculation and monopolies in western land holdings and to promote development and expansion of the American West through establishment of family farms. Over the ensuing decades, several attempts were made to increase the acreage limitation, and in 1982, pursuant to the Reclamation Reform Act (RRA, P.L. 97-293 ), the original acreage limitation of 160 acres was raised to 960 acres. Scholars and others have written extensively on enforcement issues resulting from the 960-acre limit. It has remained, on one hand, an unpopular provision among large landholders who do not want limits on their land, particularly in the Central Valley where large industrial farms are more common than other areas of the West. On the other hand, it is a key rallying point for taxpayer groups, environmentalists, and others who have opposed using federally subsidized water to irrigate large swaths of land. Under current law, once a repayment contract is paid out, the contractor no longer is subject to the 960-acre limit or other provisions of RRA (e.g., full-cost pricing for water). Title III contains one section: Section 301. Section 301 would authorize and direct the Secretary, upon request, to convert any agricultural water service contracts (known as 9(e) contracts) to repayment contracts (known as 9(d) contracts), as well as M&I water service contracts to repayment contracts. It would direct that under such conversions, the Secretary would require repayment either in lump sum or accelerated prepayment of a contractor's remaining construction costs, thus accelerating the process and advantages associated with full project repayment. It would also authorize the Secretary to similarly convert contracts for municipal water. The section would reiterate current law regarding the elimination of an obligation to pay full-cost pricing rates or abide by the acreage (ownership) limitations of Reclamation law once the repayment obligation is met. It is not clear how many contractors within the CVP might take advantage of these provisions and opt to prepay or accelerate their payments. Current CVP contract rates are based on a target repayment date of 2030; however, because the project is technically not complete, adjustments are made annually to capital cost obligations. Current CVP rate books (updated in 2012) show outstanding repayment obligations of approximately $1.15 billion for irrigation contracts and $147 million for M&I contracts. Presumably, districts interested in prepaying or accelerating repayment would need to obtain a loan or issue a bond to raise capital to make the payment, unless they have cash or other relatively liquid assets on hand. Because the federal repayment amount in agricultural contracts is akin to a no-interest loan for irrigation contracts, a district would have to weigh the financial costs of new financing with the operating and opportunity costs of continuing to remain under reclamation ownership and full-cost pricing rules. The added permanency of the water contract provided for under proposed Title I of this bill (i.e., directed renewal of 40 years, upon request, and potentially without NEPA review), might make such prepayment more attractive. On the other hand, if under Title I a water service contractor could also enjoy such benefits anyway (due to the renewal language and administration under the 43 U.S.C. 485h-1 ), it is not clear that the added benefits of being able to use Bureau of Reclamation water on more land and elimination of other requirements would outweigh the financial and administrative costs of new financing. One other incentive to prepay is the reporting requirements required for landowners. Those that own many properties throughout the West would no longer have to report acreage irrigated. Section 8 of the Reclamation Act of 1902 requires Reclamation to comply with state law, including requiring the agency to acquire water rights for its projects, such as the CVP. For the CVP, Reclamation found it necessary to enter into "settlement" or "exchange" contracts with senior water users who had rights pre-dating the project, and were thus senior water rights holders. "Sacramento River Settlement Contractors" are one such class. They entered into Sacramento River Settlement Contracts with Reclamation, which guarantee these contractors a certain amount of "base supply water" (some users also contract out for "project water"). "Exchange Contractors" are the other primary class of senior water rights holders. This refers to water users (south of the Delta) who diverted water from the San Joaquin River prior to construction of Friant Dam. These users exchanged their direct diversion of river water for water delivered from the Delta via the CVP Delta-Mendota canal. Both classes of contractors (as well as wildlife refuges) are generally limited as to the maximum reductions to their water supplies based on hydrological conditions (e.g., no less than 75%). These same limits on reductions are not currently provided for water service contractors. Title IV of H.R. 3964 aims to protect senior water rights and what are known as "area-of-origin" priorities that are currently embedded in state law. The Title also includes specific language protecting Sacramento River Settlement Contracts from potential reductions due to ESA implementation and to protect such contractors from adverse consequences of H.R. 3964 's Section 108 preemption of state and federal law on CVP and SWP Delta operations. Following is a summary of a few key provisions of Title IV: Section 401 would direct the Secretary to strictly adhere to state water rights by honoring senior water rights, "regardless of the source of priority." This would stipulate that state water rights are to remain intact, and aim to prevent any use of the authority provided for under Section 108 to alter any existing water rights. Section 402 would provide that in implementing the ESA, water supply reductions for Sacramento Valley Settlement Contractors must adhere to water rights priorities as stipulated in those contacts. Section 403 would place new limits on water supply reductions for Sacramento River watershed water service contractors, subject to the seniority provided to Settlement Contractors under Section 402. These limits on reductions would be similar to those provided to senior water contractors and wildlife refuges. For example, under this section, the Secretary of the Interior in operation of the CVP would have to deliver not less than 75% of Sacramento River watershed water service contractors' contracted water supply in a "dry" year (no such protection would be provided for water service contractors outside of this area). Currently, these water service contractors have no minimum guarantee of water deliveries in dry years. The section also provides protections for M&I water contractors. Section 404 would direct the Secretary to ensure "that there are no redirected adverse water supply or fiscal impacts to those within the Sacramento River watershed or to the State Water Project arising from the Secretary's operation of the [CVP]" to meet legal obligations imposed by or through a state or federal agency, including but not limited to the ESA or H.R. 3964 , or actions or activities implemented to meet "the twin goals of improving water supply or addressing environmental needs of the Bay Delta." The latter clause appears to be a reference to ongoing state and federal efforts to develop a Bay-Delta Conservation Plan [BDCP] and the state's implementation of a Delta action plan. While Title IV would protect northern and other senior water rights holders (senior to those rights or permits belonging to the CVP), it does not appear to provide the same level of protection to water users in the Delta or others whose water rights may be more junior to the CVP, but perhaps senior to others. Additionally, to the extent the bill would not provide new water to junior contractors beyond what might be garnered from prohibition on environmental restrictions beyond those contained in the Bay-Delta Accord, it is not clear the bill would end water supply shortages until new water supplies or other increases in yield anticipated by the bill were developed or accomplished. It is not clear how some sections of Title IV square with the broad preemption language of Section 108 and Title V, or how such legislation would be implemented in practice. Some of the sections in Title IV appear to conflict with the goals of Title I. It is unclear how much new water would be available to junior contractors, beyond water used for environmental purposes that would no longer be allowed under H.R. 3964 . Title V has three sections. Section 501 includes findings of Congress that the unique circumstances of coordinated operations of the CVP and SWP "require assertion of Federal supremacy to protect existing water rights throughout the system" and that as such shall not set precedent in any other state. As noted above, there has been concern from some western states that the state and federal preemptions contained in H.R. 3964 might be used as precedent in other western states and threaten their allocation of state water rights, and this provision attempts to address these concerns. Some might question if provisions in the bill conflict with certain emergency authorities provided to the State Water Resources Control Board (SWRCB), and how the competing provisions are to be reconciled. Section 502 attempts to reconcile those concerns by declaring that that nothing in the act shall "affect in any way" the Proclamation of State Emergency and associated Executive Order (Emergency Order); issued by Governor Brown on January 17, 2014, or the authorities granted by the Proclamation. Further, the bill would not limit the authority provided by the Proclamation to allow the SWRCB to modify and standards or operational constraints adopted to implement the Bay-Delta Accord so as to make additional water supplies available to service areas during a state of emergency. Under the Emergency Order, the Governor authorizes the SWRCB to expedite and streamline water transfers, expedite funding for water supply projects and water conservation projects, notify water right holders that they might be directed to cease or reduce diversions based on water shortages, modify requirements as they relate to reservoir releases and to implementing a water quality control plan, among other things. Section 503 includes language that would adjust a Wild and Scenic River boundary for the Merced River, potentially allowing for increased storage at Exchequer Dam. The removal of sections of the Merced River from the Wild and Scenic Rivers Act would remove that section of the river from restrictions in the act aimed at protecting river segments from certain types of development and adverse effects of water management regimes (notably the requirement that the river segment remains in a free flowing condition). Section 504 would direct that a January 17, 2014 Proclamation of State Emergency and Executive Order by the Governor of California shall be considered a request for a fisheries disaster declaration under the Magnuson-Stevens Act. If it is determined that such a disaster as occurred, these areas would potentially be eligible for disaster assistance. H.R. 3964 would make extensive changes to implementation of federal reclamation law under the Central Valley Project Improvement Act, the contracting provisions under the 1939 Reclamation Project Act, restoration efforts under the San Joaquin River Restoration Settlement Act, and state and federal relationships under Section 8 of the Reclamation Act of 1902. The bill would also alter the way the state of California implements its own state laws with regard to operation of the CVP and SWP and non-native fisheries. H.R. 3964 is primarily aimed at addressing decreased water deliveries to California's CVP and SWP contractors, particularly those south of the Delta, since passage of the CVPIA in 1992. The bill would allow water to be delivered to contractors that would likely become available due to changes in restrictions in environmental and other laws. It would result in greater water deliveries by preempting federal and state law, including fish-and-wildlife protections and other CVP operational mandates, which are all tied to the coordinated operations of the CVP and SWP. It is unclear what impacts such changes would have on other water users in the state. Title IV of the bill attempts to provide protections for California's senior water right holders, particularly those in the Sacramento Valley watershed and in "area-of-origin" areas. A key remaining unknown consequence is the significance of the bill's use of the fixed 1994 Bay-Delta Accord as a basis rather than current (and evolving) in-Delta water quality standards and biological opinions under the federal ESA. The current water quality standards impose water flow restrictions and appear to be a contributing factor to annual pumping restrictions in the Delta, along with ESA requirements. The exact amount of water the bill would make available to certain users under various scenarios is unclear. While much attention has been paid to the effects of federal and state environmental laws on reductions in water supplies south of the Delta, the extent to which the bill would relieve current and ongoing water supply shortages, particularly in drought years, is uncertain. Limited increases in deliveries for water contractors may be garnered from a prohibition or alteration of some state and federal environmental restrictions (including the State's Public Trust Doctrine and other laws proposed under the bill. However, the legislation does not appear to fundamentally change some of the other factors driving water shortages and delivery curtailments in the Delta, including the fundamental tenet of state water rights during times of shortage. Indeed, under some drought scenarios junior water rights holders may face curtailed water deliveries (i.e., regardless of environmental restrictions), while senior water rights holders continue to receive water. Additionally, another significant factor in recent pumping restrictions in the Delta is the state water quality control plan, which includes salinity and flow requirements under California State Water Resources Control Board Decision 1641 (also known as "D-1641"). This decision in some cases dictates the timing and quantity of water deliveries south of the Delta. It is unclear the extent to which water quality standards that would be required under the Bay-Delta Accord would correlate with the current requirements under D-1641. Such correlation (or lack thereof) could have a potentially significant effect on the extent of water exports in a given year. Longer term consequences of the legislation may also be of interest to Congress. Unlike some other proposals, H.R. 3964's provisions would be in effect beyond the current drought, and would continue in perpetuity absent future changes to the statute. Effects of the legislation on other ongoing plans, such as the Bay Delta Conservation Plan (BDCP), are unknown but could be significant. Some have argued that if ESA and state protections in the Bay-Delta are removed as proposed, there would be less need for the BDCP, a habitat conservation plan. The precedent of legislation may be of interest, as well. Among other things, the waiver of ESA and state laws in order to provide increased water deliveries for federal project contractors would be a significant departure from the previous deference to these laws. H.R. 3964 goes to the heart of the water supply issue in California by proposing to prohibit "any" state or federal law (including the public trust doctrine) from reducing water supplies beyond those allowed in the Bay-Delta Accord. It would also declare federal supremacy over water management to "protect existing water rights throughout the system." However, some argue that the bill would undermine efforts to achieve the "co-equal" goals of "providing for a more reliable water supply for California and protecting, restoring, and enhancing the Bay-Delta ecosystem," which is the foundation of state and federal efforts in development of the Bay Delta Conservation Plan. Therefore the overall approach of the legislation, as well the extent to which it would alter the existing water management regime in California, may elicit ongoing debate. | For most of the last 20 years, some water contractors in California's Central Valley have received less than their full contract water supplies from federal and state water resource facilities. Although such allocations are in part the result of the prior appropriation doctrine in western water law and are consistent with the expectation of a "junior" water user in times of drought, tensions over water delivery reliability have been exacerbated by reductions in deliveries even in non-drought years. Such reductions are significant because much of the California urban and agricultural economy operates under junior water rights, and reductions in water allocations can cause significant disruption and economic losses, particularly in drought years. At the same time, fish populations throughout the Central Valley have dramatically declined due to water diversions and other factors, and this has been accompanied by significant losses for fishing communities and others dependent on fish and wildlife resources. The state and federal governments have been working to address water supply reliability and ecosystem issues through the Bay-Delta Conservation Plan (BDCP); however, the plan is not complete and remains controversial. On February 5, 2014, the House enacted H.R. 3964, the Sacramento-San Joaquin Valley Emergency Water Delivery Act. It is similar to a bill in the 112th Congress that also passed the House (H.R. 1837, the Sacramento-San Joaquin Valley Emergency Water Reliability Act). The bill would, among many other things, amend the Central Valley Project Improvement Act of 1992 (CVPIA) to potentially reduce some water allocations for fish and wildlife and redirect them to other purposes (i.e., agricultural and municipal and industrial uses). It would preempt "any" (including state and federal) law pertaining to operation of the federal Central Valley Project (CVP) and California's State Water Project (SWP). It would also substitute for those laws operational principles from a 1994 interim agreement, known as the Bay-Delta Accord, which some believe would provide more reliable water supplies for federal and state water contractors. It would also repeal certain components of a 2010 law authorizing a settlement agreement for the San Joaquin River, and would make numerous other changes. Proponents of H.R. 3964 argue that implementation of the CVPIA and the San Joaquin River Settlement, coupled with state and federal environmental laws (e.g., the federal Endangered Species Act, its state equivalent, and state regulations implementing the federal Clean Water Act), have compounded the impact of drought on water deliveries. Opponents argue that the bill would harm the environment and resource-dependent local economies, particularly coastal communities. Some also argue that it would undermine efforts to resolve environmental and water supply reliability issues through development of the BDCP. Issues for Congress include the extent to which the bill changes decades of federal and state law, including state and federal environmental laws, and at what benefit and cost. For example, there are tradeoffs embedded in the bill's preemption of state water law, including fish and wildlife protections, as a means to increase the water deliveries to some irrigation contractors and municipalities. These changes might benefit water contractors in some areas, but potentially reduce environmental protections and improvements and the industries they support (e.g., recreational and fishing industries) in others. Congress may also consider the potential extent to which the bill would relieve water supply shortages, particularly in drought years. While much attention has been paid to the effects of federal and state environmental laws on reductions in water supplies south of the Bay-Delta, many factors affect pumping restrictions and the overall water allocation regime for CVP contractors. How H.R. 3964 would in practice affect these factors is uncertain. |
Money laundering is a term generally associated with various types of financial transactions that are conducted by criminals to conceal the location, ownership, source, nature, or control of illicit proceeds. In the process, illicit proceeds are made virtually unrecognizable from proceeds derived from legitimate sources and, thus, are usable within the national and international financial system. Money laundering is not a new problem and efforts to stem such activity remain a global policy concern. Money l aundering occurs in three stages, which, in practice, may involve additional complexity. The first stage is "placement" and involves the introduction of illicit funds into the financial system. The second stage involves "layering," whereby illicitly placed funds undergo a series of processes to conceal their true source and ownership. The third stage is "integration," at which point illicit funds become indistinguishable from legitimately obtained funds and flow undetected through the financial system. Anti-money laundering (AML) policies are chiefly governed by national laws and regulations that establish the parameters of legal financial activity and the responsibilities of financial institutions and related sectors to comply with AML requirements. In the United States, a robust policy apparatus is in place to implement national laws through financial regulations, enforcement actions including prosecutions, and targeted sanctions. The U.S. government also supports the improvement of foreign government legal regimes and technical capacity for AML. International treaty instruments that address crime provide some tools to encourage international cooperation on financial crime matters. Several international institutions provide standard-setting guidance and maintain capabilities to monitor and assess the status of national AML policies. Multilateral institutions and donor nations also provide training and technical assistance to improve AML capabilities. Halting the introduction and circulation of criminally generated proceeds in the financial system, and, ultimately, depriving criminals from using illicit wealth remains a challenge. Despite the existence of long-standing domestic regulatory and enforcement mechanisms, as well as international commitments and guidance on best practices, policymakers are challenged to identify and address policy gaps and new laundering methods that criminals continue to exploit. Moreover, policymakers also may attempt to balance AML efforts with principles of financial inclusion, including providing access to financial services in developing countries, and avoiding unnecessary administrative and compliance burdens being placed on the public and private sectors. The scope of money laundering as a global problem is often framed in terms of the volume of illegal transactions, breadth of geographic concerns, and varied consequences resulting from such activity. Money laundering is a difficult phenomenon to accurately measure. In 1998, the International Monetary Fund (IMF) released a "consensus range" estimate of money laundering transactions totaling some 2%-5% of global gross domestic product (GDP). Based on 2009 data, the United Nations (U.N.) reviewed in 2011 existing national and international studies on money laundering and global crime proceeds to conclude that the scope of money laundering likely remained within the bounds of the IMF's rough estimate: approximately 2.7% of global GDP, or $1.6 trillion. Due to its global dominance, the U.S. dollar generates trillions of dollars daily in transactions through U.S. financial institutions, which in turn exposes the U.S. financial system to potential money laundering activity and cross-border illicit financial flows. The U.N. report further estimated that the United States, in 2010, likely generated some $300 billion in illicit proceeds (excluding tax evasion), or roughly 2% of U.S. GDP. In 2015, the U.S. Department of the Treasury confirmed that the U.N.'s estimates are "comparable to U.S. estimates." As in the United States, international surveys indicate that the most significant sources of illicit proceeds are generated through white collar crime (i.e., fraud, identity theft, and tax evasion) and organized crime, particularly drug trafficking. Smaller sums, which are nevertheless significant for political and security reasons, are associated with public corruption and international terrorism. In seeking to clean dirty money, launderers wield a wide range of methods to conceal from authorities the true origins, ownership, and volume of illicit proceeds. Particularly attractive are methods that preserve anonymity (e.g., use and movement of cash), avoid AML-related recordkeeping and reporting requirements (e.g., structuring bank deposit and withdrawal), and involve techniques that are hard for authorities to detect (e.g., trade-based money laundering). Money laundering may involve the use of complicit individuals (e.g., nominees, corrupt officials, banking insiders, front company business owners) and illegal financial service providers (e.g., unregistered money services businesses). Money laundering may also involve the exploitation of legal off-shore corporate structures that obscure beneficial ownership (e.g., shell companies) and permissive foreign jurisdictions, including those accessible by correspondent banking relationships and business sectors with potentially lax AML controls. "Beneficial owner" refers to the natural person who, directly or indirectly, controls or manages a legal entity and its assets. According to the Financial Action Task Force (FATF), an international AML standard-setting body, the lack of available information on the legal and beneficial ownership of corporate vehicles increases their vulnerability to exploitation for the purposes of laundering illicit proceeds. The Treasury Department describes money laundering as "a necessary consequence of almost all profit generating crimes and can occur almost anywhere in the world." As a global issue, the effectiveness of international AML efforts is often described as dependent on the international community's weakest links: countries or jurisdictions that fail to establish appropriate AML safeguards. Unchecked money laundering can have global consequences; it can: Undermine the integrity of the international financial system, reduce consumer confidence in the financial system, and damage the reputation of financial regulatory bodies. Introduce economic distortions that affect economic growth, international trade, business competitiveness, money demand, capital flows, foreign investments, exchange rates, and securities markets. Violate border and customs controls through the facilitation of bulk cash smuggling and trade-based laundering methods that evade duties, tariffs, and taxes—legitimate sources of government revenue that become unavailable for public expenditure. Contribute to and exacerbate state fragility by rewarding illicit behavior at the expense of transparency, good governance, the rule of law, and accountability of public and private institutions. Enable criminals to sustain their networks and realize profits generated by their illicit activities, including political corruption. Facilitate the financing of terrorism. In the United States, the legislative foundation for domestic AML originated in 1970 with the Bank Secrecy Act (BSA) of 1970 and its major component, the Currency and Foreign Transaction Reporting Act. Deriving from an emerging recognition that financial transaction records have a "high degree of usefulness in criminal, tax, or regulatory investigations or proceedings," the legislation authorized the Secretary of the Treasury to require financial institutions to establish and adhere to certain AML practices. Amendments to the BSA and related provisions in the 1980s and 1990s expanded AML policy tools available to combat crime, particularly drug trafficking, and prevent criminals from laundering their illicitly derived profits. Key elements to the BSA's AML legal framework, which are codified in Titles 12 (Banks and Banking) and 31 (Money and Finance) of the U.S. Code, include requirements for reporting, customer identification and due diligence, recordkeeping, and the establishment and maintenance of BSA/AML compliance programs. Bank examiners are required to probe banking entities on the effectiveness of AML policies and procedures. Substantive criminal statutes in Titles 31 and 18 (Crimes and Criminal Procedures) of the U.S. Code prohibit money laundering and related activities and establish civil penalties and forfeiture provisions (see text box below on enforcement actions). The establishment of a "follow the money" approach among federal law enforcement agencies in pursuing predicate offense investigations has contributed to, on average, 1,200 money laundering-related convictions annually. Moreover, federal authorities apply administrative forfeiture, non-conviction based forfeiture, and criminal forfeiture tools to confiscate assets, with more than $4.4 billion in assets confiscated in 2014. In response to the terrorist attacks on the U.S. homeland on September 11, 2001, Congress expanded the BSA's AML policy framework to incorporate additional provisions to combat the financing of terrorism (CFT). Legislation following the September 11 attacks, including Title III of the USA PATRIOT Act of 2001, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, provided the executive branch with greater authority and additional tools to counter the convergence of illicit threats, including the financial dimensions of organized crime, corruption, and terrorism. The BSA's AML policy framework is premised on the effective implementation, primarily by financial institutions, of suspicious activity monitoring systems. The accurate, timely, and complete reporting of suspicious activity to the Treasury Department ensures that situations that may warrant further investigation are flagged for law enforcement authorities. Other reports are variously required to be submitted by individuals transporting large amounts of cash internationally, persons with large foreign financial interests, and nonfinancial entities conducting large cash transactions. Other reporting requirements are unique to specific countries, jurisdictions, or situations. Among such reporting requirements are the following: FinCEN has issued regulations requiring various types of financial institutions to establish anti-money laundering programs. Such regulations require a financial institution to set internal policies, procedures, and processes for customer identification and due diligence, along with other requirements. FinCEN, for example, requires banks to have a customer identification program, including the verification of account holders' name and address. Implementing regulations specify that before opening a new account, banks must also obtain account holders' date of birth and either a taxpayer identification number for U.S. persons or a comparable government-issued identifying document for non-U.S. persons. Beyond customer identification and verification, regulators examine the appropriateness and comprehensiveness of financial institutions' customer due diligence (CDD) efforts. CDD includes assessing customer risk and conducting enhanced due diligence (EDD) on customers that pose greater risks and, in turn, greater money laundering exposure to banks. Minimum standards for anti-money laundering programs for banks are found in 31 C.F.R. 1010.610 regarding due diligence programs for correspondent accounts for foreign financial institutions, and in 31 C.F.R. 1010.620, regarding due diligence programs for private banking accounts. These are supplemented by guidance and regulations issued by the federal banking regulators. In addition to recordkeeping requirements, FinCEN also requires domestic financial institutions and agencies to obtain and retain additional customer information associated with targeted jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern—including information relating to beneficial ownership, certain payable-through accounts, and certain correspondent accounts. In addition to required reporting and customer identification requirements, financial institutions are required to maintain certain financial records, often for at least five years. Such recordkeeping requirements are designed to assist authorities during an investigation and to assist financial institutions, as part of their AML compliance programs, in revealing patterns of unusual activity. The system in place to preserve such records is examined by financial regulators. Basic recordkeeping requirements were established by the BSA in 1970 and expanded over time. Records include customer identification material, as well as explanations of the methods used to verify customer identification. Records also include, but are not limited to, account statements; checks and deposits in excess of $100; international transactions over $10,000; purchase of monetary instruments (e.g., bank checks or drafts, cashier's checks, money orders, and traveler's checks) of at least $3,000; funds transfers of at least $3,000; and actions taken in response to U.S. economic sanctions programs, including blocked assets or funds and rejected transactions. The United States often imposes economic sanctions in response to threats to the nation's security, foreign policy, or economy. Many of the existing financial sanctions programs are based on the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. 1701 et seq.), which authorizes the President, upon declaration of a national emergency (pursuant to authorities stated in the National Emergencies Act; 50 U.S.C. 1601 et seq.) with respect to an "unusual and extraordinary threat which has its source in whole or in part outside the United States," to investigate, regulate, or prohibit a variety of asset and property transactions, subject to U.S. jurisdiction. The Office of Foreign Assets Control (OFAC) in the Treasury Department administers and enforces IEEPA-based financial sanctions programs, as well as other authorized sanctions programs, against foreign countries, political regimes, terrorists, narcotics traffickers, transnational organized criminals, and proliferators of weapons of mass destruction. Implementing regulations require financial institutions to comply with sanctions provisions that variously prohibit financial transactions and freeze or block assets and property under U.S. jurisdiction associated with designated individuals and entities. Regulators examine banks for compliance with sanctions provisions; violations are subject to potential civil and criminal penalties. In the past, Congress has required the President to develop national strategies for combating money laundering and related financial crimes. Pursuant to the Money Laundering and Financial Crimes Strategy Act of 1998, as amended, the Administrations of Bill Clinton and George W. Bush transmitted national strategies on money laundering to Congress in 1999, 2000, 2001, 2002, 2003, 2005, and 2007 (the only years for which such strategy reports were required by Congress). In 2006, the Bush Administration also released a U.S. Money Laundering Threat Assessment. In 2015, the Obama Administration released a National Money Laundering Risk Assessment and a National Terrorist Financing Risk Assessment. Pursuant to Chapter 8 of Part I of the Foreign Assistance Act of 1961 (FAA, as amended by the International Narcotics Control Act of 1992) and the Foreign Relations Authorization Act, Fiscal Year 2003 ( P.L. 107-228 ), the U.S. Department of State's Bureau of International Narcotics Control and Law Enforcement Affairs (INL) annually issues the International Narcotics Control Strategy Report (INCSR) in two volumes: one on drug and chemical control and a second on money laundering and financial crimes. Both volumes contain country-by-country surveys of relevant foreign government policies and current implementation challenges. The FAA (as amended by the International Narcotics Control Corrections Act of 1994) also requires the INCSR to list jurisdictions considered to be "major money laundering" countries, which are, in turn, divided into three categories: (1) countries/jurisdictions of primary concern; (2) countries/jurisdictions of concern; and (3) other countries/jurisdictions monitored. The INCSR also provides an annual overview of U.S. activities to combat international drug trafficking and financial crime. The Obama Administration incorporated AML objectives in other strategy documents and White House releases, including the National Security Strategy. The most recent National Security Strategy, issued in February 2015, stated that economic sanctions "will remain an effective tool for imposing costs on irresponsible actors and helping to dismantle criminal and terrorist networks." The National Security Strategy also aimed to work within the international standards-setting body known as the Financial Action Task Force (FATF), the G-20, and other international fora "to promote financial transparency and prevent the global financial system from being abused by transnational criminal and terrorist organizations to engage in, or launder the proceeds of illegal activity." Transnational Organized Crime Strategy. The first-ever national strategy to combat transnational organized crime, issued in July 2011, established as one of six overarching policy objectives the goal to "protect the financial system and strategic markets against transnational organized crime." The Strategy also recommended enhanced use of intelligence and information sharing among domestic and international law enforcement authorities, including with respect to the Consolidated Priority Organized Targets, the United States' most wanted international drug and money laundering criminals. National Drug Control Strategy. The most recent National Drug Control Strategy, issued in July 2014, identified the disruption of illicit financial networks related to drug trafficking, including the disruption of bulk cash through seizures, as a priority. Action plans and other steps to address beneficial ownership. A long-standing issue of contention centers on U.S. policies regarding beneficial ownership transparency and shell company formation practices (see also text box, below, on the FATF's 2016 mutual evaluation of the United States). The April 2016 leak of the so-called Panama Papers renewed U.S. attention to the ability of criminals to hide behind shell companies (both offshore and domestically) to hide the proceeds of illegal activity or to shelter funds illegally from home country taxes. In response, the Obama Administration announced in May 2016 additional steps to strengthen financial transparency and to combat money laundering, corruption, and tax evasion—including the issuance of new CDD regulations, discussed in a text box above. These steps built on previous commitments made by the Obama Administration to the G-8 and G-20. Multiple federal agencies play various roles in domestic and international cooperation to combat money laundering, including in the development of AML policy, oversight and regulation of AML requirements, prosecution and enforcement of violators, and provision of international training and technical assistance to foreign countries. As part of the Secretary of the Treasury's overall stewardship of U.S. economic and financial systems and related policy, the Treasury Department serves as one of the primary executive agencies responsible for administering implementation of BSA/AML and developing regulations and policy to protect the integrity of the U.S. financial system. In 2004, the Treasury Department established the Office of the Under Secretary of Terrorism and Financial Intelligence (TFI), whose mission is to safeguard the financial system against illicit use and combat "rogue nations, terrorist facilitators, weapons of mass destruction (WMD) proliferators, money launderers, drug kingpins, and other national security threats." TFI has diplomatic, policy, and strategy responsibilities. Overseas, TFI serves to implement policy and integrate the following bureaus and offices into the larger policy apparatus: Office of Terrorist Financing and Financial Crimes (TFFC) Office of Intelligence and Analysis (OIA) Office of Foreign Assets Control (OFAC) Treasury Executive Office for Asset Forfeiture (TEOAF) Financial Crimes Enforcement Network (FinCEN) TFFC is the policy and outreach office within TFI. It represents the United States at relevant international bodies, including heading the U.S. delegation to the FATF and FATF-style regional bodies (FSRBs). It works closely with the Office of International Affairs, which houses the Office of Technical Assistance (OTA, discussed below) and Office of Domestic Finance on the formulation of AML-related policies and strategies. As a member of the broader U.S. intelligence community, OIA is responsible for TFI's intelligence functions, provides support to Treasury leadership, and also integrates the Treasury Department's financial intelligence tools across the intelligence community. OIA was established by the Intelligence Authorization Act for Fiscal Year 2004. OFAC administers and enforces U.S. economic sanctions programs, which include the blocking of transactions and freezing of assets under U.S. jurisdiction of specified foreign terrorist, criminal, and political entities, including specially designated individuals and nation states. Authorities for OFAC to designate such entities are derived from executive order and legislative statutes, which include the International Emergency Economic Powers Act (IEEPA), National Emergencies Act, United Nations Participation Act of 1945, Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), and Foreign Narcotics Kingpin Designation Act. FinCEN is responsible for administering the BSA and conducting certain other regulatory functions. It issues guidance, advisories, and rules on BSA implementation and maintains the federal government's database on required reporting by financial institutions and regulated industries, including suspicious activity reports (SARs) and currency transaction reports (CTRs). FinCEN also serves as the U.S. Financial Intelligence Unit (FIU) and interfaces with the private sector, federal regulators and investigators, and the international community on AML matters. While FinCEN has no criminal investigative or arrest authority, it uses its data analysis to support investigations and prosecutions of financial crimes, and refers possible cases to law enforcement authorities when warranted. It also submits requests for information to financial institutions from law enforcement agencies conducting criminal investigations. FinCEN has the authority to issue civil money penalties. The Internal Revenue Service (IRS) is the largest bureau of the Treasury Department, with responsibility for determining, assessing, and collecting internal revenue for the United States. It also has responsibility for enforcing compliance with BSA requirements, particularly for nonbanking financial institutions not regulated by another federal agency, including money service businesses (MSBs), casinos, and charities. The IRS criminal investigation division (IRS-CI) investigates a wide range of financial crimes, including tax evasion, as well as violations of AML and financial reporting statutes. Federal functional regulators of financial institutions conduct oversight and examine entities in industries under their supervision for compliance with BSA/AML requirements. Generally, banking regulators examine "institutions for compliance with a broad range of laws, regulations, and other legal requirements to ensure their safe and sound functioning. Further, [the regulators] supervise for compliance with laws and regulations on focused topics, such as anti-money laundering and consumer protection." When a regulator finds BSA violations or deficiencies in AML compliance programs it may take informal or formal enforcement action. Federal banking agencies include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC). Other federal agencies with AML regulatory responsibilities include the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The primary regulators for depository financial institutions are participants in the Federal Financial Institutions Examination Council (FFIEC). The FFIEC is an interagency body created in 1979 to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the prudential regulators, and to promote uniformity in the supervision of financial institutions. Non-depository regulators are also members of the National Anti-Money Laundering Group (NAMLG). The Federal Reserve System supervises state-chartered commercial banks that are members of the Federal Reserve System and bank holding companies, including those that are financial holding companies. It also has authority with respect to foreign bank branches and agencies operating in the United States and Edge Act corporations. The Federal Reserve conducts examinations which include BSA compliance, along with other banking functions. The FDIC regulates state-chartered commercial banks and state-chartered savings associations that are not members of the Federal Reserve System and examines them for AML compliance along with other requirements. The OCC, which is a bureau of the Treasury Department, regulates and supervises nationally chartered banks and federal savings associations, as well as U.S. branches and offices of foreign banks. The OCC conducts examinations, which cover, among other banking functions, BSA compliance. The NCUA regulates federally chartered credit unions and federally insured, state-chartered credit unions. Most credit unions are small and considered to have limited exposure to money laundering activities. However, in December 2016 FinCEN imposed a civil monetary penalty against a New York-based credit union providing money-business services without updating its anti-money laundering program. The SEC protects investors against fraud and deceptive practices in securities markets. It also has authority to examine institutions it supervises for BSA compliance, including securities exchanges, securities issuers, investment advisers, investment companies, broker-dealers, and various industry professionals. The SEC also carries out joint examinations with self-regulatory organizations (SROs), including the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange. The CFTC protects market users and the public from fraud and abusive practices in markets for most derivatives (e.g., commodity and financial futures, options, and swaps). It delegates BSA examination to its designated SROs, including the National Futures Association (NFA). Covered businesses include all registered futures commission merchants, "introducing brokers," commodity pool operators, and commodity trading advisors. Designated SROs monitor business practices and, as appropriate, take formal disciplinary actions, including prohibiting firms from conducting further business. Views on whether the U.S. government sufficiently enforces AML laws to deter future violators vary. Some policymakers argue that certain major financial institutions are insufficiently punished for AML violations, while others warn that further regulatory costs imposed on financial institutions for AML compliance could be viewed as untenable. Strong enforcement of AML laws and the effectiveness of money laundering deterrence have long been issues for Congress. A 2016 report by the U.S. Government Accountability Office (GAO) found that from January 2009 to December 2015, federal agencies assessed roughly $5.1 billion in fines, forfeitures, and penalties (see Figure 2 ) for BSA/AML requirements. A separate 2016 analysis of AML enforcement found that penalties and fines for BSA violations had increased markedly since the 2008 financial crisis, and concluded that regulators had become more aggressive in pursuing BSA violations in the wake of the crisis. The report found that the number and size of BSA/AML penalties had grown, particularly after 2012: "Nearly 90% of BSA/AML enforcement actions from 2012 through 2015 included monetary penalties, compared to less than half from 2002 through 2011. Penalties have grown substantially in both absolute terms and as a proportion of firm capital." Recent trends also highlight authorities' use of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) along with these fines and penalties. DPAs and NPAs have been used, often in conjunction with monetary penalties, as alternative enforcement tools that provide an agreement by authorities to defer criminal prosecution in exchange for an acceptance of tighter ongoing scrutiny by regulators for those institutions found to be lacking in compliance with the law. According to one study, the number of DPAs and NPAs in 2015 more than doubled as compared to the annual average since 2000. Although the number of such agreements increased, the study found that certain federal judges had begun challenging the practice. Since the financial crisis, FinCEN and other regulators have reportedly increased their focus on individual and corporate responsibility for AML compliance. For instance, in announcing the December 2012 then-record monetary penalty on HSBC for BSA/AML compliance failures, the DOJ stated that HSBC had waived federal indictment and had accepted responsibility for its criminal conduct and that of its employees. Several U.S. federal departments, agencies, and offices provide bilateral technical assistance and training on AML/CFT topics to foreign counterparts. The U.S. government also supports multilateral organizations that provide AML/CFT assistance, whether in the form of direct U.S. participation or funding. According to the Department of State, the U.S. government provided AML/CFT support to more than 100 countries in 2015, both bilaterally and with other donor nations and international organizations, in the form of training, mentoring, and other support for the full range of AML/CFT stakeholders. Such stakeholders included supervisory, law enforcement, prosecutorial, customs, and financial intelligence unit government personnel, as well as private sector entities. U.S. agencies involved in implementing such international AML/CFT support include the following. U.S. Department of Homeland Security (DHS) . Includes Customs and Border Protection (CBP) and Immigration and Customs Enforcement's Homeland Security Investigations (ICE-HSI). U.S. Department of Justice (DOJ) . Includes the Drug Enforcement Administration (DEA), Offices within the Criminal Division (including the Office of Overseas Prosecutorial Development, Assistance, and Training [OPDAT], and the Asset Forfeiture and Money Laundering Section [AFMLS]), and the National Security Division (NSD). U.S. Department of State . Includes the International Narcotics and Law Enforcement Affairs Bureau (INL) and Counterterrorism Bureau (CT). U.S. Department of the Treasury . Includes the Financial Crimes Enforcement Network (FinCEN), International Revenue Service-Criminal Investigations (IRS-CI), Office of the Comptroller of the Currency (OCC), and Office of Technical Assistance (OTA). Board of Governors of the Federal Reserve System (FRB) . Among other initiatives, the Board of Governors and the Reserve Banks of the Federal Reserve System offer training and assistance for supervisors and staff of foreign central banks and foreign bank supervisory authorities, which includes courses on AML/CFT compliance and supervisions through the Fed's International Training and Assistance (ITA) programs. These U.S. federal entities provide an array of international programming that spans the full range of AML/CFT matters. Illustrative programming includes DHS-CBP training workshops in detecting bulk cash smuggling, ICE-HSI cross-border financial investigation training (CBFIT), DOJ-OPDAT and DOJ-AFMLS training on financial investigations and asset recovery, State Department-managed trainings through its five International Law Enforcement Academies (ILEAs), and Treasury-OTA's comprehensive support to develop internationally compliant AML/CFT regimes through its Economic Crimes Team (ECT). DHS special agents have also been placed on temporary assignment overseas as cross-border financial investigations advisors (CBFIAs), and federal prosecutors have been placed overseas on long-term assignments funded by the State Department and managed by DOJ-OPDAT, as resident legal advisors (RLAs). RLAs are located in Algeria, Bangladesh, Iraq, Kenya, Panama, Senegal, Turkey, and the United Arab Emirates (UAE, with regional responsibility for UAE, Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, and Yemen). They focus on supporting host nations with the development and implementation of AML/CFT legal regimes; partially supported by counterterrorism funds, additional RLAs are located in the Philippines, Indonesia, and Malaysia. The State Department also funds Intermittent Legal Advisors (ILAs) in Colombia and Paraguay. In addition, the Treasury Department assigns attaches to U.S. overseas posts, including in UAE, Turkey, Iraq, China, Belgium, Egypt, Qatar, Pakistan, Afghanistan, Ukraine, Mexico, Russia, India, Saudi Arabia, Brazil, Singapore, and Japan. AML/CFT technical assistance projects, including bilateral and multilateral efforts, have primarily been funded with foreign assistance accounts administered by the Departments of State and Treasury. Projects are also funded by the U.S. Agency for International Development (USAID), U.S. Embassies, and the U.S. government foreign aid agency Millennium Challenge Corporation, among others. U.S. funding for AML/CFT technical assistance across all government stakeholders is not comprehensively presented in an interagency format to Congress as part of the President's annual budget plans, but some illustrative trends in funding are available for some specific accounts, including technical assistance funded by Treasury's OTA (see Table 1 ). In the case of the State Department, although foreign assistance funding for combating terrorist financing is available, funding estimates for programming that addresses potentially broader AML objectives are not regularly reported to Congress (see Table 2 ). Rough estimates indicate that AML-related programming likely ranged between $10 million and $20 million annually between FY2010 and FY2015. Given the global nature of the international financial system and the transnational criminal activity that attempts to exploit it, the United States and other countries have engaged in a variety of international efforts designed to improve global AML responses and build international coordination and cooperation on AML issues, including through formal bilateral requests for mutual legal assistance on financial crime investigative matters. In addition, multiple international organizations contribute to international AML cooperation through global standard setting, cross-border information sharing, AML assessment and monitoring, and capacity building through technical assistance. Some entities, such as the Financial Action Task Force (FATF) and the Basel Committee on Banking Supervision, provide standard-setting guidance relevant to AML matters. Others, such as the Egmont Group of Financial Intelligence Units and the International Criminal Police Organization (INTERPOL), contribute to the implementation of such standards through information sharing. The U.N. Office of Drugs and Crime (UNODC), the World Bank, and the IMF also maintain capabilities to variously monitor and assess the status of national AML policies, as well as provide technical assistance on AML capacity building priorities. Other international and regional organizations, including the Organization for Economic Cooperation and Development (OECD), the G-20, and the Organization of American States (OAS), have working groups and initiatives focused on various AML matters. The first U.N. treaty to require states parties to criminalize the laundering of illicit drug profits was the 1988 U.N. Convention Against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances. The 1988 U.N. drug trafficking convention also committed states parties to "the widest measure of mutual legal assistance" for the investigation and prosecution of criminal offenses laid out by the treaty, including drug-related money laundering. Building on these foundations, the 2000 U.N. Convention Against Transnational Organized Crime (UNTOC) broadened the scope of prohibited money laundering to cover the proceeds of all serious crime involving organized criminal groups. The UNTOC further requires all states parties to implement a comprehensive domestic regulatory and supervisory system for banks and nonbank financial institutions—with particular emphasis on requirements, akin to the BSA, on customer identification, recordkeeping, and the reporting of suspicious transactions. The UNTOC also recommends the domestic implementation of measures to detect and monitor the cross-border movement of cash and other negotiable instruments. The treaty also encourages bilateral, regional, and global cooperation for AML to include training and technical assistance on AML matters, as well as extradition, mutual legal assistance, criminalization of corruption, and asset seizure and confiscation. The basic premise of the 2000 U.N. Convention Against Corruption (UNCAC) is to develop policies aimed at preventing public sector corruption and to require states parties to criminalize money laundering and implement a comprehensive domestic regulatory AML system. The UNCAC goes beyond the UNTOC to require that AML regimes also cover persons providing formal or informal value transfer services (e.g., money remitters). UNCAC also requires states parties to verify customer identities, including efforts to verify the identity of beneficial owners of funds, and to prohibit the establishment of high risk banks, particularly those that have no physical presence and that are not affiliated with a regulated financial group. The United States has ratified the 1988 U.N. drug trafficking convention (1990), the UNTOC (2005), and the UNCAC (2006). It also ratified the International Convention for the Suppression of the Financing of Terrorism in 2002. The Financial Action Task Force (FATF) is an intergovernmental body, established in 1989, whose current mandate (2012-2020) focuses on setting global standards for the implementation of legal, regulatory, and operational measures for AML and other threats to the integrity of the international financial system, including terrorist financing. As Figure 3 shows, FATF is composed of a secretariat based in Paris at the headquarters of the OECD, and 37 member states or jurisdictions and other observers. FATF issued a set of 40 recommendations on international standards for AML and combating the financing of terrorism, most recently adopted in 2012 and updated in 2016. It collaborates with other international stakeholders to identify and follow up on national-level financial vulnerabilities, particularly through periodic mutual evaluations that review participating country AML/CFT legal, financial, and regulatory systems. As of October 2016, FATF had identified 10 "high risk and non-cooperative jurisdictions." FATF's mandate document also notes that the IMF and the World Bank are providers of technical assistance and capacity building on combating money laundering, terrorist financing, and other related threats. FATF's work is complemented by nine FATF-style regional bodies (FSRBs), whose primary purpose is to promote the implementation of FATF standards (see Figure 4 ). They play a key role in facilitating country requests for technical assistance and training and for gathering country-level information on money laundering typologies. The nine FSRBs are: Asia/Pacific Group on Money Laundering (APG). Caribbean Financial Action Task Force (CFATF). Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). Eurasian Group (EAG). Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). Financial Action Task Force of Latin America (GAFILAT). Inter-Governmental Action Group against Money Laundering in West Africa (GIABA). Middle East and North Africa Financial Action Task Force (MENAFATF). Task Force on Money Laundering in Central Africa (GABAC). Other international entities that establish global standards and best practices for financial institutions, including banking regulatory and supervisory institutions, incorporate FATF's AML/CFT standards. Such entities include the Basel Committee, the global standard-setter for prudential regulation of banks and a forum for international cooperation on banking supervisory matters; its global standards include guidance on risk management and customer due diligence. Another standard-setting body, the Egmont Group, has established guidance for national financial intelligence units (FIUs). Through its member network of 151 FIUs, including FinCEN, the Egmont Group facilitates information sharing and international cooperation on financial intelligence matters; its guidance documents are interlinked with the FATF standards. The Egmont Group also facilitates collaboration through personnel exchanges and training and technical assistance. Both the World Bank and IMF contribute to international AML efforts. The World Bank supports such activities through research projects on illicit financial flows and national risk assessments for money laundering and terrorist financing. The World Bank's advisory package of guidance for conducting national risk assessments has been used in more than 40 countries since 2007. The World Bank and IMF also provide AML technical assistance and training. As part of the IMF's surveillance responsibilities of the international monetary system and its monitoring of member countries' economic and financial policies, the IMF has integrated evaluations, consistent with FATF, on AML/CFT matters. IMF technical assistance on AML/CFT matters has been funded, since 2009, through a multi-donor trust fund. The IMF's AML/CFT trust fund was renewed for a five-year term in May 2014. Donors (France, Japan, Luxembourg, the Netherlands, Norway, Qatar, Saudi Arabia, Switzerland, and the United Kingdom) have pledged more than $20 million through 2019—which has afforded the IMF to provide over $6.5 million annually in AML/CFT technical assistance and training. In a limited number of cases, AML/CFT measures have been incorporated into conditionality under Fund-supported programs. The 114 th Congress introduced or passed several bills pertaining to AML, and funded ongoing executive branch efforts, as well as holding a number of hearings exploring AML issues. Many of these efforts pertained to combating terrorist financing, sanctions, the disclosure of beneficial ownership, and corruption—issues that will likely persist during the 115 th Congress. As the 115 th Congress develops its legislative agenda, a number of AML policy questions remain—including the status of efforts to address the critiques of the December 2016 FATF mutual evaluation of the United States, particularly with respect to beneficial ownership transparency, and the implementation of enacted legislation from the 114 th Congress, particularly with respect to the application of new sanctions, including secondary sanctions, against designated foreign persons, entities, and jurisdictions. Drawing from past legislative activity, the 115 th Congress may also revisit proposals to require the executive branch to develop a roadmap for identifying key AML policy challenges and balancing AML priorities in a national strategy. Although the national and international consequences of money laundering have the potential to be economically and politically significant, and despite robust AML efforts in the United States, challenges, both new (e.g., cyber-enabled financial crimes and emerging payment methods) and old (e.g., exploitation of cash and international trade for money laundering), remain. Over time, the scale of global money laundering and the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system has not diminished. Gaps in legal, regulatory, and enforcement regimes, including uneven availability of international training and technical assistance for AML purposes, continue to limit the application of a globally consistent policy approach to AML. Ultimately, the crafting of AML policy involves an ongoing balance of implementation costs, relative to the risks and consequences of money laundering—a balance affected by statutory requirements, regulatory implementation, financial institution compliance, enforcement actions, international cooperation, and changing perceptions of the risk environment. Some see the beginning of the 115 th Congress as an opportunity to revisit the existing AML policy framework, assess its effectiveness, and propose regulatory and statutory changes. In February 2017, for example, the financial services industry association The Clearing House offered multiple proposals to significantly modify the BSA/AML regime, including proposals to reshape the relationship between FinCEN and other federal regulators and oversight bodies, enact beneficial ownership legislation, modify SAR filing and disclosure requirements, and, ultimately, rebalance the distribution of financial and resource costs associated with preventing, identifying, and reporting on illicit financial activity. Other proposals may emerge as the 115 th Congress continues to tackle AML policy issues. | Anti-money laundering (AML) refers to efforts to prevent criminal exploitation of financial systems to conceal the location, ownership, source, nature, or control of illicit proceeds. Despite the existence of long-standing domestic regulatory and enforcement mechanisms, as well as international commitments and guidance on best practices, policymakers remain challenged to identify and address policy gaps and new laundering methods that criminals exploit. According to United Nations estimates recognized by the U.S. Department of the Treasury, criminals in the United States generate some $300 billion in illicit proceeds that might involve money laundering. Rough International Monetary Fund estimates also indicate that the global volume of money laundering could amount to as much as 2.7% of the world's gross domestic product, or $1.6 trillion annually. Money laundering is broadly recognized to have potentially significant economic and political consequences at both national and international levels. Despite robust AML efforts in the United States, the ability to counter money laundering effectively remains challenged by a variety of factors. These include the scale of global money laundering; the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system; the introduction of new and emerging threats (e.g., cyber-related financial crimes); the ongoing use of old methods (e.g., bulk cash smuggling); gaps in legal, regulatory, and enforcement regimes, including uneven availability of international training and technical assistance for AML purposes; and the costs associated with financial institution compliance with global AML guidance and national laws. AML Policy Framework In the United States, the legislative foundation for domestic AML originated in 1970 with the Bank Secrecy Act (BSA) of 1970 and its major component, the Currency and Foreign Transaction Reporting Act. Amendments to the BSA and related provisions in the 1980s and 1990s expanded AML policy tools available to combat crime, particularly drug trafficking, and prevent criminals from laundering their illicitly derived profits. Key elements to the BSA's AML legal framework, which are codified in Titles 12 (Banks and Banking) and 31 (Money and Finance) of the U.S. Code, include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering abuses. Substantive criminal statutes in Titles 31 and 18 (Crimes and Criminal Procedures) of the U.S. Code prohibit money laundering and related activities and establish civil penalties and forfeiture provisions. Moreover, federal authorities have applied administrative forfeiture, non-conviction based forfeiture, and criminal forfeiture tools. In response to the terrorist attacks on the U.S. homeland on September 11, 2001, Congress expanded the BSA's AML policy framework to incorporate additional provisions to combat the financing of terrorism (CFT). Although CFT is not the primary focus of this CRS report, post-9/11 legislation provided the executive branch with greater authority and additional tools to counter the convergence of illicit threats, including the financial dimensions of organized crime, corruption, and terrorism. Policy Outlook for the 115th Congress Although CFT will likely remain a pressing national security concern for policymakers and Congress, some see the beginning of the 115th Congress as an opportunity to revisit the existing AML policy framework, assess its effectiveness, and propose regulatory and statutory changes. Such efforts could further address issues raised in hearings and proposed legislation during the 114th Congress, including beneficial ownership, the application of targeted financial sanctions, and barriers to international AML information sharing. Drawing from past legislative activity, the 115th Congress may also revisit proposals to require the executive branch to develop a roadmap for identifying key AML policy challenges and balancing AML priorities in a national strategy. Some observers have gone further to propose broader changes to the BSA/AML regime. The 115th Congress may also seek to address tensions that remain in balancing the policy objectives of improving financial services access and inclusion while also accounting for money laundering risks and vulnerabilities that may result in the exclusion (or "de-risking") of others from the international financial system. |
On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 storm with sustained wind speeds of over 155 miles per hour. At that time, the Commonwealth of Puerto Rico (the Commonwealth) was already in recovery mode following the glancing blow struck by Hurricane Irma on September 6, 2017, which left 70% of electricity customers without power. Puerto Rico's office of emergency management reported that Hurricane Maria had incapacitated the central el ectric power system, leaving the entire island without power as the island's grid was essentially destroyed. After Maria, officials were estimating that many of Puerto Rico's 3.5 million people could be without electricity for up to six months. Even before the 2017 hurricane season, Puerto Rico's electric power infrastructure was known to be in poor condition, due largely to underinvestment and the perceived deficient maintenance practices of the Puerto Rico Electric Power Authority (PREPA). With the poor state of the electricity system (physically, organizationally, and financially), and a perceived lack of transparency with regard to decisions (both before and since Hurricane Maria), discussions have already started about how the electricity system in Puerto Rico would be rebuilt, and under what regulatory regime it will operate. The primary focus thus far has largely been on restoring electric power in Puerto Rico, while the task of rebuilding the grid in Puerto Rico to modern standards is expected to follow. The new hurricane season in the Atlantic Basin (comprised of the Atlantic Ocean, the Caribbean Sea, and the Gulf of Mexico) began June 1, 2018, and will last until November 30. Congress continues to follow the recovery of Puerto Rico from the 2017 hurricanes, and the restoration of power. The electric power infrastructure for transmission and delivery of power was largely destroyed by the hurricanes, and PREPA's aging power generation facilities have been struggling to provide electricity. Whether, and how, Puerto Rico rebuilds its system into a reliable, efficient, and resilient electricity system will be of key interest to Congress. A large part of the Federal Emergency Management Agency's (FEMA's) role in Puerto Rico was centered on coordinating the restoration of electric power. For this task, FEMA brought about 900 portable generators (including several generation units providing over 50 Megawatts (MW) of capacity at the partially operating Palo Seco electric power generation station in San Juan), and tasked the U.S. Army Corps of Engineers (USACE) to oversee restoration of the electric transmission system, which was damaged extensively. PREPA itself has largely been focused on the restoration of the electric distribution system, and service connections to its customers. Both USACE and PREPA have used contractors to do much of the transmission and distribution system repairs. With the end of the grid repair part of USACE's mission assignment on May 18, 2018, almost 99% of PREPA's customers have seen their electric service restored. However, over 16,000 customers (in mostly rural parts of the island) were still without electricity after eight months. The power restoration mission has been described as incomplete by the USACE, with much of the work to date essentially to patch up the electric system to bring power back to the people of Puerto Rico. FEMA has agreed to leave over 700 portable generators on Puerto Rico past the end of the USACE's grid repair mission. PREPA is a public power utility owned by the Commonwealth of Puerto Rico, and is the largest supplier of electricity in the Commonwealth. As a public utility, PREPA is an eligible applicant that can receive federal assistance through the Federal Emergency Management Agency (FEMA). In particular, FEMA provides grant assistance through the Public Assistance Grant Program (PA Program) for the repair, restoration, and replacement of public facilities, as defined by law, in states and communities that have received major or emergency disaster declarations through the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, P.L. 93-288 , as amended). USACE supports the Department of Homeland Security in carrying out the National Response Framework. If requested by the President and the affected governors under the Stafford Act, USACE's primary role under the framework is to provide emergency support in areas of public works and engineering. These USACE activities are funded through the Disaster Relief Fund and not through direct appropriations to the agency. In Puerto Rico, USACE not only restored emergency power but also led initial grid repair. USACE leadership in grid repair as part of domestic disaster recovery is a novel development. On September 30, 2017, the FEMA Administrator also tasked USACE to work with PREPA, Department of Energy (DOE), and FEMA to provide a unified effort to repair Puerto Rico's power grid. USACE was tasked with leading the planning, coordination, and integration of the electric power grid repair. The Unified Command Group (comprised of the Corps, FEMA, PREPA, and Puerto Rico's Restoration Coordinator) was organized to evaluate and coordinate efforts for the work of restoring power to prestorm electricity customers (i.e., not new customers, poststorm). PREPA's electric power generation plant at Palo Seco in San Juan is not operating at full power due to the condition of the facility. FEMA installed two "mega" 30 MW mobile diesel-fueled generators to stabilize power generation in the heavily populated region around San Juan. FEMA also installed several smaller mobile generators at Palo Seco to provide additional power at times of peak electric demand. Another large mobile 30 MW generator is installed at the Yabucoa Power Plant to help stabilize power generation in the southeastern region of Puerto Rico. USACE personnel are assisting with the operation and maintenance of the mobile generators. In light of the hurricanes and other disasters in 2017, Congress passed three supplemental appropriations bills in response to Administration requests made in September, October, and November 2017. Amounts for electric grid restoration in Puerto Rico were not specified, even though the third supplemental does allow for $2 billion in funding for "enhanced or improved electrical power systems" for all areas affected by Hurricane Maria. On September 1, 2017, the Trump Administration requested $7.85 billion in supplemental funding. On September 6, the House passed the relief package requested by the Administration as an amendment to H.R. 601 . On September 7, the Senate passed the bill further amended to include an additional $7.4 billion for disaster relief through the Department of Housing and Urban Development's (HUD's) Community Development Fund. The House subsequently passed the Senate-amended version of the bill on September 8, 2017, and it was signed into law by President Trump the same day ( P.L. 115-56 ), authorizing $15.3 billion in funding. On October 4, 2017, the Trump Administration requested an additional $12.7 billion for the Disaster Relief Fund (DRF). On October 12, the House passed H.R. 2266 with a further House amendment including $18.67 billion for the DRF (to the DHS Office of Inspector General for disaster audits), and also allowed some of that funding to be transferred to two other programs: $4.9 billion would go to FEMA's Disaster Assistance Direct Loan Program account, and $10 million to the Department of Homeland Security (DHS) Office of Inspector General for oversight of disaster-related activities. The bill subsequently was signed into law as P.L. 115-72 on October 26, 2017, authorizing $36.5 billion in funding. Of the $4.9 billion, up to $150 million is available for the cost of providing loans through the Advance of Non-Federal Share Program for the cost shares for Puerto Rico and the U.S. Virgin Islands related to Hurricanes Irma and Maria, and $1 million is for administrative expenses for the program. The Trump Administration made a third supplemental appropriations request for disaster relief and recovery funding on November 17, 2017, seeking roughly $44.0 billion in additional funding. On February 7, 2018, the Senate took up H.R. 1892 , with the Senate leadership adding S.Amdt. 1930 . This became the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). Subdivision I of Division B of the amendment was titled "Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018" and included more than $84 billion in additional disaster assistance funding. The amended bill passed the House and was signed into law by President Trump as P.L. 115-123 , authorizing $84.3 billion in funding . Out of that amount, FEMA received an additional $23.5 billion in funding authority for the DRF. P.L. 115-123 transferred up to $150 million of the $23.5 billion for DRF to the Disaster Assistance Direct Loan Program for costs related to Hurricanes Irma and Maria, of which $1 million may be used for administrative expenses for the program. In the Appendix, Table A-1 shows FEMA's estimate of the allocations for the approximately $3.2 billion in funding for various electric power restoration activities in Puerto Rico under federal disaster supplemental appropriations. According to FEMA, disaster charges related to Hurricanes Irma and Maria are being charged to P.L. 115-56 and P.L. 115-72 . Thus, Disaster Declaration 4339 is being charged to P.L. 115-56 and P.L. 115-72 . Once those funds are exhausted, funds from P.L. 115-123 will be used. However, FEMA has also stated that there has been discussion about which supplemental will be eventually charged with the various activities, and it is possible that the allocation of funds could change in the future. In recognition of the current fragility of the electric system in Puerto Rico, FEMA has left behind three large mobile power generation units, and charged the cost of the units to Disaster Declaration 4339. FEMA has also left behind a number of peaking generation units to support power demands on the grid, and these are also charged to the same disaster declaration account. The USACE's power restoration mission in Puerto Rico essentially ended on May 18, 2018, with approximately 99% of electric power customers having their power restored. Some USACE personnel remain to maintain the temporary generators still providing power on the island. The grid emergency in Puerto Rico led to triage-type decisions, resulting in electric distribution poles and transmission towers that were marginally structurally sound being left in place in some instances. These poles and towers will almost certainly have to be replaced, as the focus of the Commonwealth and the federal government turns from power restoration to rebuilding what has been described in the media as a "teetering" grid. While USACE's initial power restoration efforts were focused on repairing Puerto Rico's grid to "pre-storm" conditions, the poor state of the electrical system soon led to FEMA realizing that improvements would have to involve mobilizing the USACE to "rebuild the grid to U.S. code standards." When asked to what extent were improvements made to Puerto Rico's grid under authority granted by the Restoration of Damaged Facilities, 44 C.F.R. §206.226(d), FEMA responded as follows: To date, power restoration has been completed as "Emergency work." The materials used for emergency power restoration were designed to current codes and standards. Many areas received materials that will ultimately strengthen the system. For example, some towers that toppled over (that were rusted and not maintained) were replaced with new towers. While some infrastructure was replaced and even upgraded to code, Puerto Rico Electric Power Authority (PREPA) was not able to use the optimal materials or design to maximize resilience, because it was focused on emergency work. That will be done in the permanent work phase. Approximately $2 billion in CDBG funds were made available to "enhance or improve" any electric power systems damaged by Hurricane Maria. To help guide the process of rebuilding Puerto Rico's grid, DOE reports that five national laboratories have collaboratively built a model of Puerto Rico's electricity system to test how to place microgrids, determine where to place power lines underground, and test siting of renewable energy projects where they can be sheltered from damage by extreme weather events. DOE believes its modeling efforts can therefore help guide HUD and FEMA CDBG investments to improve the power grid in Puerto Rico. In June 2018, DOE issued a report focused on enhancing the resilience of Puerto Rico's electric grid with recommendations that it believes may help prioritize investments for transmission, distribution, new generation, energy storage, microgrids, and strategic power reserves. This would allow potential impacts on other critical infrastructure such as the petroleum, natural gas, and telecommunications sectors to be estimated. An enhanced and improved electricity system in Puerto Rico would likely include Smart Grid technologies to allow incorporation of more varied energy choices, both at consumer and electric utility levels. DOE describes the Smart Grid as "an intelligent electricity grid—one that uses digital communications technology, information systems, and automation to detect and react to local changes in usage, improve system operating efficiency, and, in turn, reduce operating costs while maintaining high system reliability." However, the extent to which a Smart Grid would be fully deployed in Puerto Rico would likely depend on an evaluation of the potential benefits and costs of projected applications. Cyber- and physical security would have to be a consideration in the design, construction, and operations of a modern grid incorporating Smart Grid technologies. Section 21101 of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) provided $28 billion in supplemental appropriations to HUD, under the Community Development Fund. Under the appropriation, $16 billion of the appropriation was to be available for declared disasters in 2017, with $11 billion for state and local governments affected by Hurricane Maria. Of this amount, up to $2 billion was made available (until expended) for "enhanced or improved electrical power systems." Puerto Rico and the U.S. Virgin Islands are not specifically named as the intended recipients, and other states or local governments are also likely eligible for the grants. Section 21210 of the act also places a requirement for FEMA (with assistance from DOE and the Governor of Puerto Rico, among others) to report on a 12- and 24-month economic and disaster recovery plan for electric power systems and grid restoration. Puerto Rico's Governor Rosselló initially proposed privatizing and selling PREPA's assets in January 2018. This was followed in March 2018 with a plan submitted to Puerto Rico's Legislative Assembly with details of how the privatization of the utility would proceed. One of the goals of the plan was to use public-private partnerships to stabilize the electric system and lessen prices for electricity customers. Details of how the privatization effort could accomplish these goals are unclear at this time. There have been two previous efforts at privatization of a public utility in Puerto Rico. Efforts were made in the 1990s and early 2000s to privatize the Puerto Rico Aqueduct and Sewer Authority (PRASA), but "service quality deteriorated and prices for consumers increased, as did the agency's operational deficit." Power recovery efforts in Puerto Rico have focused primarily on restoring power to electricity customers. However, according to reports in the media, the speed of emergency restoration has taken precedent over "basic quality standards" for the work. Puerto Rico is taking steps to adopt guidelines for electric systems maintenance used on the mainland. DOE has recommended that Puerto Rico follow guidelines for electric industry standards suggested by the Rural Utilities Service of the U.S. Department of Agriculture. However, the extent to which the restored infrastructure in Puerto Rico is rebuilt to current electrical standards will be important to the modernization efforts that would follow, and much of this work may have to be redone. Among the recommendations by DOE for improving electric reliability in Puerto Rico was the recommendation for an effective mutual assistance agreement to be in place. Mutual aid agreements help utilities recover from power outage situations often caused by severe weather events, and are typically negotiated in anticipation of a future need. Under mutual assistance agreements for electric utilities, the utility receiving aid generally pays for the costs incurred by the utility providing aid in accordance with the assistance agreement. Congress gave the Federal Energy Regulatory Commission (FERC) authority to oversee the reliability of the bulk-power system under the Energy Policy Act of 2005 ( P.L. 109-58 ). Reliability standards were added as Section 215 of the Federal Power Act to help ensure the reliable operation of the bulk power system so that "instability, uncontrolled separation, or cascading failures" will not occur as a result of a sudden disturbance. FERC-approved reliability standards address programs ranging from vegetation clearances in electric transmission line rights-of-way, to policies and procedures for critical infrastructure protection of power plants and supporting facilities. However, FERC-approved reliability standards are only applicable to the continental United States, and not to U.S. territories such as Puerto Rico. To date, no legislation has been proposed to change this. With the power restoration effort almost finished, the next focus for authorities will likely be on rebuilding Puerto Rico's electricity transmission and distribution systems, as a modern system built to U.S. industry standards is more likely to survive extreme weather events. According to DOE, vegetation trimming and clearance requirements for utilities on the U.S. mainland for reliability purposes should be enforced on Puerto Rico, and are likely to reduce power outages caused by weather-related events. While electric system reliability and system resiliency are related, they differ both in scope and regulatory requirement. Reliability, according to the U.S. Department of Energy (DOE), is the ability of the system or its components to withstand instability, uncontrolled events, cascading failures, or unanticipated loss of system components. Resilience, as defined by DOE, is the ability of a system or its components to adapt to changing conditions and withstand and rapidly recover from disruptions. Authorities in Puerto Rico were encouraged by DOE to define what system resilience entails for the island's power system. This may combine elements of power generation modernization, incorporating microgrids with hardening of infrastructure for the island's grid and communications systems. Once the backbone of Puerto Rico's electric system infrastructure is in place, then the major effort of making the system more resilient can follow. Enhancing resilience would likely require improvements that go beyond even rebuilding the electric power system according to standards in effect for U.S. mainland power utilities. Resilience may require additional improvements to the system aimed at better withstanding the effects of extreme weather events. According to the DOE, there are no commonly used metrics for measuring grid resilience. Electric system resilience is not mandated by federal law, but the ability of the system to adapt to changing conditions and recover rapidly from disruptions is a key attribute of electric system reliability. A 2016 report from several of DOE's national laboratories focused on the potential for a changing environment, and the need to maintain a resilient power system. The report identified risks ranging from weather events that disrupt transmission or distribution, to high impact, low frequency (HILF) risks such as catastrophic hurricanes. The report also built upon previous developments identified by DOE in the energy sector including growing potential threats from climate change, energy security, transitions from coal to natural gas generation, increased deployment of distributed and renewable generation, and rising investments to modernize the energy grid. While the report acknowledged that electric power systems "are currently well-equipped to effectively manage a broad range of threats," it recognized that some risks remain challenging and that "resilience efforts should shift toward these more complex risk management challenges." Some of the key risks to resilience identified in the study include the following: HILF threats associated with natural hazards (particularly weather or space weather) of historic intensity or large-scale physical, cyber, or electromagnetic attacks. Combined or blended threats associated with simultaneous exposure of the electric grid to one or more natural threats in combination with a physical or cyberattack. Threats that affect vulnerable components of the electricity system or that exceed critical thresholds. For example, distribution networks are often a weak link in the electric grid, but disruptions and outages associated with distribution are often localized. The report provided a number of recommendations "to guide future decision-making to enhance resilience of the U.S. electricity system." These recommendations included the following: Build a greater understanding of HILF events and capability to incorporate HILF threats into risk assessment. Scenario-based planning to explore multiple contingencies can be used to stress test the system and identify gaps in resilience. Develop a robust and scalable system of resilience metrics for the electricity system. Increase capacity to assess and manage risks and their uncertainties which may change over time and geographic areas. Future changes in not only the climate, but also population, technology, and societal preferences have important implications for resilience. Institute policies and practices that can help to streamline assessment and decisionmaking while enhancing coordination and communication can be just as important to resilience as the development of robust infrastructure and assets. How electric power systems incorporate resiliency into reliability planning will depend on their evaluation of risk to the system, and the financial and other resources available to system planners. Given the potential consequences of long-term electric power failures in Puerto Rico, Congress may consider further how various electric power systems incorporate resilience into reliability planning. Puerto Rico's reliance on fossil fuels for power generation raises cost, reliability, and potential health issues going forward. Before the 2017 hurricane season, coal and diesel fuel represented approximately 64% of fuel used for power generation. And the mega- and peaking electric combustion turbine generators left behind on Puerto Rico by FEMA are currently powered by burning diesel fuel. Coal and diesel fuel are expensive to import to Puerto Rico, and the reliance on diesel fuel for almost 50% of electricity on the islands has resulted in high prices, about 24 cents per Kilowatt-hour (kWh) for residential customers for power when compared to an average price of 13 cents per KWh on the U.S. mainland. On the financial side, PREPA's inability to pay for fuel for power generation was a major complicating factor following Hurricane Maria. On the health side, among other factors (such as an increase in mold spores), emissions from diesel- and gasoline-fueled power generators of all sizes have been reported in the media as being linked to rising asthma rates in Puerto Rico since the 2017 storm season. Puerto Rico adopted a Renewable Portfolio Standard (RPS) in July 2010 (Act 82 of 2010) which mandated that PREPA supply increasing amounts of retail electricity sales from eligible "green energy" resources, peaking at 20% of retail sales by 2035. In 2014, concerns about PREPA's ability to follow through with this goal led to new legislation (Act 57 of 2014) that established a Puerto Rico Energy Commission and an office of consumer advocacy. The Puerto Rico Energy Commission must have an independent regulatory role if RPS goals are to be met. Increasing renewable electric generation and requiring more energy storage may potentially reduce electricity costs, since most renewable electric technologies do not directly require a fossil fuel to produce power. However, the variability and intermittency of renewable generation means that energy storage, and traditional power generation capable of flexible, efficient operation (to increase or decrease power generation to support renewables) to provide reliable electricity would likely be needed. Increasing natural gas generation has been discussed by some as an option for Puerto Rico, since it is generally considered a cleaner-burning option to diesel fuel. But given Jones Act restrictions on importing liquefied natural gas to Puerto Rico, whether and how authorities may follow through with this option is unclear. In the 115 th Congress, S. 1894 was introduced in September 2017, as a bill to exempt Puerto Rico from the coastwise laws of the United States. The bill would revise the coastwise laws, commonly known as the Jones Act, that govern domestic transportation of merchandise or passengers by vessels. The Jones Act requires that vessels transporting merchandise or passengers between Puerto Rico and other U.S. ports be built in the United States, at least 75% owned by U.S. citizens, and mostly crewed by U.S. citizens. Jones Act requirements are currently waived with respect to vessels transporting passengers between Puerto Rico and U.S. ports. This bill would permanently exempt vessels transporting merchandise between Puerto Rico and other U.S. ports from those requirements. In the 115 th Congress, the "Puerto Rico and Virgin Islands Equitable Rebuild Act of 2017" ( S. 2165 ), introduced in November 2017, would provide for additional disaster-recovery assistance and other assistance to Puerto Rico and the U.S. Virgin Islands with respect to infrastructure, health care, agriculture, education, economic development, and environmental remediation, among other sectors. Specifically, regarding energy use in both territories, the bill would provide for the use of certain emergency assistance to rebuild electric grids, and would establish grant programs to promote energy efficiency and renewable energy. In the 115 th Congress, the "Puerto Rico and Virgin Islands Equitable Rebuild Act of 2018" ( H.R. 4782 ), introduced in January 2018, would provide additional disaster-recovery assistance and other assistance to Puerto Rico and the U.S. Virgin Islands with respect to infrastructure, health care, agriculture, education, economic development, and environmental remediation, among other sectors. Specifically, regarding energy use in both territories, the bill would provide for the use of certain emergency assistance to rebuild electric grids, and would establish grant programs to promote energy efficiency and renewable energy. Funds listed under "Project Worksheet" in Table A-1 are amounts associated with FEMA's Public Assistance program. Funds listed under Mission Assignment refer to the work orders issued by FEMA to another federal agency directing the completion of a specific task. | On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 storm with sustained wind speeds of over 155 miles per hour. At that time, the Commonwealth of Puerto Rico was already in recovery mode following the glancing blow struck by Hurricane Irma on September 6, 2017, which left 70% of electricity customers without power. Puerto Rico's office of emergency management reported that Hurricane Maria had incapacitated the central electric power system, leaving the entire island without power as the island's grid was essentially destroyed. Even before the 2017 hurricane season, Puerto Rico's electric power infrastructure was known to be in poor condition, due largely to underinvestment and the perceived poor maintenance practices of the Puerto Rico Electric Power Authority (PREPA). The primary focus of territorial and federal efforts thus far has largely been on restoring electric power in Puerto Rico. The new hurricane season in the Atlantic Basin (comprised of the Atlantic Ocean, the Caribbean Sea, and the Gulf of Mexico) began on June 1, 2018, and will last until November 30. A large part of the Federal Emergency Management Agency's (FEMA's) role in Puerto Rico was centered on coordinating the restoration of electric power. For this task, FEMA made available about 900 portable generators (including several generation units providing over 50 Megawatts of capacity at the partially operating Palo Seco station in San Juan), and contracted with the U.S. Army Corps of Engineers (USACE) to oversee restoration of the electric transmission system, which was damaged extensively. PREPA itself has largely been focused on the restoration of the electric distribution system, and service connections to its customers. In Puerto Rico, USACE is not only restoring emergency power but also leading initial grid repair. With the end of the grid repair part of USACE's mission assignment on May 18, 2018, almost 99% of PREPA's customers have seen their electric service restored. Section 21101 of the Bipartisan Budget Act of 2018 (P.L. 115-123) provided $28 billion in supplemental appropriations to the U.S. Department of Housing and Urban Development (HUD), under the Community Development Block Grant (CDBG) fund. Of this amount, up to $2 billion was made available (until expended) for "enhanced or improved electrical power systems." Approximately $2 billion in CDBG funds were made available to "enhance or improve" any electric power systems damaged by Hurricane Maria. To help guide the process of rebuilding Puerto Rico's grid, the U.S. Department of Energy (DOE) reports that five national laboratories have collaboratively built a model of Puerto Rico's electricity system to test how to place microgrids, determine where to place power lines underground, and test siting of renewable energy projects where they can be sheltered from damage by extreme weather events. DOE believes its modeling efforts can therefore help guide HUD and FEMA CDBG investments to improve the power grid in Puerto Rico. DOE says that it plans to complete a "resilient grid model" to prioritize investments for "transmission, distribution, new generation, energy storage, microgrids, and strategic power reserves." This would allow potential impacts on other critical infrastructure such as the petroleum, natural gas, and telecommunications sectors to be estimated. With the power restoration effort almost finished, the next focus for authorities will likely be on rebuilding Puerto Rico's electricity transmission and distribution systems, as a modern system built to U.S. industry standards is more likely to survive extreme weather events. Once the backbone of the infrastructure is in place, then the major effort of making the electricity system of Puerto Rico more resilient can follow in earnest. Building resilience would likely require improvements that go beyond even modernization and rebuilding. Resilience may require additional improvements to the system aimed at better withstanding the effects of extreme weather events. |
In recent years, Congress has been increasingly concerned that other countries—China, Japan, Taiwan and Korea in particular—are manipulating the value of their national currencies in ways injurious to the U.S. economy. A spate of legislation was introduced in the 109 th Congress seeking to pressure foreign countries to revalue their currencies or seeking changes in the international financial system—particularly changes in the International Monetary Fund (IMF)—that would help accomplish that end. This is not a new issue. For several decades, U.S. policy makers in the Executive Branch and Congress have sought through legislation and the IMF to influence international exchange rate policy in ways they believe compatible with U.S. interests. Two decades ago, Congress enacted the Exchange Rates and International Economic Policy Coordination Act of 1988 (called here the 1988 Exchange Rates Act) out of concern that "policy initiatives by some major trading nations that manipulate the value of their currencies in relation to the United States dollar to gain competitive advantage continue to create serious competitive problems for United States industry." Congress also said in the same section of the law that it thought greater cooperation among the major countries could reduce the distortions and uncertainties in financial markets and in the international exchange rate system. Economic theory holds that, if currencies are valued at rates that reflect their true relative value, the flow of world trade and investment will likely be based more on efficiency and comparative advantage and less on price distortions caused by exchange rate misalignment. This is expected to enhance, in turn, the benefits that countries realize from international trade and to promote a more balanced pattern of growth in the world economy. The 1988 Exchange Rates Act requires the President (Section 3004) to confer with other countries on a multilateral basis to achieve better coordination in macroeconomic policies in order to ensure that their levels of trade and current account balances are sustainable. It also directs the Secretary of the Treasury to analyze the foreign exchange rate policies of foreign countries, in consultation with the IMF, to determine whether they are manipulating the exchange rate between their currency and the US dollar for the purpose of preventing effective adjustment or gaining unfair trade advantage. When this is found, the Secretary must undertake negotiations in the IMF or bilaterally for the purpose of eliminating this situation. The Secretary need not pursue such negotiations, however, if he deems this detrimental to U.S. interests. In any case, the Secretary must inform the Senate Banking Committee and the House Financial Services Committee of his determination. Section 3005 of the act requires the Treasury Secretary to report to Congress twice annually on currency market developments, the underlying economic factors that affect those developments, actions the United States has taken ("interventions") to adjust the exchange rate of the dollar, and the impact of the dollar exchange rate on the U.S. international balance of payments, the U.S. economy and the competitiveness of U.S. industry. It also requires the Secretary to report whether countries are manipulating their currencies to the detriment of the United States and what steps he has taken to address that situation. The IMF was created at the end of World War II to help stabilize the exchange rates among the world's major currencies and to prevent a return to the patterns of currency manipulation and competitive devaluations which plagued the pre-war international economy. Initially, under the IMF's original format, the world was on a fixed-parity exchange rate system. The value of the U.S. dollar was fixed in terms of gold and the value of all other currencies defined in terms of the U.S. dollar. Countries could change the value of their currencies relative to the dollar only with the permission of the IMF and only if they agreed to undertake economic policies that would stabilize their economies. The system broke down after President Nixon announced in 1971 that the U.S. Treasury would no longer exchange dollars for gold. The United States devalued the dollar twice and it decreed that the dollar would "float" and its value would be determined by the daily interaction of supply and demand in world currency markets. A period of international financial instability ensued. In the end, there being no consensus among the major countries as to how to fix the situation, an amendment to the IMF charter was adopted in 1976 authorizing countries to adopt whatever exchange rate system—fixed, floating or other—they found appropriate. Thus, different exchange rate systems can be operating simultaneously in different countries. The 1976 amendment also provided that, if countries holding 85% of the IMF voting power should ever agree, a uniform exchange rate system could be mandated for all IMF member countries. Given the differences of view among the major countries, most analysts believe the prospect for such an agreement is very small. Article IV of the IMF charter requires countries to cooperate with each other in order to assure orderly exchange arrangements and a stable exchange rate system. In particular, it says they must pursue economic policies which aim at fostering orderly economic growth with price stability, promote stable international monetary conditions, and avoid manipulating the exchange rate of their currencies in order to gain unfair competitive advantage in international trade or to prevent effective balance of payments adjustment. Article IV says that the IMF shall "exercise firm surveillance over the exchange rate policies of members" and "oversee the compliance of each member with its obligations" to cooperate with other countries and not to manipulate the value of their currency in order to gain unfair trade advantage. The IMF charter gives the international agency no effective tools, however, to help it enforce its oversight responsibilities or its judgment whether countries are meeting their Article IV responsibilities. It can issue statements but it has no tools to force them to alter their exchange policies. Previously, most of the IMF's surveillance over countries' exchange policies occurred during the Fund's annual bilateral discussions with its member countries about their domestic and international economic policies. These discussions are mandated by Article IV and called "Article IV consultations." The IMF also discussed international economic issues in publications—such as the annual World Economic Outlook report (WEO)—which focus on cross-national or regional trends. The Fund's Independent Evaluation Office (IEO) estimates that only about 9% of the IMF's resources are used for the preparation of such reports, however, while more than three times this volume of resources was spent for bilateral surveillance of individual countries. Surprisingly, IEO reports that for all the emphasis given in IMF commentaries to the importance of multilateral surveillance, discussion of foreign exchange issues accounts for only a small portion of the effort devoted to the analysis of global trends. Moreover, IEO says, "Conspicuously missing [from the Fund's discussion of issues in the WEO and other major reports] was an analysis of China's exchange rate, which in recent years has figured prominently in international policy debate." IEO reports that "the IMF did not use the WEO to discuss whether the renminbi (or any other Asian currency for that matter) was undervalued and, if so, what the alternative paths to adjustment might be and their implications for the adjustment of global imbalances." In 2006, the IMF adopted a new approach to multilateral surveillance of exchange rates. Instead of discussing issues singly with countries, the IMF's new program of multilateral consultations aims to bring together countries with shared concerns for debate and potential action. Changes are also reportedly being made in the Fund's surveillance procedures in order to strengthen its oversight of exchange rate issues. The Managing Director told the International Monetary and Financial Committee (the smaller panel of key countries that meets midway between Fund's annual meetings) in September 2006 that a policy dialog between five countries or groups of countries—the United States, China, Japan, Saudi Arabia and the Euro area—was underway in order to discuss the problem of global imbalances, their causes, and spillover and linkage effects. A report to the IMF Executive Board is planned for early 2007. Exchange rate issues would be a central element of this discussion. These changes in the IMF's surveillance procedures may facilitate a deeper and more thorough review of exchange rate issues as well as dialog among the countries most affected. The IMF will also play a more active role in any negotiations which might occur. Nevertheless, the result of this process depends mainly on the willingness of the countries to reach settlement and not on the rules or guidelines of the IMF themselves. If countries do not wish to let the value of their currencies rise or to revise their exchange rate policies, there is nothing intrinsic in the new process that would require them to take action along those lines. In late 2005, Congress passed legislation which urged the President to create a comprehensive plan to address a range of issues concerning China. In particular, it said the Administration should encourage China to revalue its currency further against the U.S. dollar by allowing the yuan to float against a trade-weighted basket of currencies. The legislation did not say, however, how the President should seek to persuade China to act in conformity with that goal. This was the only legislation relating to exchange rate issues in 2005-2006 that was enacted into law. At least 15 other bills were introduced in the 109 th Congress which sought to indicate specific ways the United States might pursue that objective. Several would authorize the imposition of countervailing duties or special tariffs on goods imported from countries with undervalued currencies unless those currencies have risen to a level at or near their appropriate fair market rate. Others would change the reporting requirement in the 1988 Exchange Rates Act in ways that would make it more likely that the Treasury Department would find that countries are manipulating their currencies. Still others would press for international action to remedy the problem. Some wanted the IMF to be more active in promoting shifts in currency values, perhaps through institutional changes that would give it more authority over the international exchange rate system. Others wanted the United States seek redress in the World Trade Organization (WTO) for the damage some undervalued currencies may have done the U.S. economy. Several bills considered in the 109 th Congress would have had the United States impose special tariffs or duties on goods imported from countries with undervalued currencies unless they revalue their currency. They sought, in effect, to "level the playing field" by raising the price of those goods sold in the United States by an amount equal to the presumed undervaluation of the country's currency. Implicitly or explicitly, they also encouraged countries to negotiate with the United States or to raise the value of their currency as a way of making special tariffs or duties unnecessary. Several bills would have imposed special tariffs on Chinese goods if China did not promptly revalue its currency. Perhaps the best known was the bill S. 295 , introduced by Senators Schumer and Graham. It would have imposed a 27.5% tariff on Chinese goods (a rate determined by averaging various estimates of the yuan's undervaluation) if China did not raise the value of its currency to levels closer to its true market valuation. In early 2005, the Senate voted 67-33 to attach the provisions of S. 295 to a State Department authorization bill but no further action was taken on that legislation. The Schumer-Graham bill was been scheduled for consideration several times and then postponed as discussion of the underlying issue continued. On September 28, 2006, Senators Schumer and Graham announced that they were withdrawing their bill from further consideration by Congress. Graham said the decision was a response in part to a personal request they had recently received from President George W. Bush urging them to give the new Secretary of the Treasury, Henry M. Paulson, Jr., time to negotiate the currency issue with the Chinese. Schumer and Graham said that they planned to work with Senators Grassley and Baucus in the next Congress to craft legislation on the Chinese currency issue that would force China to revalue its currency while still being compatible with international trade rules and capable of surviving challenge at the WTO. Two other bills, S. 14 by Senator Stabenow and H.R. 1575 by Representatives Myrick and Spratt, would have attached the same 27.5% tariff to Chinese goods. Two additional bills, H.R. 3004 by Representative English and S. 2357 by Senator Kennedy, would have directed the Secretary of the Treasury to calculate the rate by which the yuan is undervalued and to impose a tariff equal to that rate on all Chinese goods if China does not revalue its currency within a set number of days after enactment of the bill. Other legislation proposed in the 109 th Congress would not have imposed across-the-board duties on all imports. Rather, they would have made it easier for the U.S. Government to levy countervailing duties on products imported from countries that have currencies which are valued at levels below their presumed fair market value. Under this approach, exchange rate manipulation would be deemed a form of unfair competition and duties could be levied to offset the price advantage that goods would otherwise enjoy in the U.S. market because of their too-low currency valuation. Unlike tariffs, countervailing duties apply only to goods that cause injury to the U.S. producers of competing products. The prices paid by U.S. consumers for imports that were not deemed injurious to U.S. producers would not increase. China was the stated concern for many of these bills. However, in most instances, their provisions might apply to all countries with undervalued currencies and not just to China. Many of these initiatives would contravene international trade rules or WTO guidelines. Currency manipulation is not identified, in these rules or guidelines, as an appropriate basis for one country blocking imports from another. Prominent among these were two bills: H.R. 3283 , which was introduced by Representative English and passed by the House of Representatives in July 2005, and H.R. 1498 , which was introduced by Representatives Ryan and Hunter. A bill introduced by Senator Collins ( S. 1421 ) was the companion bill to the English bill on the Senate side. H.R. 3283 includes provisions relating to both countervailing duties and reporting requirements. In terms of the former, it would alter the Tariff Act of 1930 to make imports from non-market economies eligible for countervailing duties if they received a direct or indirect government subsidy with respect to their manufacture, production or export. Previously, non-market economies were excluded from consideration for such duties because of the difficulty of calculating levels of subsidy in conditions where prices are determined by official action rather than by market forces. The English bill also included language relating to the procedures which might be used to calculate the level of subsidy for products exported from China. However, its operative provisions covered goods exported from all non-market economies and not just those from China. The Hunter-Ryan bill ( H.R. 1498 ) sought to make it clear that exchange rate manipulation by China would make its exports to the United States actionable under the countervailing duty provisions of U.S. trade law. However, the language in this bill amending the Tariff Act of 1930—defining the term "exchange rate manipulation" and specifying that goods subsidized through exchange rate manipulation shall be subject to countervailing duties—was applicable to goods imported from all countries. Likewise, also applicable to all countries were the provisions of Hunter-Ryan bill which amend the Trade Act of 1974, specifying that exchange rate manipulation can be a cause of market disruption, allowing petitioners to complain about exchange rate manipulation, and specifying the steps the President must take when the International Trade Commission makes a finding that exchange rate manipulation has occurred. Other legislation also addressed these issues. H.R. 3306 , introduced by Representative Rangel, would similarly have allowed the application of countervailing duties to products from non-market economy countries, though it also specifies that the antidumping provisions of current law would not be affected. It added currency manipulation to the list of unjustifiable acts, policies and practices (specified in the Trade Act of 1974) for which countervailing duties could be applied. The "findings" section of the bill focused on China but the language amending the operative provisions of existing law applied to goods exported from all countries. The Rangel bill also required the U.S. Trade Representative (USTR) to investigate the currency practices of China and to take action under Section 305 of the Trade Act of 1974 in accordance with the findings of that investigation. On the Senate side, S. 377 , introduced by Senator Lieberman, would have required the President to begin multilateral and bilateral negotiations with the countries which engage most egregiously in currency manipulation, to report to Congress on the extent of the problem, and to institute proceedings under the provisions of the Trade Act of 1974 dealing with countervailing duties, dumping and market disruption if those countries do not stop manipulating the value of their currency within 90 days. The language of this proposal applies not only to China, Japan, Korea and Taiwan, the countries mentioned in the preamble to the legislation, but to all countries. Several bills were introduced in the 109 th Congress that would have tightened the procedures by which the Treasury Department analyzes whether countries are manipulating the value of their currencies to the detriment of the United States. Perhaps the most far-reaching was S. 2467 , introduced by Senator Grassley. It would replace the reporting requirements of the 1988 Exchange Rates Act with a new system which uses narrower criteria and involves more actors in exchange rate determinations. The Grassley bill would have created a seven-member advisory committee to help the Secretary of the Treasury assess the exchange rate practices of other countries and prepare a twice-annual report on international exchange rate conditions and the practices and policies of the major economies and U.S. trading partners. The Secretary of the Treasury also would have been required to consult with the Chairman of the Federal Reserve Bank Board. The content of the report would have been similar to that required by the 1988 Act, though additional factors for consideration were included. The main focus would have been the identification of countries which have exchange rates that negatively affect the U.S. economy. The requirements of the law would apply to all countries and not just to China. The Secretary of the Treasury has not found, in the past several years, that any country is manipulating the value of its currency even though many observers allege this to be the case. Some Members of Congress have expressed frustration and concern, in particular, that no finding of currency manipulation has been made as regards China. The Secretary said, in the four semi-annual reports issued in 2005 and 2006 under the Exchange Rates Act, that China was not manipulating its currency within the meaning of the law. To make such a determination under the 1988 Act, the Secretary would be required to find that (1) China was manipulating its exchange rate for the purpose of gaining an unfair trade advantage or preventing effective balance of payments adjustment and (2) it had a material global current account surplus and significant bilateral trade surplus with the United States. The Treasury Department has said that it would make a finding that China is manipulating its currency only when all the conditions in the act are satisfied. The Secretary found that China's currency was undervalued because it sought stability in its economic relations and not because it sought to prevent adjustment or gain unfair trade advantage. He also found that China's trade surplus with the world was not as great proportionally as that with the United States. Therefore, the technical requirements of the 1988 Exchange Rates Act were not triggered. The Secretary also reported that Chinese officials had promised that China would revalue the yuan in the future and that procedures had been adopted to facilitate this change. The Grassley bill required the Secretary to determine solely whether a country's currency is "fundamentally misaligned" relative to its proper value in the international market. All the other criteria in the 1988 Act are dropped. Extenuating circumstances, motivation or other criteria could not be used to mitigate the fact that a currency was misaligned or to justify a decision not to list the country or not to press officially for changes in its exchange rate policies. The provisions of the Grassley bill would have applied to all countries and were not limited just to China. The Grassley bill would require the Secretary to seek bilateral negotiations with any country found to have a currency in fundamental misalignment and to seek the advice of the IMF with respect to the issue. The Secretary must also encourage other countries to involve themselves in discussions aimed at persuading the country with the mis-valued currency to eliminate the fundamental misalignment. If the country in question fails to enter into negotiations with the United States or it fails to subsequently revalue its currency, the U.S. Government must take further steps aimed at pressuring it to change. The Overseas Private Investment Corporation (OPIC) must provide no more financing or coverage to investments located in the territory of the country, the U.S. executive directors at the multilateral banks must oppose any new MDB financing for that country, and the United States shall ask the IMF to engage in special consultations aimed at persuading it to eliminate the currency misalignment. The United States would also be required to oppose any change in the governance arrangements of the international financial institutions if this change would increase that country's voting share or representation. Other bills would add additional criteria to the reporting procedure specified in the 1988 Exchange Rates Act. The Rangel bill noted above ( H.R. 3306 ) would amend the 1988 law to strike the words "have material global account surpluses" from the criteria the Secretary of the Treasury must use to determine whether a country is manipulating its currency. It would also add a definition of exchange rate manipulation, taking away any discretion the Secretary might have on that point, and it would require the Secretary to explain the methodology used in the semi-annual reports for determining whether or nor a country is manipulating the exchange rate for its currency. Bills introduced by Senator Snowe ( S. 984 ) and Representative Manzullo ( H.R. 2208 ) would insert the same definition of exchange rate manipulation ("protracted large-scale intervention in one direction in the exchange markets") and would require the Secretary to include in the semi-annual reports an explanation why the trade surplus figures that China reports for its world trade differ so greatly (six and one-half times smaller) than the aggregate trade deficits which the United States and other countries report they have with China. The English bill noted above ( H.R. 3283 ), passed by the House in June 2005, would require the Treasury Secretary to submit a report to the relevant congressional committees (1) defining currency manipulation, (2) describing the actions by foreign countries that would be considered exchange rate manipulation, and (3) describing how the administrative procedures in the 1988 Exchange Rates Act and Section 40 of the Bretton Woods Agreements Act (BWAA) can be clarified in order to provide an improved and more predictable evaluation of potential exchange rate manipulation. It would also require discussion of the procedures used and efforts made by China to implement its announced policy which aims to move the value of its currency towards a market-based representation of its value. The bill would require that these discussions be included in each semi-annual report. Section 40 of the BWAA requires the Secretary of the Treasury and the U.S. Executive at the IMF to work for the adoption of policies by the Fund which promote stability of exchange rates and avoid the manipulation of exchange rates between major currencies. The Secretary is supposed to seek changes in the Article IV annual consultation procedure that would attempt to ensure that countries with artificially undervalued or overvalued rates of exchange will adopt market-determined exchange rates. The U.S. Executive Director is required to take country performance in this regard into account when deciding how to vote on any proposal for IMF assistance. The English bill ( H.R. 3283 ) would have required the Secretary of Commerce to report every six months describing the actions taken by foreign countries to manipulate their currencies in order to increase exports or to limit imports from the United States. The Commerce Secretary would have been required to discuss how currency manipulation affects the U.S. manufacturing sector and U.S. monetary policy. The President would have been required to institute negotiations with any country identified as a currency manipulator. If the issue is not resolved withing 90 days, the President would have been required to refer the issue to the WTO and other relevant international institutions and to take steps under U.S. law—specifically Section 301 of the Trade Act of 1974—against such a country or countries. Section 301 authorizes the USTR to withdraw trade benefits from countries or to institute special tariffs or duties on their goods if they take actions which are unreasonable or discriminatory and burden or restrict U.S. commerce. The President would also have been required to seek compensation from the country in question equivalent to the damages incurred by U.S. manufacturers or by other U.S. parties adversely affected by foreign currency manipulation. A bill introduced by Representative Dingell ( H.R. 3157 ) would amend the Trade Act of 2002 to specify that the principal negotiating objective of the United States with respect to exchange rates is to ensure that government intervention in currency markets should be aimed at stabilizing short-term disruptive market conditions and it should be of limited duration and carried out in consultation with major trading partners. Presumably these negotiations would be held in a multilateral context (most likely the IMF) and not bilaterally with other countries. The Lieberman bill ( S. 377 ) would have required the International Trade Commission (ITC) to determine whether and by how much foreign countries are manipulating the value of their currencies and to identify all alternative mechanisms for redress through international trade treaties and agreements and international institutions and through U.S. trade law. As noted earlier, the President would have been required to institute action comparable to that required in the Dingell bill and to seek compensation for damages if no agreement to end the currency manipulation is reached with the country in question within 90 days. The Lieberman bill would also have required the Secretary of Defense to report to Congress the effect that foreign currency manipulation has on U.S. security and on critical manufacturing sectors. The USTR and ITC would have been required to report to Congress on steps being taken to significantly improve trade enforcement efforts against unfair trade practices. The Secretaries of State and Commerce would also have been required to report to Congress recommending steps that could be taken to significantly improve trade promotion of U.S. goods and services. H.R. 2414 , introduced by Representative Rogers of Michigan, would require the Secretary of the Treasury to analyze the exchange rate policies of China and China's trade surplus data and to report to Congress the degree to which its currency is undervalued below its appropriate market value. It would also have the United States seek authorization from the World Trade Organization (WTO) for a special tariff and other trade measures to offset the negative effects that China's presumed undervalued currency has on the U.S. economy. Besides the Grassley, Rogers, Dingell, English and Lieberman bills noted earlier, other legislation introduced during the 109 th Congress would have also required the United States to seek action by the international agencies that would address the economic problems which are allegedly caused by undervalued or manipulated currencies. Perhaps the most prominent bill of this sort was S. 2317 , introduced by Senator Baucus. No specific countries are mentioned and the provisions of the bill would apply to all countries which are found by the IMF to be manipulating the value of their currency to the detriment of the United States and other countries. Section 5 of the bill expressed the sense of Congress that the President should instruct the U.S. Executive Director at the IMF to request that the Managing Director be more aggressive in seeking consultations with countries about their exchange rate policies. These consultations should seek ways of remedying, in a transparent manner, situations where countries' interventions in currency markets have results that are contrary to the Articles of Agreement of the IMF and have negative effects on the currencies of other countries and on the world economy. All countries have the right to ask the IMF Managing Director to undertake special consultations with another country when the first country believes the second is pursuing exchange rate policies that are not consistent with the rules and principles of the IMF. If the Managing Director believes there may be a problem, he can raise the issue confidentially with the country concerned. If he finds reason to believe that country is manipulating its exchange rate in violation of IMF rules, he must convene a meeting of the IMF Executive Board to discuss the matter. On the other hand, if he finds there is no problem of manipulation, he need only inform the board informally to that effect. Special consultations of this sort have occurred twice previously (with Korea and Sweden in the early 1990s) as the consequence of complaints respectively by the United States and Germany. However, the Managing Director does not need to hold these meetings if he believes that countries are not manipulating the value of their currency. This has also occurred. In 2006, for example, Managing Director Rato rejected U.S. proposals that the Fund should hold special consultations and put pressure on China to stop it from manipulating its currency. He said that he did not consider China to be a currency manipulator and he said the IMF had been the first international body to urge China to moved from a fixed peg to a more flexible exchange rate system. The Baucus bill also suggests that the President propose that the IMF should issue a semi-annual report on exchange rate policies which examines all large-scale intervention by countries in international currency markets and their effects on exchange rates and present possible remedial steps that would curtail such practices. The bill also expresses the sense of Congress that the President should support further efforts to reform the IMF in order to strengthen its vigilance over exchange rates, reform the Executive Board in order to give large emerging economies—including those in Asia—more votes and influence, and to improve the transparency of the IMF especially as regards country data and information on exchange rate policies. Senator Bayh has proposed, in his bill S.Res. 270 , that the United States should ask the IMF to investigate whether China is manipulating the rate of exchange between the yuan and the U.S. dollar. The bill also proposed that the United States should bring a formal complaint against China to the IMF board of executive directors on grounds that it was not complying with the requirements of Article IV of the IMF charter. The bylaws of the IMF provide that "The Managing Director shall report to the Executive Board any case in which it appears to him that a member is not fulfilling obligations under the Articles...." Individual countries also have the same right to bring a complaint to the IMF Executive Board. The IMF says that countries have filed complaints of this sort with the Executive Board in the past, though none have been filed to date respecting Article IV. If the Executive Board agrees with the complaint, it may adopt a variety of sanctions including the interim suspension of the country's voting rights or borrowing privileges or, in an extreme case, a requirement for "compulsory withdraw" (the IMF term for expulsion). None of these would have the effect, however, of requiring a country to change the valuation of its currency if it is willing to bear the burden of the sanctions approved by the IMF board. On many occasions, the IMF has advised countries to make their foreign exchange procedures more flexible so the market can play a larger role in the valuation of their currency. The IMF made a recommendation of this sort to China in June 2005, a month before China announced its intent to move gradually towards a more flexible and market-oriented foreign exchange regime. Unless the country in question wants a loan, however, the IMF has no way of requiring that countries adopt policy changes of this sort or for accelerating the speed by which they put such policy changes into effect. Throughout history, civilization has sought to create authoritative bodies—bodies capable of judging disputes between individuals or groups and of enforcing their decisions—so that disputes between individuals or groups can be resolved peacefully rather than through self-help or inter-group negotiation or conflict. Self-help can resolve an immediate situation, at least from the point of view of one of the parties, but it can also perpetuate a dispute if the other party responds in a way that creates new incidents that need resolution. Inter-group negotiations can fracture a society into competing elements if a controversy between two groups is resolved on the basis of their current relative power or at someone else's expense. If one group's relative power increases, it may want to reopen the earlier settlements in order to get new terms that better reflect its current strength. The group now being pressured to give up an advantage gained previously may resist such change. Likewise, if a dispute is resolved by taking something away from a weaker third party, the latter may harbor resentment and seek restitution if its strength increases. Authoritative bodies can promote civil peace if they can settle disputes on the basis of general principles which all can use as guidance for future situations. By contrast, ad hoc agreements between parties are not likely to establish guidelines or create precedents which others can use as the basis for the equitable settlement of their own disputes. When conditions do not favor the establishment of authoritative bodies or agreed methods for resolving disputes, however, individuals, groups and nations have little choice but the use of self-help and negotiations to resolve disagreements that affect their concerns. If the original provisions of the IMF Articles of Agreement were still in effect and the world still operated on the fixed parity exchange rate system, controversies about exchange rate manipulation could be resolved relatively easily. Countries would need the permission of the IMF Executive Board to change the legal value of their currencies and this would not likely be given if countries wanted to peg them at rates below their normally accepted value. Likewise, if the rules of the WTO allowed export subsidies delivered through exchange rate manipulation to be causes for action, disagreements about exchange rate manipulation and currency issues could be settled through its dispute settlement procedure. However, the old exchange rate system no longer exists and exchange rate controversies are not generally seen to be adjudicable through the WTO. The IMF is responsible for surveillance over the international exchange rate system and the establishment of basic principles, but it has no role in the determination of exchange rates and little authority to make countries change their policies if these do not comply with established rules. Fixed exchange rate systems may be too inflexible for the modern fast-moving globalized economy. They also limit countries' ability to use monetary policy as a tool for managing their economies. On the other hand, a system of flexible or floating exchange rates without clear and enforceable rules can lead to problems. Some countries may choose to overvalue the exchange rate for their currency in order to artificially lower the cost of imports and thus to raise their domestic standard of living. Alternatively, countries may decide to undervalue their currencies in order to stimulate exports, discourage the inflow of foreign goods by making them artificially expensive, expand their foreign exchange reserves, and reduce unemployment. In both cases, foreigners bear most of the economic cost of the currency misalignment. In the case of overvalued currencies, however, countries may be forced to devalue their currency and to reduce their people's standard of living if investors decide in large numbers that the government lacks the resources to sustain the higher rate and—as seen in the Asian Financial Crisis of 1997-1998—many decide simultaneously to sell local currency and to buy dollars or other major types of foreign exchange. If everyone is selling and nobody is buying, the value of the local currency compared to foreign currency will fall precipitously and many firms and individuals will be forced into bankruptcy. Countries undergoing such financial crises will likely apply to the IMF for assistance and the IMF will likely suggest reforms aimed at helping the country work its way out of its difficulties and avoiding their recurrence. In the case of undervalued currencies, there is likely to be no corresponding situation which would force a government to raise the exchange value of its currency. If the government decides that it can control the growing inflationary pressure, suppress the unrealized domestic demand for imports and ignore the dissatisfaction of its trading partners, it can probably sustain a policy of undervaluing its currency for a long time. Because their foreign exchange reserves will expand as long as their currencies are undervalued, countries in this situation will not need to apply to the IMF for loans and they will not need to acquiesce to the IMF's policy conditionality as the price for obtaining that sort of aid. The question is what the United States can do if other countries undervalue their currencies in order to artificially expand their exports to the U.S. market. Most economists agree that the undervalued currencies of countries such as Japan, Korea, China, or Taiwan are not the principal cause of the U.S. balance of payments deficit nor the principal reason for the decline in the U.S. manufacturing sector. If those countries were to raise the value of their currencies, the U.S. trade deficit and the decline in U.S. manufacturing would not likely diminish so long as the United States continues to import large amounts of capital in the form of foreign investments or foreign loans. Nevertheless, the benefits of trade might be enhanced for everybody and the growing international imbalances in trade and financial flows might be lessened if the dollar and other currencies were priced appropriately. As the diversity of the legislation before Congress shows, there is no consensus as to the most effective means the United States could use to promote reform in the world exchange rate system and to offset the impact that undervalued foreign currencies have on the U.S. economy. Direct action, to offset the undervaluation of a currency through countervailing duties or special tariffs, might have the most immediate impact on the volume and price of imports from countries with such currencies. It might also lead to negotiations or changes in foreign exchange rate policies. On the other hand, direct action on the part of the United States—particularly action that violates the established rules of the world trading system—might induce the other countries to retaliate by reducing their imports from the United States and by reducing or restricting U.S. participation in their economy. It is difficult at this point to calculate the prospects either way or to determine what the relative costs or benefits might be if the United States took direct action to offset the trade benefits that countries realize when they undervalue their currencies. Direct negotiations with other countries aimed at encouraging them to revalue their currencies is another approach contemplated by current legislation. The main instrument would be changes in current law which would give the Secretary of the Treasury little option but to declare officially that certain foreign countries are manipulating their currencies to the detriment of the United States and to seek formal negotiations. Some bills would couple the bid for negotiations with a requirement that the United States take direct action to restrict imports from the other country through countervailing duties or other measures. A formal U.S. request for negotiations might induce another country to talk but there is no requirement that it must do so. The result of the negotiations would depend most likely on the relative influence each country brings to the table. It would also depend on its willingness to trade flexibility on trade and currency issues for flexibility on other topics and the relative value it attaches to each concern. In bilateral talks, the United States would be able to pursue its own negotiating agenda but it would likely bear the costs of any settlement even though other countries would benefit from any changes the other country makes in its foreign exchange policies. It would be impossible to change the exchange rate between the U.S. dollar and the other currency without also affecting the rate between that currency and other currencies as well. In multilateral talks, other countries would participate in the process and bear the cost of any trade-offs needed to reach settlement. However, the final result would likely be a consensus of all views and it might not be the outcome that each of them might prefer. A third approach would be reform of the IMF exchange rate procedures sufficient to strengthen the rules governing currency manipulation and to discourage countries from intervening in currency markets except for short-term actions to stabilize currency prices in destabilizing situations. The major bills of this type call on the United States to seek stronger action by the IMF to exercise surveillance over exchange rates and to persuade countries not to manipulate their currencies. Some also seek changes that would strengthen the enforcement of Article IV and require closer IMF examination of the interventions by countries in international currency markets. The IMF is taking some relevant initiatives and the Administration is encouraging action by the IMF along these lines, but enactment of a legislative directive might encourage U.S. officials to be more vigorous in their efforts to achieve such IMF reforms. Some of the pending legislation would require the United States to oppose (or consider opposing) loans to countries that manipulate their currency. Others would seek to induce countries to stop manipulating by offering them a possibly larger quota in the IMF or by opposing any increase in their share unless they stop their currency manipulation. Strengthening the IMF's capacity to enforce provisions such as Article IV requires changes in the Fund's procedures and its institutional arrangements, however, and this requires broad support by the membership and not merely greater efforts by the United States. Many countries do not see the issue of exchange rate manipulation in the same way as does the United States. Many also do not see the issue on such urgent terms. More fundamentally, stronger enforcement of Article IV would require the IMF to exercise greater surveillance over the economic policy of all countries and not just over the policies of some countries which are accused of currency manipulation. Because the U.S. dollar is the benchmark currency for measuring the valuation of other currencies, for example, the IMF would likely need to determine if the dollar is correctly priced before it could determine whether the exchange value of other currencies is appropriate. It is not clear that U.S. officials or legislators would welcome IMF commentary on U.S. economic policies or that they would readily adopt policy changes the IMF believes necessary in order to bring the value of the U.S. dollar into line with its calculations. Officials from other countries, be they countries with major currencies or countries accused of manipulating their currency, will likely have a similar view about IMF advice or policy recommendations. It is possible, however, that legislation aimed at strengthening IMF surveillance and enforcement of Article IV could encourage other countries to expand their efforts along the same lines. A new Bretton Woods conference to restructure the IMF or new amendments to change its basic procedures seem unlikely. Nonetheless, a greater sense of urgency on the part of most major IMF member countries might give the IMF more influence and might make initiatives such as the new program for multilateral consultations more effective. What the final result, if any, might look like and whether it might satisfy U.S. expectations cannot be determined at this time. | In recent years, Congress has been increasingly concerned that other countries—China, Japan, Taiwan and Korea in particular—are manipulating the value of their national currencies in ways injurious to the U.S. economy. A spate of legislation was introduced in the 109th Congress seeking to pressure foreign countries to revalue their currencies or seeking changes in the international financial system—particularly changes in the International Monetary Fund (IMF)—that would help accomplish that end. Similar bills are likely to be introduced in the 110th Congress. Current law on this topic is defined by the Exchange Rates and International Economic Policy Act of 1988. Among other things, it requires the Secretary of the Treasury to analyze the foreign exchange rate policies of other countries, in consultation with the International Monetary Fund, to see if foreign countries are manipulating the value of their currency for the purpose of gaining unfair trade advantage or preventing effective balance of payments adjustment. When this is found, the Secretary is required to seek negotiations with the offending country multilaterally or bilaterally for the purpose of ending that situation. In recent years, many have thought that China is manipulating its currency for these purposes. The Treasury Secretary has not made a finding to this effect, however, on grounds that China does not meet all the criteria specified in the 1988 Act and that Chinese authorities have given assurances that they will raise the value of their currency. The IMF Articles of Agreement specify, in Article IV, that countries may not manipulate their currency for the purpose of gaining trade advantage or for preventing balance of payments adjustment. The IMF is responsible for exercising "firm surveillance" over countries' exchange rate policies and for assuring their compliance with the Article IV rule. The IMF has no effective tools other than persuasion, however, with which to enforce its oversight responsibility. Previously, most of the IMF's surveillance was done bilaterally through its annual consultations with member countries. In 2006, the Fund instituted a new program of multilateral consultations and it brought together China, Japan, the United States, Saudi Arabia and Euro area representatives to discuss the major financial and trade imbalances currently affecting the world economy. A report and possible recommendations are to be received in early 2007. Congress has sought in various ways to address trade problems which many believe are exacerbated by undervalued foreign currencies. Several bills were introduced in 2005 and 2006 to establish countervailing duties or special tariffs on goods entering the United States from countries with undervalued currencies. These are intended to raise the domestic price of those goods to levels that would prevail if those currencies were valued at their appropriate level. Many of these initiatives might violate international trade rules, however. Advocates argue that the United States must take action to protect itself regardless. Other legislation has sought to require the Secretary of the Treasury to make a finding that China and other countries are currency manipulators. Another group of bills proposed that the United States should pursue reforms in the IMF that would give that international agency more authority to enforce Article IV and to stop countries from manipulating their currency. Many of the sponsors of the bills discussed in this report are reportedly planning to introduce similar bills in the 110th Congress. This report will be updated as events warrant. |
On June 30, 1999, U.S. and Canadian officials signed a new comprehensive agreement to resolve long-standing disputes and to ensure implementation of the conservation and harvest-sharing principles of the 1985 Pacific Salmon Treaty (PST). After years of failed negotiations, a combination of resource management studies, joint-fishery restrictions to protect wild salmon stocks, and the involvement of high-level government negotiators helped ease tensions between the United States and Canada over the shared harvest of Pacific salmon. Moreover, the two nations recognized that failure to reach a long-term conservation and harvest-sharing agreement was in no one's best interest. The provisions in this agreement's Annex IV outline, in detail, the fishery regimes to be followed by Canada and the United States in cooperatively managing the five species of Pacific salmon. Most chapters of Annex IV expired at the end of 2008, and discussions began in 2005 on its renegotiation. This report provides historical background about the PST, discusses issues that created difficulties in the regime, summarizes the 1999 salmon accord, and outlines issues relevant to the renegotiation of Annex IV. The 1999 Agreement (1) established abundance-based fishing regimes for the Pacific salmon fisheries under the jurisdiction of the PST; (2) created two bilaterally managed regional restoration and enhancement endowment funds to promote cooperation, improve fishery management, and aid stock and habitat enhancement efforts; and (3) included provisions to enhance bilateral cooperation, improve the scientific basis for salmon management, and apply institutional changes to the Pacific Salmon Commission (PSC). Pacific salmon have long been a matter of common concern to the United States and Canada. In the 1800s, with the advent of canning technologies, extensive commercial salmon fisheries developed in both countries. Since their inception, salmon fisheries have experienced strong fluctuations in catch and stock abundance. Periods of great plenty were often followed by years of low returns. By the 20 th century, it had become obvious that the combined effects of fishing and natural variability in abundance could lead to overharvest. The United States and Canada recognized that some form of cooperation would be necessary for the sake of the resource. For many years, piecemeal agreements were forged to protect specific fisheries, such as Fraser River sockeye and pink salmon. However, because of the diversity in salmon fisheries and recurring disagreements over how best to address the interception problem, these agreements proved inadequate. In 1985, the PST created an arrangement for cooperative management, research, and enhancement of all intercepted Pacific salmon stocks. The goal of the PST is coordinated management of Pacific salmon throughout their range to ensure sustainable fisheries and maximize long-term benefits to the parties. Despite the PST, some salmon stocks continued to decline. Interceptions strained diplomatic relations between the United States and Canada, and the parties fundamentally disagreed on how to achieve the conservation and harvest-sharing goals established by the PST. After a long-term harvest agreement expired in 1992, Canada argued strongly that the United States was exceeding its share of the catch under the PST's "benefits equivalent" provisions. In contrast, the United States argued that Canadian interceptions of Pacific Northwest (Washington, Oregon, and Idaho) coho salmon and Chinook salmon were further damaging these depleted stocks. In years following 1992, a unstated assumption of both parties—that they would both abide by conservation measures—allowed the two countries to manage their fisheries. In 1997, bilateral stakeholder talks were held in an attempt to resolve the impasse. Ultimately, these negotiations failed to forge an agreement. In August 1997, the United States and Canada appointed William Ruckelshaus and David Strangway, respectively, to conduct a joint investigation and to make recommendations for ending the controversy. In addition, Washington State and Canada agreed to restrict several of their fisheries to help protect wild salmon stocks. However, failure to reach a long-term conservation and harvest-sharing agreement harmed several salmon stocks and hampered the ability of Washington, Alaska, and British Columbia fishermen to plan fishing seasons and budget expenses because, without a harvest-sharing agreement, year-to-year salmon allocations were unpredictable. Thus, the 1999 Agreement represented a major breakthrough in a longstanding contentious resource issue. Pacific salmon are among the world's most highly migratory anadromous fish. They spawn in fresh water, often hundreds of miles from the ocean, migrate to the sea as juveniles, and then disperse into the open ocean. From one to several years later, they return to their natal rivers to spawn and complete their life cycle. Along the Pacific Coast of North America, many juvenile salmon travel north after they enter the ocean, migrating freely across the national boundaries of the United States and Canada and into international waters (see Figure 1 ). There are six species of anadromous Pacific salmon and trout: Chinook (king) salmon ( Oncorhynchus tshawytscha ), sockeye (red) salmon ( O. nerka ), coho (silver) salmon ( O. kisutch ), pink (humpy) salmon ( O. gorbuscha ), chum (dog) salmon ( O. keta ), and steelhead trout ( O. mykiss ). Migration patterns widely vary among the species. Because of their value and importance to U.S. and Canadian fisheries, three species—Chinook, sockeye, and coho—are of particular interest. Chinook salmon from central and northern Oregon coastal rivers, the Columbia River system, and drainages entering Puget Sound generally swim north as juveniles, some migrating as far as the waters off northern British Columbia and Alaska. Coho salmon stocks generally do not migrate as far north and the southern coho stocks (fish originating in Washington/Oregon and southern British Columbia) generally do not mingle with the northern stocks (originating in northern British Columbia and Alaska), which frequently migrate through the waters off southeast Alaska. Because of this natural segregation, the northern and southern coho stocks are addressed separately in the PST. Sockeye salmon from British Columbia's Fraser River move in different patterns depending on ocean conditions. In years when El Niño climatic events occur, Fraser River sockeye are more prevalent in southeast Alaskan waters, returning to the Fraser River through Johnstone Strait off the west coast of the British Columbia mainland. In other (non- El Niño ) years, Fraser River sockeye exhibit a somewhat more southerly distribution and return through the Strait of Juan de Fuca. As a result of these migration patterns, fishermen in the United States and Canada intercept fish originating in and returning to rivers of the other country, often in substantial numbers. Canadian commercial troll fisheries off the west coast of Vancouver Island (WCVI) often catch Chinook and coho salmon bound for the rivers of Oregon and Washington, including some threatened and endangered stocks. WCVI trollers and recreational anglers also harvest Puget Sound Chinook. Fishermen in southeast Alaska catch salmon returning to rivers in Canada and the Pacific Northwest. In some years, Washington State commercial fisheries, both tribal and non-tribal, may catch large numbers of Fraser River sockeye as they migrate through the Strait of Juan de Fuca. For many years, these interceptions caused tension between the United States and Canada. Thus, salmon migration patterns and interceptions complicate negotiations. A 1937 arrangement between the United States and Canada to conserve and equitably divide the harvest of Fraser River sockeye salmon was an early success story in the management of shared salmon stocks. The Fraser River lies wholly within Canada, but sockeye salmon generally pass through U.S. waters as they return to spawn. Thus, Fraser River sockeye supported large fisheries in both the United States and Canada, setting the stage for an international drama. In the late 1800s, Canadian fishermen dominated the Fraser River sockeye fishery. By 1900, with the expansion of U.S. purse seine fisheries, U.S. harvest quickly surpassed the Canadian harvest. From 1900 through 1934, U.S. fisheries produced from 61% to 70% of the sockeye salmon canned from the Fraser River run. In 1913, crews blasting a railroad right-of-way through the canyon walls above the Fraser River triggered a massive rock slide that choked the river canyon. The effects of the slide were most detrimental at a narrow section of the river known as Hell's Gate, blocking access to spawning areas upstream from the slide. United States and Canadian harvest of sockeye salmon dropped dramatically. By 1918, with substantial U.S. assistance, the Hell's Gate reach was restored, and sockeye salmon could again move upstream to spawn. The rise of competing U.S. and Canadian fisheries, natural fluctuations in salmon stock abundance, and the events at Hell's Gate provided impetus for negotiations between the United States and Canada over the cooperative management of the sockeye salmon stocks. In 1937, after seven years of negotiation, the Fraser River Convention was ratified. The Convention established the International Pacific Salmon Fisheries Commission, with principal responsibility for protecting, preserving, and extending the sockeye salmon fisheries of the Fraser River (pink salmon were later added to the Convention). The commission operated under two objectives: (1) restore Fraser River sockeye runs; and (2) equally divide the catch, within practical limits, between U.S. and Canadian fishermen. In 1946, the commission recommended that regulations be implemented to: provide closures designed to permit adequate escapement of all races of salmon comprising the run; protect in the greatest possible degree the most seriously depleted runs; divide the total catch as equally as might be possible between the fishermen of the two countries; and permit the largest catch possible consistent with attainment of these objectives. However, because of the diversity in salmon fisheries and recurring disagreements over how best to address the interception problem, the 1937 agreement eventually proved inadequate. The Fraser River Convention was an ambitious experiment, which unquestionably met its twofold mandate to rebuild and equally allocate Fraser River sockeye and pink salmon. However, a much broader forum was necessary to solve the overall problem of U.S. and Canadian salmon interceptions. It would be nearly half a century before the two countries agreed to terminate the Fraser River Convention and replace it with an expanded institution. In 1985, after several decades and a great deal of international and regional deliberation, the United States and Canada successfully completed negotiations on the Pacific Salmon Treaty (PST). The PST created an arrangement for cooperative management, research, and enhancement of shared Pacific salmon stocks to ensure sustainable fisheries and maximize long-term benefits to both parties. In the absence of a fish-sharing arrangement, benefits derived from unilateral conservation and enhancement efforts are diminished by another nation's interceptions. The PST created a regime aimed at ensuring sustainable fisheries through conservation and enhancement, and optimizing benefits to each party. The PST established a commission (the PSC) to make recommendations to the parties concerning management of the salmon fishing regime. The PSC meets annually to review fishing activities in the previous year, to advise the PST parties on the status of the fishery, and to suggest any necessary adjustments to the regime. The PSC is divided into two national sections, each with four commissioners and four alternate commissioners. Voting structure was defined for the United States by the Pacific Salmon Treaty Act, as discussed below. The PST's fundamental principles are to "a) prevent overfishing and provide for optimum production [of salmon]; and b) provide for each party to receive benefits equivalent to the production of salmon originating in its waters." In addition, parties are to take into account the desirability of reducing interceptions, the desirability of avoiding disruption of existing fisheries, and annual variations in stock abundance. For many years, the parties strongly disagreed over the meaning of benefits equivalent to the production of salmon originating in its waters , as specified in Article III of the PST, most notably in terms of what benefits should be considered. Canada stated that benefits equivalent should be interpreted strictly on a fish-for-fish basis. That is, either Canada harvests the salmon produced in its rivers or harvests an amount of U.S. fish equal to the number of Canadian salmon intercepted in U.S. fisheries. The United States has viewed this interpretation as an oversimplification, believing that all of the PST's principles must be considered in unison, and that there is no simple definition of benefits equivalent . For example, who benefits when salmon are caught in Alaska but processed in Canada? And, how are the issues of protecting fish habitat by forgoing development opportunities (e.g., logging, mining, petroleum development) to be balanced? The Memorandum of Understanding (MOU), which elaborated on elements within the PST, provided minimal guidance. It stated that because data on salmon interceptions and total production by rivers of origin are imprecise, each nation's method for determining benefits equivalent may differ. Thus, the MOU stated that complete and comprehensive implementation of Article III (1)(b) would not be possible until some time in the future (without identifying a date or timeline). The MOU stated that, in the short term, annual fishery regimes shall be conducted in an equitable manner and that "the Commission's decisions take into account changes in the benefits flowing to each of the parties through alteration in fishing patterns, conservation actions, or as the result of changes in the abundance of the runs." For the long term, "if it is determined that one country or the other is deriving substantially greater benefits than those provided from its rivers, it would be expected that the parties would develop a phased program to eliminate the inequity within a specified time period, taking into account the provisions of Article III, paragraph 3, of the PST (i.e., the desirability in most cases of reducing interceptions), avoiding undue disruption of existing fisheries, and accounting for annual variations in abundance of stocks. The MOU also stated that correcting imbalances is a national responsibility and may involve adjusting fishing effort or enhancement projects on a regional basis, and that the party with the advantage shall propose corrective measures to the PSC. Despite the joint commitment embodied in the PST to conserve and protect the shared salmon stocks, the United States and Canada spent many years in a diplomatic stalemate, and the health of the salmon stocks suffered as a result. After the initial disagreements over the equitable sharing of intermingled stocks in the early 1990s, a number of mechanisms were employed to resolve this issue. In 1993 and 1994, Canada and the United States appointed new negotiators to address the benefits equivalent principle. By 1995, government-to-government negotiations proved unsuccessful and New Zealand Ambassador Christopher Beebe was appointed to guide a mediation of the PST's equity ( benefits equivalent ) principle. When this failed, the parties established two stakeholder panels, composed of fishermen from both countries, in an attempt to settle the controversy. While stakeholder negotiations provided considerable progress, this process also eventually broke down. In August 1997, the United States and Canada appointed William Ruckelshaus and Dr. David Strangway, respectively, to conduct a joint investigation of the controversy and to make recommendations for ending it. Their report, published in January 1998, contained four specific recommendations: 1. The governments should cause to be adopted interim fishing-sharing arrangements for up to two years, stressing that it was incumbent on the governments to ensure that these arrangements are developed and implemented. 2. During the two-year period, both parties should develop a practical framework for implementing Article III (i.e., leading to establishment of long-term fishing arrangements.) 3. The stakeholder process should not be reconvened. 4. The parties should also undertake a comprehensive review of the PSC and dedicate themselves to making it a functional institution for preserving and managing Pacific salmon. They concluded that to accomplish their recommendations, "meaningful compromises of positions strongly held will be necessary." Moreover, to ensure long-term sustainability of the shared resource, "rules must be established for the preservation of the [salmon] and time is not on their side." Disparate efforts to protect and conserve salmon habitat, which contributed to the relatively weak southern stocks and more robust northern stocks, may be equally to blame for the lack of stability in the PST regime. Southern boundary stocks (e.g., Pacific Northwest Chinook salmon) have suffered extensively from habitat degradation. Most salmon stocks in the Pacific Northwest (and a few in some areas of southern British Columbia) have been subjected to major habitat damage from dams, irrigation projects, agriculture, logging, ports, and pollution. Such habitat damage can degrade salmon production without the damaging activity bearing any of the related costs of resource conservation. A significant problem with the PST was that the framers did not anticipate the magnitude of harm caused by non-fishing activities on Pacific Northwest stocks (and some isolated Canadian Chinook stocks). As noted previously, after the long-term harvest agreement expired in 1992, Canada and the United States argued over equitable harvest-sharing and conservation of salmon stocks. After years of failed negotiations, cooperative studies (e.g., Ruckelshaus-Strangway), joint-fishery restrictions to protect wild stocks, and the involvement of high-level government representatives (e.g., Lloyd Cutler, Senior White House Representative on Pacific Salmon) helped to ease tensions between the United States and Canada in the late 1990s. Moreover, the two nations recognized that failure to reach a long-term conservation and harvest-sharing agreement was in no one's best interests. In 1999, these factors permitted U.S. Negotiator James Pipkin and Canadian Negotiator Don McRae to overcome years of failed negotiations. On June 3, 1999, Lloyd Cutler, Canadian Fisheries Minister David Anderson, Alaska Governor Tony Knowles, Oregon Governor John Kitzhaber, Washington Governor Gary Locke, and Tribal Negotiator Ted Strong announced that, after intensive negotiations extending over several years, U.S. and Canadian officials had reached a comprehensive agreement to resolve their long-standing dispute relating to Pacific salmon and the PST. On June 30, 1999, the United States and Canada formally signed the 1999 Agreement on Pacific Salmon. Terms of the agreement are discussed below. The 1999 Agreement was reached within the framework of the Pacific Salmon Treaty Act of 1985 ( P.L. 99-5 , 99 Stat. 7; 16 U.S.C. §§3631-3634). This act implemented PST provisions and established the institutional framework for U.S. negotiations. The structure of the U.S. Section was a critical element in framing negotiations between the United States and Canada. Because this institutional framework is likely to affect future PST negotiations, a brief discussion of the Pacific Salmon Treaty Act of 1985 is warranted. The Pacific Salmon Treaty Act of 1985 is the implementing legislation for the PST. Section 3 defines the composition of the U.S. Section to the PSC, the voting requirements for the U.S. Section, and other matters necessary for U.S. participation in the PST. The U.S. Section is composed of four members: a non-voting representative of the U.S. government, and three voting members from Alaska, Oregon or Washington, and the "treaty Indian tribes." Subsection (g) defines the voting requirements for the U.S. Section, which operates "with the objective of attaining consensus decisions in the development and exercise of its single vote within the PSC. A decision of the U.S. Section shall be taken when there is no dissenting vote." In the event that the U.S. Section is unable to arrive at a consensus, §3(g) of the act authorizes the creation of a Conciliation Board to assist in resolving disputes. The Secretary of State, when concerned that the United States is in jeopardy of not fulfilling international obligations pursuant to the PST because of disputes within the U.S. Section, is empowered to refer these matters to the President. If state or tribal actions or omissions place the United States in jeopardy of not fulfilling its international obligations under the PST, the Secretary of Commerce may take steps to supersede state or tribal fishery regulations. It is of concern to some that the structure of the U.S. Section could offer the opportunity for U.S. politics to paralyze the PSC. In contrast to the Canadian Section, where the Canadian federal government decides the position to be taken by its section, the U.S. position is shaped by the state and tribal representatives in the U.S. Section as defined by the act. There is no U.S. federal government position, and the U.S. position is based solely on unanimity among its three voting commissioners. However, the interests of Alaska, Washington/Oregon, and the treaty tribes are often competing and, in the past, have impaired the ability of the U.S. Section to arrive at a unified position. Observers of the process suggest that an overarching difficulty that hindered past attempts to reach consensus is the lack of a requirement compelling the U.S. and Canadian parties to reach an agreement. Related to this is the absence of any penalty for non-resolution. Because both countries could continue to fish in the absence of an agreed harvest regime, there is no incentive to reach agreement and the parties can abandon negotiations without fear of consequences. In sum, because the U.S. Section is required by law to work by consensus, the PSC cannot make recommendations to the parties without the approval of all voting members of the U.S. Section. The PST's salmon fishing regimes are based entirely on the recommendations of the PSC. Many believe that the PST negotiation process has been hampered by the structure of the U.S. Section, in which dissent by any single voting member can bring PST negotiations to a halt. On June 30, 1999, U.S. and Canadian officials signed a comprehensive agreement to resolve long-standing disputes relating to Pacific salmon and the PST. The agreement established abundance-based fishing regimes for the Pacific salmon fisheries under the jurisdiction of the PST. These regimes, which allow fishery harvest to vary from year to year, are designed to implement the conservation and harvest-sharing principles of the PST. That is, larger catches will be allowed when salmon abundance is higher, and catches will be significantly constrained in years when stock abundance is lower. It was believed that this type of regime would be more responsive to the conservation requirements of salmon than the fixed-catch ceilings that existed under the original PST arrangements. Additionally under the agreement, two bilaterally managed regional restoration and enhancement endowment funds were established. These funds are used to promote bilateral cooperation, improve fishery management, and aid stock and habitat enhancement efforts to improve the status of weakened salmon stocks. The agreement also included provisions to enhance bilateral cooperation, improve the scientific basis for salmon management, and apply institutional changes to the PSC. At the heart of the new accord was agreement between the parties to focus on conservation and habitat protection, rather than division of shared salmon stocks. The 1999 Agreement: renewed cooperation between the United States and Canada concerning the management of salmon; ensured that the conservation and harvest-sharing principles of the 1985 PST were realized; stabilized the management regime; and provided a firm and complementary base for other salmon recovery efforts, such as habitat restoration, underway in both countries to restore depleted stocks of salmon. The cornerstone of the new fishing accord was abundance-based management. Under this management approach, harvest rates for each salmon stock are set relative to stock abundance. The objectives of abundance-based management are to: sustain wild stocks; prevent overfishing; set a predictable framework for sharing the burdens of conservation and benefits of stock recovery; provide cost-effective, responsive fishery management; and establish a common basis for stock assessment, fishery monitoring, and performance evaluation. The parties to the PST believed that the new management regimes would be more responsive to natural stock fluctuations and more environmentally responsible. To be effective, this approach requires an informed pre-season and a responsive in-season approach to fishery management. The parties surmise that by matching harvest levels to actual salmon abundance, this management scheme reduces the tendency to overfish, removes mortality resulting from ineffective live-release practices, and prevents unnecessary loss of fishing opportunities. They also believed that, under the 1999 accord, curtailment in fishing would be shared proportionately among fishermen in all areas covered under the PST. Most elements of the agreement were contained in several new chapters that replaced earlier expired versions of Chapters 1-6 of Annex IV of the PST. Additionally, an understanding was reached regarding management of certain northern fisheries affecting coho salmon, a topic not specifically covered in previous agreements. Most of the fishery arrangements are in effect through 2008, except that for Fraser River sockeye, which will be in effect through 2010. The United States and Canada agreed that the new fishery regimes were consistent with all the principles of the PST, and that compliance with those regimes would constitute satisfaction of all obligations under those principles. This agreement specified arrangements for sockeye, coho, Chinook, and pink salmon management for several rivers that flow from Canada to the Pacific Ocean through southeast Alaska, including the Stikine, Taku, and Alsek Rivers. The United States and Canada agreed to establish a Transboundary Rivers Panel within the PSC to address transboundary river issues. Ongoing programs for joint enhancement of sockeye salmon in the Taku and Stikine Rivers would be continued. This agreement addressed the management of sockeye and pink salmon fisheries in southeast Alaska and northern British Columbia. The agreement specified how the fisheries would be managed to achieve conservation and fair sharing of salmon stocks that intermingle in the border area between British Columbia and southeast Alaska. The fixed-catch ceilings contained in previous agreements were replaced with abundance-based provisions that allow harvests to vary from year to year depending on the abundance of salmon. Several provisions, because they address long-contentious issues, were particularly noteworthy. These provisions affect Alaska's purse seine fisheries near Noyes Island and gillnet fishery at Tree Point; and Canada's troll fishery for pink salmon and various marine net fisheries. Because they pass through fisheries regulated by many jurisdictions in both the United States and Canada, Chinook salmon were the focus of concern and controversy. Although some Chinook populations were relatively healthy, other Chinook salmon stocks had been so diminished that they have been listed as threatened or endangered under the U.S. Endangered Species Act. Many factors, in addition to harvest, contributed to the decline of these stocks, including habitat destruction, water diversion, hydroelectric dams, and oceanic and climatic change. The parties believed that the conservation-based fishery regimes established by the 1999 Agreement would help to ensure the effectiveness of public and private investments in habitat restoration and other aspects of salmon recovery. The 1999 Chinook salmon regime encompassed marine and certain freshwater fisheries in Alaska, Canada, Washington, and Oregon. All Chinook salmon fisheries were to be managed based on abundance, rather than the fixed-catch quotas that applied previously. Two types of fisheries were designated: (1) those that would be managed based on the aggregate abundance of Chinook salmon present in the fishery, and (2) those that would be managed based on the status of individual stocks or stock groups in the fishery. The three fisheries designated for aggregate abundance-based management (AABM) were ocean fisheries that occur in large areas and affect a complex aggregation of many stocks. These were: southeast Alaska troll, net, and sport fisheries; northern British Columbia troll and Queen Charlotte Islands sport fisheries; and west coast Vancouver Island troll and sport fisheries. Each of these AABM fisheries would be managed to achieve a specific harvest rate that varied based on an index of abundance of salmon present in that particular fishery for that particular year. Because each fishery is comprised of a different group of stocks that have different survival rates, the allowable catch would vary between fisheries and between years. Larger catches would be allowed when abundance was greater and, importantly, catches would be increasingly constrained when abundance is diminished. Table 1 in Chapter 3 of the 1999 Agreement's Annex IV provided maximum catch targets for each of the 3 AABM fisheries through the range of Chinook abundance indices. All other ocean and freshwater fisheries targeting Chinook salmon were designated for individual stock-based management (ISBM). Fisheries in this category included, but were not limited to: central British Columbia troll, net, and sport fisheries; southern British Columbia marine troll, net, and sport fisheries (other than the west coast Vancouver Island troll and sport fisheries); and all troll, net, and sport marine and freshwater fisheries in Oregon, Washington, and the Snake River basin in Idaho. The ISBM fisheries generally occurred in marine waters closer to the rivers of origin, or directly in the rivers. These fisheries often are aimed at harvesting hatchery-produced salmon or species other than Chinook. The catch in these fisheries is comprised of a relatively small number of Chinook salmon stocks, some of which were depleted. Accordingly, these fisheries fell under a "general obligation" that specified certain reductions in exploitation rates relative to a 1979-1982 base period. This general obligation required Canada to maintain at least a 36.5% reduction in fishing mortality on Chinook salmon stock groups identified as depleted relative to the base period. This general obligation required the United States to maintain at least a 40% reduction relative to the same base period. In those cases where the general obligation was insufficient to achieve escapement objectives for natural stocks, additional reductions were to be taken as necessary to meet agreed escapement objectives or, when taken with the general obligation, were at least equivalent to the average reduction for the specific Chinook stock group during the years 1991-1996. The 1999 Agreement provided a degree of flexibility, allowing U.S. and Canadian management agencies to decide how best to distribute harvest across their various fisheries to reflect domestic fishery priorities, provided the over-all reductions were achieved. For some Chinook stocks, the reduction would have to be much greater than the general obligation, due to the need to provide extra protection for certain very depleted stocks. The general obligation did not apply to hatchery stocks or healthy natural stocks that were achieving escapement objectives and could support harvest. In addition to predetermined harvest schedules, the 1999 Agreement specified conditions (e.g., failure of a stock to meet agreed escapement objectives for 2 consecutive years) under which even greater harvest reductions would apply. These so-called "weak stock" provisions serve as a safety valve to afford additional protection to stocks that may fail to respond to broader recovery programs. Finally, the United States and Canada agreed to implement by 2002, subject to improvements in technical information, a total mortality approach to Chinook fisheries, taking into account indirect or incidental mortality. This would provide more accurate information on which to make fishery management decisions. These arrangements introduced incentives to reduce incidental fishing mortality and harvest more selectively. The U.S. Department of State noted that, although much of the structure of previous agreements relating to the Fraser River was retained, the 1999 Agreement required a substantial reduction in the U.S. share of Fraser River sockeye. This reduction was phased in over three years and completed by the 2002 fishing season. When this reduction was completed, the U.S. share taken in Washington State fisheries was 16.5% of the total allowable catch. (In contrast, the U.S. share of Fraser River sockeye, as specified in the original Annex IV to the 1985 PST, was approximately 26%.) To mitigate the effect of the reduced share on commercial fishermen in Washington state, the Washington State Legislature and the U.S. federal government were to be asked to contribute to a fishing vessel license buy-back program. This program resulted in the removal of a significant portion of the Washington sockeye fishery. Because the buy-out affected only the non-Indian share, the usual 50/50 sharing rule (per the Boldt Decision ) in Washington was altered. The shares resulting from the revised sharing rule were 68% for the treaty tribes and 32% for the non-tribal fishermen. This revised sharing rule applied only to U.S. harvest of Fraser River sockeye. The U.S. share of Fraser River pink salmon was 25.7% of the total allowable catch. The coho agreement essentially provided a strategy and specifications (i.e., biological criteria) for a conservation-based regime covering border area fisheries in southern British Columbia and Washington State. The specifics of the regime were cooperatively and bilaterally developed for implementation in 2000. The coho regime included rules establishing harvest limits in specified border area fisheries. These rules were designed to limit exploitation rates on natural coho stocks to sustainable levels, taking into account all fisheries affecting the stocks, and thereby improving the long-term prospects of sustainable, healthy fisheries in both countries. For southern coho stocks, abundance-based management reduced catches to sustainable levels as the United States and Canada worked to rebuild these depressed stocks. Specifically, the coho management program: constrained fishing to enable natural coho stocks to produce long term sustainable harvests while maintaining genetic and ecological diversity; responded to the status of stocks, was cost-effective and flexible enough to take advantage of technical capabilities and information; provided a predictable framework for planning fishery impacts on natural stocks; and established an objective basis for monitoring, evaluating and modifying the management regimes. For northern coho stocks in times of low abundance, certain fisheries were curtailed to assist conservation of these stocks. These closures include: southeast Alaskan troll fishery for 10 days from July 25 when early season catch indicators show a low abundance (less than 1.1 million total catch); border area Alaskan fisheries for three weeks starting in statistical week 31, when the catch-per-unit of fishing effort (CPUE) does not reach 10; border area Alaskan fisheries for two weeks starting in statistical week 31 when CPUE does not reach 14; or border area Alaskan fisheries for 10 days starting in statistical week 31 when CPUE does not reach 22. Comparable curtailments were applicable to Canadian border fisheries. This agreement incorporated refinements to provisions that trigger adjustments to chum salmon fisheries in the Strait of Georgia and Puget Sound. These refinements had only a minor impact on catch allocation, but improved the effectiveness of the regime. Additionally, at the request of the United States, Canada agreed to require the live release of chum salmon in certain Canadian net fisheries in southern boundary areas at those times of the year when "summer chum" (components of which have been listed as threatened under the U.S. Endangered Species Act) might be present in the area. Specifically, from August 1 to September 15, Canadian purse seine vessels targeting sockeye and pink salmon in the Strait of Juan de Fuca were required to release chum salmon to protect threatened U.S. salmon stocks. The two endowment funds established by the 1999 Agreement are managed bilaterally and address science, restoration, and enhancement needs relating to salmon production. The Northern Boundary and Transboundary Rivers Restoration and Enhancement Fund (Northern Fund) addresses needs in northern and central British Columbia, southeast Alaska, and the Alsek, Taku, and Stikine Rivers. The Southern Boundary Restoration and Enhancement Fund (Southern Fund) addresses needs in southern British Columbia, the states of Washington and Oregon, and the Snake River basin in Idaho. The United States contributed $75 million and $65 million to capitalize the two funds, respectively, over a four-year period. In tacit recognition that U.S. fishermen have, for years, taken more than their fair share of salmon and would continue to do so under the 1999 Agreement, Canada was compensated through majority capitalization of these funds by the United States. Either country, as well as third parties, may contribute to the funds in the future, upon agreement of the parties. For each of the regional funds, a bilateral committee composed of three representatives appointed by each of the two countries is responsible for approving expenditures of the funds. Annual expenditures are not to exceed the annual earnings from the invested principal of each of the funds; only the interest generated by the funds is spent. The funds are used to (1) improve resource management information (including data acquisition) and scientific understanding of factors affecting salmon production; (2) rehabilitate, restore, and/or improve natural habitat to enhance the productivity and protection of Pacific salmon; and (3) enhance wild stock production using "low-technology" methods. The 1999 Agreement included a commitment by the two countries to improve how scientific information is obtained, shared, and applied to the management of the salmon resource. Among other things, the agreement encouraged staff exchanges between management agencies, bilateral workshops, and participation in the public domestic management processes of the other country (e.g., the U.S. regional fishery management councils). Additionally, a bilateral Committee on Scientific Cooperation was established under the PSC. Composed of two persons each nominated by the two national sections of the PSC, the committee assists the PSC in setting its scientific agenda, advises on research and monitoring needs, and assists in arranging peer review and evaluation of scientific reports. The PSC also was encouraged to resolve scientific issues through its technical committees and asked to elaborate rules and procedures, as necessary, for implementing the process set out in Article XII of the PST for addressing technical disputes. The 1999 Agreement highlighted the importance of habitat protection and restoration to achieving the long-term objectives of the parties. While the primary focus of the agreement was on setting provisions that govern fishery management, it was well understood that achieving optimum production of salmon depended on other initiatives as well. These included, but were not limited to, maintaining adequate water quality and quantity, achieving improved spawning success and migration corridors for adult and juvenile salmon, and other measures that maintained and increased the production of natural stocks. The PSC reports annually to the parties to identify (1) stocks for which measures beyond harvest controls are required and non-fishing factors that limit production; (2) options to address these factors; and (3) progress of the parties in implementing measures to improve production. This arrangement improved the conservation elements of the PST and extended the PST framework to include coordination on habitat protection objectives. This provision supports the principle that stock conservation and rebuilding goals require coordinated and effective programs in freshwater to maintain productive habitat or restore degraded habitat, particularly, when it constrains sustaining populations at optimum production. The two Endowment Funds provide tangible capacity to undertake remedial action to enhance the productivity of freshwater habitat. The initiative on habitat was a significant complement to the PSC's overall mandate to coordinate achievement of optimum production of salmon. The attention given to several concerns by Congress, other U.S. officials, and fishery managers was believed crucial in determining the degree to which bilateral salmon management under the 1999 Agreement was likely to succeed. These issues, and how they have been addressed, include: Acceptance of the 1999 Agreement. The 1999 Agreement consisted of more than simple amendments to the PST annex, which the PST provides for acceptance by exchange of notes. Thus, there was ambiguity over whether the PST was a separate treaty requiring Senate action, or merely a supplement to the existing treaty that improved its implementation. In either case, it called for funding that could only come by way of congressional authorization and appropriation. The 1999 Agreement was determined to be an executive agreement, and thus did not require Senate advice and consent to ratification. See the next item on funding. Congressional appropriation of $140 million for the two Endowment Funds . Obligations under the 1999 Agreement were contingent upon legislative authority and appropriations from the U.S. Congress for these two funds. The full capitalization of these two funds relied on repeated action by the U.S. Congress to appropriate monies over four years. Any hesitancy in providing this funding might have been seen by Canada as a repudiation of U.S. responsibility for compensating Canada for larger U.S. salmon harvests in the recent past. In addition, the joint diplomatic statement accompanying the 1999 Agreement stated that the agreement would be "suspended" if funds were not available at times certain through FY2003, at least suggesting that, as noted above, acceptance of the agreement was contingent upon appropriation of funds by Congress. The U.S. Congress appropriated full funding for the two endowment funds within the time prescribed. Allocation of and expenditures from the Endowment Funds . If these two funds were fully funded and grew at 10% interest, about $14 million would be available for expenditure annually, to be used for salmon restoration and enhancement projects benefitting both countries. If, however, the funds were not capitalized at the anticipated amount, Canada might have regarded the resulting interest insufficient, compared to the perceived damage U.S. fishing had caused Canadian salmon stocks. In 2006, about $7 million (U.S. dollars) was derived from interest on these funds and allocated to various projects (see " Implementing the Regional Endowment Funds ," below). Equity . Since the 1999 Agreement did not specifically and directly address the issue of salmon interceptions, many Canadians remained skeptical that the 1999 Agreement would result in any improvements toward each party receiving benefits equivalent to the production of salmon originating in its waters. For years, the United States and Canada debated different interpretations of this objective and how it should be measured. In addition, Canadians called on the United States to abide by obligations under the PST's Memorandum of Understanding for implementing Article III, paragraph 1(b), wherein the party with the advantage was to propose corrective measures. However, the 1999 Agreement did not provide any mechanism to reimburse one party if the other overharvested. Both parties appear comfortable with the equity achieved under harvest regimes of the 1999 Agreement, and no particular concerns related to overharvesting have arisen. Decision-making within the U.S. Section to the PSC . Section 3632(g)(1) of the Pacific Salmon Treaty Act of 1985 requires consensus among the U.S. Section to the PSC before a decision can be made. Critics of U.S. Section action charge that this requirement has been used as a ploy to paralyze operation of the PST and frustrate rational salmon management. If the inability to reach consensus within the U.S. Section results in fishing activities that threaten the conservation of salmon stocks, the United States could be in breach of its PST obligations. In such circumstances, the federal government is to assume leadership, with the option for intervention and preemption. Past hesitancy of the U.S. federal government (i.e., the President, Secretary of State, and/or Secretary of Commerce) to exercise authority and assume this necessary leadership role had contributed to the erosion of a cooperative relationship with Canada beneficial to Pacific salmon. No particular problems have arisen within the U.S. Section relative to achieving consensus. Failure to include British Columbia . The exclusion by Canadian federal negotiators of British Columbia from negotiations leading to the 1999 Agreement could have been a recipe for failure, some contended. They suggested the United States should have requested that British Columbia remain involved since British Columbia is where the majority of the Canadian salmon originate. It is also the location of fishing and other interests affected by the implementation of the 1999 Agreement. For the 1999 Agreement to work, it had to address regional interests pertaining to salmon as perceived by British Columbia, in addition to Canadian interests as perceived by the federal government in Ottawa. The cooperation of British Columbia fishing interests was probably essential to achieving rational management of Pacific coastal salmon stocks. This does not appear to be a current issue, as Canada appears sensitive and responsive to regional concerns. Perception by some Canadians of the 1999 Agreement as a sellout of Canadian interests . Some Canadians felt the United States had been, and continued to be, the principal transgressor in failed salmon management, and always achieved the better outcome in any bilateral dealing. For example, many Canadians perceived that the United States had the ability to force Canada to curtail fisheries to address U.S. conservation concerns (e.g., Juan de Fuca summer-run chum salmon), but that Canada lacked any mechanism to force Alaska to do the same when Canada was concerned about conservation (e.g., southeast Alaska harvest restrictions are triggered by low U.S. coho abundance, not low Canadian coho abundance). Such attitudes focused considerable attention on how the United States conducted itself in implementing the 1999 Agreement, particularly appropriations for and allocations from the two Endowment Funds. Canadians do not appear to harbor intense emotions in response to how equitably the 1999 Agreement's implementation and funding of the endowment funds has been perceived. Absence of any penalty for the non-resolution of disputes between the two parties . The 1999 Agreement did not specify salmon harvest limits, but was a very complex blueprint for the parties to follow in promulgating harvest limits and taking other actions to conserve salmon fisheries. As such, it opened the door to considerable dispute. Canada has repeatedly sought the inclusion of binding arbitration as an option under the PST. However, the 1999 Agreement did not provide any additional incentive to settle differences (e.g., it did not prohibit both nations from fishing when no accord was reached). In addition, no enforcement mechanism was provided in the PST to guide action if one country should be out of compliance with the agreement or the PST. No serious disputes have arisen, so this aspect has not posed any concerns. Technical dispute resolution . The potential for technical disputes could have increased under the 1999 Agreement, since harvest levels were to be based on the determination of stock abundance levels. However, only Chapter 5 of Annex IV on coho salmon required resolution of technical disputes under the provisions of Article XII of the PST. No similar provision was made for other fisheries in the 1999 Agreement, and even the Article XII provisions appear to have been ineffective in the past. Thus, a broad-based and readily enforceable means of resolving disputes applicable to all technical disputes may be lacking. Again, no serious disputes have arisen, so this aspect has not posed any concerns. Reliability of PSC science . Abundance-based management works when the supporting science is accurate, particularly as regards salmon abundance forecasts. Both nations may gain from committing themselves to promoting greater objectivity and cooperation in the conduct of their scientists. The objectivity and reliability of PSC science has been widely accepted by both parties. Use of selective fishing methods . Canada asserted that its future salmon fisheries would operate differently than in the past, with harvestable fish being selectively targeted to avoid undesired bycatch of wild or weak stocks. Fin marking by U.S. management agencies also was employed to promote selective fishing. The degree to which selective fishing practices are used in mixed-stock fisheries by both nations to protect weaker, wild stocks could minimize conflicts between fishing and the laws and programs seeking to protect threatened and endangered species. This appears an emerging arena of potential conflict due to what some consider to be significant Canadian harvest of salmon from several populations listed under the U.S. Endangered Species Act. There are a number of different ways to evaluate or measure the effects of the 1999 Agreement as it has been implemented. For example, one could evaluate the Agreement on the basis of its effect on conservation and sharing of the resource, its benefits and costs to the fisheries and the agencies who manage them, and its effect on the many people who rely on salmon for their economic and cultural value. From the perspective of the Department of State, a salient way to measure the relative success of the 1999 Pacific Salmon Agreement is to compare the nature and tenor of relations with Canada concerning the shared Pacific salmon resource during the period before the conclusion of the 1999 Agreement with the period since. Throughout much of the 1990s, disputes over Pacific salmon repeatedly became significant irritants in relations between the United States and Canada. The procedures for handling such disputes established by the 1985 Pacific Salmon Treaty, particularly the mechanisms of the Pacific Salmon Commission (PSC), had ceased to work effectively. Antagonism over those disputes provoked incidents that made front-page news. Several different attempts to settle differences essentially failed. The conclusion of the 1999 Agreement created a new and much improved paradigm for addressing Pacific salmon issues, permitting U.S. and Canadian participants in the PSC process to work together constructively. The two national Sections have reached agreement on many issues concerning the implementation of the 1999 Agreement. For example, since 1999, they have agreed to amend some of the fisheries regimes set forth in Annex IV to take account of new circumstances. They successfully negotiated and implemented a biologically sound management plan for coho salmon in the southern portion of PSC area. They have used the two endowment funds created by the 1999 Agreement to advance useful salmon initiatives in both countries. The two Sections also recently embarked on an effort to give better effect to Attachment E to the 1999 Agreement, concerning salmon habitat and restoration. The Government of Canada highly values the treaty and the work of the PSC, believing that these legal and institutional features have provided each country with important mutual benefits in the management of shared salmon stocks. The 1999 Agreement ended a seven-year dispute. That agreement launched an era of cooperation and conservation in the management of the Pacific salmon fisheries and a more equitable sharing of catches between the United States and Canada. Importantly, the agreement also led to improved cooperation on science and management through the establishment of two new joint committees. The bilateral Committee on Scientific Cooperation provides advice to the PSC on its scientific agenda and how to improve cooperation on science issues. As well, the Transboundary Rivers Panel provides advice on management of the Stikine, Taku, and Alsek Rivers. Discussions in the bilateral PSC have been positive and productive since 1999. The PSC has had to address some difficult issues since implementation of the 1999 Agreement, and has been successful in its negotiations. No formal "disputes" between the United States and Canada have arisen since the advent of the 1999 Agreement. The way the PSC implements the 1999 Agreement has the potential to cause friction between Alaska and the states of Oregon/Washington/California. The 1999 Agreement established fishing regimes that spanned several years. Multi-year fishing agreements have led to a profound improvement in working relationships between the various interests involved in the PSC processes. The parties have been able to focus on other issues with a spirit of cooperative resolution that would not have been possible under the stresses of the negotiation-driven atmosphere that existed before. Technical committees on Chinook and coho, for example, have been able to devote more time to cooperative analysis because the time required to support competitive negotiation of fishing regimes has been reduced. Although these multi-year regimes have established a set of rules to govern the conduct of fisheries, they can have the effect of shifting the conservation responsibility. The aggregate abundance-based management (AABM) regimes adopted for Alaskan and some Canadian fisheries relieve these fisheries of stock-specific obligations to conserve individual stocks of fish. Consequently, managers of other fisheries are required to bear an increasing share of the responsibility for conservation and meeting jeopardy standards for ESA-listed populations. For example, the annual allowed salmon harvest is calculated in two different manners—under an aggregate abundance off of Canada and Alaska, and a weakest stock calculation off of the Washington Coast. This has caused a reduction in the allowed harvest off of the Washington coast because the limiting (i.e., weakest) stock for Washington has been reduced due to the increase in interception off Canada and Alaska, where the limiting stock for WA is aggregated with other, more abundant, stocks as the basis of aggregate abundance management. The U.S. Congress authorized and appropriated $10 million for FY2000 for each Northern and Southern Funds ($20 million total); the money was transmitted to the PSC in late 1999 and early 2000. For FY2001, Congress appropriated a second installment of $20 million for each Fund ($40 million total), which was transmitted to the PSC in February 2001. Congress authorized a similar amount for FY2002. The balance of the total commitment—$25 million to the Northern Fund and $15 million to the Southern Fund ($40 million total) —was authorized in FY2003. In addition to the amounts contributed by the United States, Canada contributed $250,000 (Canadian) to each of the two funds (total of $500,000 Canadian) in November 2000. By 2006, the two endowment funds were generating a total of US$7 million annually to finance projects in Canada and the United States. The combined Northern and Southern expenditures by project activity category for 2004-2006 were: Several projects were funded that involved cooperators in both countries. Additionally, the benefits that flow from many of the projects are shared bilaterally, such as projects directed at improving the Fraser River sockeye fishery. An unintended, but nonetheless real, effect of establishing the Endowment Funds as part of the 1999 Agreement is that there has been a growing temptation to seek financial support from these endowment funds to operate basic agency stock and fishery assessment programs. This tendency has been exacerbated by mounting pressures for fiscal austerity reflected by agency budgets in both countries. The effects of different fisheries on Chinook salmon vary by stock. The 1999 Agreement relative to Chinook salmon has tended to shift the conservation responsibility to fisheries that are not managed under AABM regimes to protect individual stocks. The fishing regime established for fisheries off the west coast of Vancouver Island (WCVI) has had different effects on individual stocks of Chinook salmon returning to Puget Sound, the Washington Coast, and Columbia River. When the 1999 Agreement was negotiated, the effects of the ESA were not yet apparent because NMFS had not yet established jeopardy standards. With those standards now in place, the ramifications of the PST's approach to Chinook management can be better understood. For Puget Sound stocks, Canadian WCVI fishery harvest rates have not been reduced to the extent anticipated under the 1999 Agreement. Consequently, fisheries that harvest Chinook in Puget Sound, including those directed at other species, such as sockeye, have been further restricted to compensate for less-than-anticipated reductions in Canadian fishery impacts. For Snake River fall Chinook, the impacts of WCVI fisheries have been reduced more than expected, providing greater flexibility in allocating impacts among U.S. fisheries affecting this stock complex. The magnitude of Chinook bycatch in groundfish fisheries directed at other species has not been allocated among individual stocks because data necessary to do so are not available. Canadian interception of Washington State Chinook salmon can be seen as a quid pro quo for Alaskan interceptions of Canadian Chinook salmon. However, this situation has resulted in Washington State salmon fleets, Tribal and non-tribal alike, feeling that they have been denied an equitable harvest opportunity. Washington salmon fishermen perceive Canada as managing their allowed ocean Chinook salmon troll harvest to avoid their domestic stocks and target U.S. stocks. These Washington fishermen see the Canadian use of real time genetic stock analysis, where they sample the harvest and allow more or less harvest in the area depending on the mix of the stocks present, as a violation of the existing treaty where one country is not to target the stocks of the other country. In addition, Washington's ability to harvest its share of Fraser River sockeye and pink salmon, both of which are managed under the PST, is constrained by the ESA listing of Puget Sound Chinook. After Canada's allowable harvest of Chinook salmon under the existing Chinook regime in Annex IV, combined with the U.S. ESA-mandated harvest restrictions on Puget Sound Chinook, there is insufficient permissible Chinook bycatch remaining to satisfy both the treaty and non-treaty commercial sockeye and pink fisheries in Washington State. The U.S. Section to the PSC envisioned that the renegotiations of Annex IV would take place within the framework of the PSC process, rather than on a "government-to-government" basis, as occurred in 1999. Due to the improved atmosphere of cooperation that existed within the PSC, both parties were cautiously optimistic that that approach would succeed. Most of the fisheries regimes set forth in Annex IV expired at the end of 2008 (the only exceptions were the regimes for Fraser River sockeye and pink salmon, which will expire at the end of 2010). Following informal discussions, the U.S. Section proposed to Canada a framework for handling the renegotiation of these regimes in accordance with a timeline designed to allow the parties to bring new fisheries regimes into force no later than the end of 2008. The two sides discussed the proposed framework at the Executive Session of the PSC in mid-October 2006. Recommendations in 2005 and, again, in 2006 on changes to the PST Annex IV arrangements (chapters 1, 4 and 6) attested to the positive relations in the bilateral PSC and between the two countries on Pacific salmon overall. Several complex issues challenged the PSC and the parties. The combined implementation of the 1985 PST and the 1999 Agreement continued to pose challenges. Several of these were considered in the renegotiation of the expiring Annex IV fisheries regimes. Most participants believed that the most difficult issue associated with the renegotiation concerned the fishery regime for Chinook salmon found in Chapter 3 of Annex IV. The problems arising from the status (e.g., U.S. endangered and threatened species listing) of certain runs of Chinook salmon in Washington, Oregon, Idaho and perhaps British Columbia posed particular challenges for the negotiators. This issue concerned the PSC's activities relating to Attachment E to the 1999 Agreement, known as the Habitat and Restoration agreement. This attachment included, among other things, a section requesting the commission to report annually to the parties on the status of natural stocks not producing at optimum production, the non-fishing factors which may be limiting their production, options for addressing these factors, and the progress of the parties in achieving the objective of optimum production for these stocks. The PSC has discussed this provision of the 1999 Agreement bilaterally on many occasions since 1999. However, bilateral progress had been difficult and limited for a number of reasons, some of which stemmed from differences within the two national sections, as well as between them. U.S. domestic concerns relative to non-fishing factors that affect salmon productivity and fishing capacity influenced the renegotiation of some expiring fisheries regimes of Annex IV, particularly Chapter 3 concerning Chinook salmon. Canada had a number of domestic concerns that similarly affected the renegotiation of fisheries regimes. This issue concerned the implications of the U.S. Administration's salmon policy, as expressed in the January 25, 2006 speech by White House Council on Environmental Quality Chairman James L. Connaughton, at the "Future of Wild Pacific Salmon" conference at Oregon State University. The life-cycle and migratory patterns of Pacific salmon, combined with the jurisdictional landscape of North America's west coast, places Canada literally and figuratively in the middle of certain PST issues, with Alaska to the north and several states of the "Lower 48" to the south. As in the past, some of the biggest challenges confronted by the participants were finding solutions acceptable to all U.S. stakeholders Mass marking (removing the adipose fin) and mark-selective fisheries (harvesting only fish with the adipose fin removed) were implemented by some of the management entities who participate in the PSC process to conserve natural stocks of concern and to sustain fishery opportunities by shifting harvest toward hatchery fish in mixed stock fisheries. However, concerns arose that unilateral decisions to implement mass marking and mark-selective fisheries (MSFs) diminish the utility of the coded-wire-tag (CWT) system used by the PSC. Intense fisheries that selectively remove only marked fish violate the fundamental assumption of the CWT system that tagged and untagged fish within a population have equal chance of being harvested during their life cycle. Ambiguity in Annex IV language allowed different interpretations of expectations from individual perspectives. Different perceptions of intent emerged, which became manifest as uncertainty and rhetorical debates over intent. The Chinook regime, for example, was technically complex to implement and many details were left to be sorted our later. Another example was the controversy that emerged with how the U.S. share of Fraser River sockeye was to be harvested; Canada argued that the United States should harvest its proportional share from each major component of the sockeye run, while the United States argued that the proportion should be based on the allowable catch of the total sockeye run, taking into account the relative strength of component populations to the extent practicable. While ambiguity has provided latitude and flexibility to make it easier to reach agreement on fishing regimes, controversy occurred when obligations had to be transformed into specific terms. Ambiguities in Annex IV language increased challenges for bilateral technical committees over who and what to evaluate when monitoring performance or compliance. Implementation of fishing regimes negotiated by the PSC commonly require coordination and collaboration between the fishery managers of Canada and the United States. The meeting schedule and processes of the PSC are not well suited to this purpose. The Fraser Panel convenes several times throughout the season to coordinate fishing plans on sockeye and pink salmon bound for the Fraser River, but coordination among fishery managers for other species was far less formal. For example, the 2002 Southern Coho Agreement includes a provision for the parties to exchange information on abundance forecasts and fishery expectations for preseason management planning through manager-to-manger, policy-technical discussions, but this process was limited to a perfunctory exchange of data through e-mails and conference calls. The PSC normally convenes three meetings each year. A meeting in January focuses on a review of previous fishing seasons for the purpose of identifying issues for further discussion and making assignments to technical committees. An annual meeting in February is devoted to deliberation and resolution of issues. In the fall, an Executive Session allows the PSC to review work plans for Panels and Technical Committees and to candidly exchange views regarding issues relating to implementing the PST. However, the lack of forums to foster and facilitate policy-technical exchange for implementing PSC regimes was thought to be a serious impediment to cooperative salmon management between the United States and Canada. In recent years, funding for participation in joint technical committee processes and to support stock and fishery assessments had become increasingly problematic. The lack of full participation in technical committees impeded the ability to make progress on understanding and addressing issues of concern. Participants maintained that many programs that provide the data required for stock and fishery assessments had been severely reduced or even eliminated. Consequently, these observers maintained that the foundation for science-based management was being eroded at a time when demands for more and increasing precision in salmon management were increasing. Under Canada's allocation policy, after providing for spawning escapement, the first harvest priority is accorded to First Nations. The proportion of Canadian harvest provided to First Nations is expected to increase over time. For some First Nations fisheries, the current accuracy of estimates of harvest and the adequacy of fishery sampling data were highly questionable. Further, concerns arose over Canada's reluctance or inability to take action that could interfere with the ability of First Nations to harvest fish, even when other U.S. and Canadian fisheries on the same stocks were not permitted due to conservation concerns. In general, the Government of Canada was pleased with the degree of cooperation with the United States on PST issues since the implementation of the 1999 Agreement, and was hopeful that the PSC would provide additional recommendations concerning Annex IV changes. The panels, under the direction of the PSC, discussed chapter renewal starting in 2007. Canadian officials anticipated that Chinook salmon would be an area of particular interest during the renegotiation. Prior to the signing of the 1999 Agreement, Canada had been implementing significant conservation measures to address weak Chinook stocks from the west coast of Vancouver Island. As a consequence of these actions, Canada reverted to an historic fishing pattern in this area, moving from a predominately summer fishery to a spring and winter fishery. These changes met the new AABM regime set in the 1999 Agreement. That agreement also changed both countries' focus on harvesting respective shares of Chinook quotas set under the old treaty arrangements when stocks were abundant, to the conservation and abundance-based approach. The fishing pattern off west coast Vancouver Island not only met Canada's conservation needs but also reduced Canada's overall harvest of U.S. Chinook, particularly Columbia River Chinook stocks, which includes ESA-listed stocks. As an indirect result of changes in fishing patterns, Canada harvested other southern U.S. stocks. However, Canada's catch was within the parameters of the 1999 Agreement for Chinook salmon. Fundamentally, it was impossible for Canada to harvest its Chinook stocks without intercepting southern-bound U.S. stocks, whether they were Columbia River or Puget Sound stocks or others. Canada was not alone in affecting southern U.S. Chinook, as Alaska also had a significant harvest of southern U.S. Chinook stocks as well as Canadian stocks. An additional issue of concern to Canada was the increasing bycatch of Yukon River Chinook salmon by the U.S. pollock fishery in the Bering Sea concurrent with declining numbers of Chinook salmon migrating into Canada to spawn in Upper Yukon River tributaries. Canadian managers claimed that salmon bycatch in the pollock fishery had increased substantially, and blamed this interception for poor salmon returns to the Upper Yukon River tributaries. A Canadian delegation attended an early November 2007 meeting of the North Pacific Fishery Management Council to emphasize their concern, citing treaty language binding parties to reducing marine catch and bycatch of Yukon River salmon. Meanwhile, U.S. pollock fishermen asserted that severe restrictions on their fishery could make it unprofitable for them to continue fishing. Conservation of Canadian Pacific salmon populations was a priority, consistent with Canada's wild salmon policy. Access to a fair share of salmon under the treaty arrangements and receipt of the benefits of Canadian stock rebuilding efforts were also important to Canada. Furthermore, obligations to Canadian First Nations had to be considered in the renegotiation. The government of Canada believed that the improved levels of understanding, cooperation, and trust that had emerged through the work of the PSC would contribute decisively toward the successful negotiation of new Annex IV arrangements, and strongly supported work through the PSC. A Pacific Salmon Treaty Reform Coalition, composed of U.S. and Canadian conservation groups, provided constituent input into the renegotiation process. This coalition convened an independent scientific workshop on January 4, 2007, to evaluate the Pacific Salmon Treaty as a vehicle for sustainable, conservation-based salmon management. From this workshop, the coalition defined four principles they believed would improve the PST: uphold the principle of diversity protection and manage fisheries to protect all stocks; increase the responsibility of each country to protect salmon habitat and account for habitat loss in setting harvest objectives; meaningfully adopt the precautionary principle, ensuring salmon are protected in the face of increasing uncertainty from environmental change, particularly climate change; and make the process of PST negotiation and application more transparent and open to the public. On May 22, 2008, U.S. and Canadian representatives to the PSC announced their agreement on proposed changes to the five PST chapters of Annex IV that were in need of renewal, and recommended ratification of the renegotiated agreement to their respective governments. After both governments ratified the agreement, the renewed chapters took effect on January 1, 2009, and will remain in effect through 2018. Significant revisions include the following. Chapter 1 (Transboundary Rivers): New harvest sharing arrangements for sockeye on the Taku River. A renewed commitment to the joint enhancement program for sockeye in the Transboundary Area. New arrangements for the management of sockeye on the Alsek River, including the ability of either party to recommend new commercial fisheries. Canadian access to fish that are surplus to the spawning requirements outlined in the agreement. Chapter 2 (Northern Boundary): No significant changes. Chapter 3 (Chinook): Reductions in the allowable Chinook harvest in two aggregate abundance-based management (AABM) "mixed-stock fisheries" to address conservation concerns in both countries. The current maximum catch levels would be reduced by 15% in the case of the (U.S.) Southeast Alaskan AABM fishery and by 30% in the case of the (Canadian) west coast of Vancouver Island AABM fishery. New provisions to protect weak stocks, including further harvest reductions in the Alaskan and Northern BC AABM fisheries, as well as the individual stock-based management (ISBM) fisheries in both countries if certain Chinook stocks fail to meet escapement objectives. Creation of a fund, endowed by both the United States and Canada, to support implementation of the Chinook chapter. Key elements include (1) $30 million that Canada can access to help mitigate the impacts of harvest reductions in Canada; (2) $15 million ($7.5 million from each country) to support the coastwide coded-wire tag program; (3) $10 million from the Northern and Southern Endowment Funds for a "Sentinel Stocks Program"; (4) as much as $3 million that Canada can access to support pilot projects and evaluate mass-marking and mark-selective fisheries in Canada; and (5) $1 million to improve the analytical models to implement the Chinook agreement. Chapter 5 (Coho): Incorporates the joint Southern Coho Management Plan developed in 2002 with the abundance-based management framework established in 1999. Chapter 6 (Chum): Introduction of a 20% fixed harvest rate in Johnstone Strait, linking the U.S. catch ceiling to the abundance of Fraser River chum (i.e., in the case of a terminal run size below 900,000 chum salmon, the United States would restrict its fisheries in Area 7 and 7A to 20,000 chum). Establishment of a "critical level" for southern-bound chum salmon of one million. A defined start date for U.S. fisheries in Areas 7 and 7A of October 10 and the removal of the previous "underage" provisions for U.S. harvest. | The Pacific Salmon Treaty (PST) of 1985 requires the United States and Canada to develop periodic bilateral agreements to implement the PST's conservation and harvest-sharing principles. Beginning in 1993, long-standing disputes prevented such an agreement from being concluded. On June 30, 1999, after many years of heated diplomatic struggles, U.S. and Canadian officials reached a new comprehensive agreement. The 1999 Agreement (1) established abundance-based fishing regimes for the Pacific salmon fisheries under the jurisdiction of the PST; (2) created two bilaterally managed regional restoration and enhancement endowment funds to promote cooperation, improve fishery management, and aid stock and habitat enhancement efforts; and (3) included provisions to enhance bilateral cooperation, improve the scientific basis for salmon management, and apply institutional changes to the Pacific Salmon Commission (PSC). Annex IV to the 1999 Agreement outlines, in detail, the fishery regimes to be followed by Canada and the United States in cooperatively managing the six species of anadromous Pacific salmon and trout. Before it expired at the end of 2008, the terms of Annex IV were renegotiated. The 1999 conservation and harvest-sharing agreement was of interest to Congress for several reasons. Most notably, a congressional appropriation of $140 million was required to establish the agreement's two regional restoration and enhancement endowment funds. Provisions of the 1999 Agreement were implemented thorough additional authorizing language and amendment of the Pacific Salmon Treaty Act (16 U.S.C. §§3631, et seq.). The 1999 Agreement under the PST regime has been implemented in accordance with existing U.S. laws pertaining to salmon conservation (e.g., Magnuson-Stevens Fishery Conservation and Management Act; Endangered Species Act). In addition, the agreement's implementation determines the quantity of fish available for commercial, recreational, and subsistence fisheries as well as Indian treaty allocations. Many complex issues continue to challenge the PSC and the parties; several of these were addressed in the 2008 renegotiation of the Annex IV fisheries regimes. Some of the issues associated with the renegotiation included the fishery regime for Chinook salmon found in Chapter 3 of Annex IV. The problems arising from the status (e.g., U.S. endangered and threatened species listing) of certain runs of Chinook salmon in Washington, Oregon, Idaho, and perhaps British Columbia posed particular challenges for the negotiators. Additional concerns arose from Canada over increasing bycatch of Chinook salmon by the U.S. pollock fishery in the Bering Sea, as many of these fish are bound for the Yukon River, including Canadian tributaries. This report provides historical background about the PST, discusses issues that created difficulties in the regime, summarizes the 1999 accord, and analyzes issues considered during the renegotiation of Annex IV. The 111th Congress may conduct oversight of the renegotiated Agreement and its implications for U.S. salmon management. |
In general, there is no single, accepted, and specific definition of the term earmark for thecongressional appropriations process, nor is there a standard practice for earmarks. (1) However, for fundingprovided by Energy and Water Development (E&W) Appropriations laws to the Department ofEnergy (DOE), this report defines an earmark as "funds set aside within an account for individualprojects, locations, or institutions." In the FY2006 E&W appropriation law, earmarks were labeledas "congressionally directed projects" (2) and most often appeared in the joint explanatory statement of theconference report. (3) Accordingly, DOE budget request documents usually refer to earmarks as "congressionally directedactivities" and often report on them in separate account lines under the functional energy area towhich the earmarks are applied. (4) There is a general debate in Congress over earmarks, in which a key concern is thetransparency of earmark activities in the deliberative process. Critics of the current earmarkingprocess argue that it is not the subject of open debate and that the number of earmarks has grownrapidly. A "dear colleague letter" that seeks to change the process says, We believe the process of earmarking undermines theconfidence of the American public in Congress because the practice is not open, fair, or competitiveand tends to reward the politically well-connected. (5) Opponents further contend, as noted in the letter above, that it is wrong to take an earmark provisionthat survives neither the House or the Senate version of a bill and, nevertheless, have it inserted intoa conference report. This, they say, "stifles debate" and unfairly empowers well-financed lobbyists. Supporters of earmarking generally agree on the need for more transparency, but theycounter-argue that earmarks are not inherently wrong, nor should they be forbidden by rules ofcongressional process. At a February 2006 hearing on the subject, one proponent said, [The Constitution] placed the responsibility for makingspending decisions, not in the Executive Branch, but in the Congress.... Congress has always had thefinal say on that issue. Some would say that the earmarking process has been abused in recent yearsand I would agree, especially in cases where earmarks are inserted into Conference Reports that havenot been scrutinized by either body. (6) In general, proponents agree that some modification of the process may be needed, but otherwisecontend that earmarking is legitimate under the Constitution and is justified because elected officialsare better able to make decisions about funding for local needs than program managers in theexecutive branch. (7) In a review of the FY2006 DOE budget, the American Academy for the Advancement ofScience (AAAS) examined earmarks for DOE energy research and development (R&D) programsand found that ... earmarks eat up whatever increases there are for mostenergy programs and cut deeply into core R&D programs. Energy R&D earmarks total $266 millionin 2006, more than double the previous record from last year, and make up one out of every fiveR&D dollars. But they are especially concentrated in some areas, including biomass R&D wherethey make up more than 50% of total program funds, hydrogen (27%), and wind energy (33%), ratiosfar higher than in previous years. As a result, there will be enormous cuts to competitively awardedR&D grants in those areas. (8) Table 1 , below, shows the funding trends for earmarks under programs in DOE's Office ofEnergy Efficiency and Renewable Energy (EERE) and DOE's Office of Electricity Delivery andEnergy Reliability (OE). These trends are illustrated in Figure 1 , at the end of this report. The tableshows that EERE funding earmarks have more than tripled, from $46.0 million in FY2003 to $159.0million in FY2006. Table 1: Earmark Funding Trends for EERE andOE ($ millions) Sources: DOE Budget Requests FY2005, FY2006, and FY2007 and H. Rept. 109-275 . For FY2006, Table 3 (below) shows a $30.7 million increase in renewable energy R&Dearmarks, including increases of $16.4 million for Biomass & Biorefinery, $8.3 million for WindEnergy, and $4.1 million for Solar Energy. Of the $42.5 million increase for energy efficiency R&Dearmarks, nearly half ($20.3 million) was for Vehicle Technologies. Also, Table 3 shows a $28.8million increase for Electricity R&D earmarks under the Office of Electricity (OE). In early February 2006, the National Renewable Energy Laboratory (NREL) issued a pressrelease stating that FY2006 earmarks for EERE programs had left it with a $28 million gap in itsoperating funds, forcing NREL to cut 32 staff positions in hydrogen, biomass, and basic researchprograms. (9) The FY2007DOE Budget Request shows that the EERE share of NREL's budget was reduced from $182.5million in FY2005 to $161.6 million in FY2006, a $21 million (or 13%) reduction. (10) However, in late February 2006, DOE announced that an additional $5 million had been sentto NREL to immediately restore all 32 positions. DOE transferred the funding from other accountsand announced that it was working with Congress to restore funds to those accounts through severalmeans, including the "deobligation of funds provided to several congressionally directed projects in2001 and 2002 that have failed to make progress." DOE further noted, "Should Congress fully fundthe President's FY2007 request, unencumbered by earmarks, NREL should be able to maintain avibrant and stable workforce in the future." (11) In the State of the Union Speech given in January 2006, President Bush announced the launchof the American Competitiveness Initiative (ACI), which would increase support for R&D andtechnological innovation, including certain energy initiatives, (12) to help stimulate economicgrowth. The Administration's ACI document expresses concern about the potential for earmarks toimpede the proposed initiatives. Consistent with the previously noted definition, it defines earmarksas "the assignment of science funding through the legislative process for use by a specificorganization or project." It says, ... the practice signals to potential researchers that thereare acceptable alternatives to creating quality research proposals for merit-based consideration,including the use of political influence or appeals to parochial interests. The rapidly growing levelof legislatively directed funds undermines America's research productivity. (13) ACI contends that this type of funding is "rarely the most effective use of taxpayer funds." On the other hand, some proponents argue that R&D earmarks help spread the researchmoney to states and institutions that would receive less research funding through other means. Also,some supporters of earmarking contend that earmarks provide a means for funding unique projectsthat would not be recognized by the conventional peer-review system. (14) A key component of ACI, the Advanced Energy Initiative (AEI), proposes new initiatives forseveral energy technologies. (15) In particular, it embraces key initiatives (16) for hydrogen,biomass/biorefinery, and solar energy (17) that are reflected in the FY2007 DOE budget request as majorfunding increases for corresponding host programs under the Office of Energy Efficiency andRenewable Energy (EERE). (18) Table 2 shows the FY2006 funding earmarks for the Hydrogen, Biomass/Biorefinery, andSolar Energy programs at EERE. It also shows the proposed FY2007 funding increases for AEI'shydrogen, biomass/biorefinery, and solar energy initiatives under those programs. The table showsthat the FY2006 earmarks are nearly equal to the proposed increases for the hydrogen andbiomass/biorefinery initiatives; for the solar energy program, however, the total earmark is muchsmaller than the proposed AEI increase. Table 2. Earmark Funding Compared with AEIProposals ($ millions) Sources: DOE Budget Requests FY2005, FY2006, and FY2007 and H.Rept. 109-275 . Do the EERE earmarks seriously weaken R&D programs, as some opponentscontend, or do they merely provide a more equitable, although perhaps more decentralized,distribution of R&D funding, as some proponents argue? If renewable energy earmarks under EERE continue at the same or higherlevels in FY2007, would they lead to new cuts in staff positions at NREL? If Congress were to approve the Administration's requested increases for theAEI renewable energy initiatives, would earmarks continued at the same or higher levels act to diluteor otherwise erase some of the technological stimulation that the AEI aims to generate for itshydrogen, biomass/biorefinery, and solar energy goals? Table 3. DOE EERE and OE Earmarks,FY2005-FY2006 ($ millions, current) Sources: DOE, FY2007 Budget Request , vol. 3; H.Rept. 109-275 , pp. 143-145; and personalcommunication with Mr. Randy Steer, DOE/EERE, Feb. 23, 2006. Figure 1. DOE Earmark Funding for Renewable, Energy Efficiency, and Electricity | Appropriations earmarks for the Department of Energy's (DOE's) Energy Efficiency andRenewable Energy (EERE) programs have tripled from FY2003 to FY2006. According to theExecutive Office of the President and the private American Association for the Advancement ofScience (AAAS), this affects the conduct of programs and may delay the achievement of goals. Further, the Administration has proposed new funding for hydrogen, biomass/biorefinery, and solarenergy initiatives proposed under the American Competitiveness Initiative/Advanced EnergyInitiative (AEI). The report discusses the potential impact of congressional earmarks on EERE research anddevelopment (R&D) programs and, in particular, whether continued high levels of earmarks couldlead to new cuts in staff and dilute the desired impact of the AEI initiatives under EERE, shouldCongress decide to fund them. The congressional debate over earmarks centers on the transparency of the process, with afocus on earmarks not initially approved in either chamber that appear in a bill's conference report. Opponents contend that the earmarking process is not open, fair, or competitive. Proponents say itis a legitimate practice and is justified by policymakers' knowledge of local needs, as it spreadsresearch money to deserving states and institutions. The appropriation figures cited as "earmarks" in this report are those labeled by DOE budgetrequests as "congressionally directed activities" and, for FY2006, appear to be completely consistentwith figures in the FY2006 Energy and Water Development (E&W) conference report that arelabeled as "congressionally directed projects." In this regard, the earmark figures in this reportappear consistent with the definition of a congressional appropriations earmark as "funds set asidewithin an account for individual projects, locations, or institutions." This report will be updated as events warrant. |
The annual Interior, Environment, and Related Agencies appropriations bill includes funding for agencies and programs in three separate federal departments, as well as numerous related agencies and bureaus. It provides funding for Department of the Interior (DOI) agencies (except for the Bureau of Reclamation, funded in Energy and Water Development appropriations laws), many of which manage land and other natural resource or regulatory programs. The bill also provides funds for agencies in two other departments—the Forest Service in the Department of Agriculture, and the Indian Health Service (IHS) in the Department of Health and Human Services—as well as funds for the Environmental Protection Agency (EPA). Further, the annual bill includes funding for arts and cultural agencies, such as the Smithsonian Institution, the National Endowment for the Arts, and the National Endowment for the Humanities, and for numerous other entities and agencies. In former years, the appropriations laws for Interior and Related Agencies provided funds for several activities within the Department of Energy (DOE), including research, development, and conservation programs; the Naval Petroleum Reserves; and the Strategic Petroleum Reserve. However, at the outset of the 109 th Congress, these DOE programs were transferred to the House and Senate Appropriations subcommittees covering energy and water, to consolidate jurisdiction over DOE. At the same time, jurisdiction over the EPA and several smaller entities was moved to the House and Senate Appropriations subcommittees covering Interior and Related Agencies. This change resulted from the abolition of the House and Senate Appropriations Subcommittees on Veterans Affairs, Housing and Urban Development, and Independent Agencies, which previously had jurisdiction over EPA. Since FY2006, appropriations laws for Interior, Environment, and Related Agencies have contained three primary titles. This report is organized along these lines. The first section (Title I) provides information on Interior agencies; the second section (Title II) discusses EPA; and the third section (Title III) addresses other agencies, programs, and entities. A fourth section of this report discusses selected cross-cutting topics that encompass more than one agency. Entries in this report are for major agencies (e.g., the National Park Service) and cross-cutting issues (e.g., Everglades restoration) that receive funding in the Interior, Environment, and Related Agencies appropriations bill. For each agency or issue, we discuss some of the key funding changes that appear to be of interest to Congress. We also address related policy issues that occur in the context of considering appropriations legislation. Appropriations are complex, and not all issues are summarized in this report. For example, budget submissions for some agencies number several hundred pages and contain innumerable funding, programmatic, and legislative changes for congressional consideration. Further, appropriations laws provide funds for numerous accounts, activities, and subactivities, and the accompanying explanatory statements provide additional directives and other important information. For information on programs funded in the bill but not directly discussed in this report, please contact the key policy staff members listed at the end of the report. In general, in this report the term appropriations represents total funds available, including regular annual and supplemental appropriations, as well as rescissions, transfers, and deferrals, but excludes permanent mandatory budget authorities. This report contains FY2009 appropriations levels for agencies, programs, and activities as enacted in the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ). Funds generally are referred to as omnibus funds, or funds provided by the omnibus law. Increases and decreases generally are calculated on comparisons between these FY2009 omnibus funding levels and those supported by President Obama or enacted for FY2010. P.L. 111-5 , the American Recovery and Reinvestment Act of 2009, contained $10.95 billion in additional FY2009 funding for some of the agencies and programs typically funded by the Interior, Environment, and Related Agencies Appropriations bill. This amount was a 40% supplement to the $27.59 billion in omnibus appropriations for FY2009. In general, the funds were made available for obligation until September 30, 2010 (the end of FY2010). They are discussed in the pertinent sections throughout this report, in both the text and accompanying tables. They generally are referred to as stimulus funds, or funds provided by the stimulus law. For additional information on these stimulus funds, including a detailed table, see CRS Report RL34461, Interior, Environment, and Related Agencies: FY2009 Appropriations , coordinated by [author name scrubbed]. The House Committee on Appropriations is the primary source of the funding figures used throughout the report. Other sources of information include the Senate Committee on Appropriations, agency budget justifications, and the Congressional Record . References to the report of the House Appropriations Committee for FY2010 refer to H.Rept. 111-180 , on H.R. 2996 . References to the report of the Senate Appropriations Committee for FY2010 refer to S.Rept. 111-38 , on H.R. 2996 . References to the conference report or the explanatory statement for FY2010 refer to H.Rept. 111-316 , on H.R. 2996 . In the tables throughout this report, some columns of funding figures do not match the precise totals provided due to rounding. Table 1 , below, shows appropriations for Interior, Environment, and Related Agencies for FY2004-FY2010. Funding for earlier years is not readily available due to changes in the makeup of the Interior appropriations bill. The FY2010 appropriation represented a $4.97 billion increase (18.2%) over the FY2004 level in current dollars, or an $826.9 million increase (2.6%) in constant dollars. See Table 22 for a budgetary history of each agency for FY2006-FY2010. The Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010 ( P.L. 111-88 ) contained a total of $32.29 billion for FY2010. This was $4.45 billion (16%) higher than the FY2009 appropriation of $27.84 billion (excluding stimulus appropriations). The House, Senate, and Administration had all supported significantly higher levels for FY2010—ranging between 15% and 16% higher—than the FY2009 appropriation of $27.84 billion. P.L. 111-5 , the American Recovery and Reinvestment Act of 2009, contained an additional $10.95 billion in emergency funds for FY2009 for some of the accounts within agencies typically funded by the annual Interior, Environment, and Related Agencies appropriations laws. In general, the funds were made available for obligation until September 30, 2010 (the end of FY2010). The FY2010 appropriation of $32.29 billion in P.L. 111-88 was $6.50 billion (17%) less than the total FY2009 appropriations of $38.79 billion (including stimulus appropriations). In earlier action, on September 24, 2009, the Senate had passed H.R. 2996 , containing $32.15 billion for FY2010 for Interior, Environment, and Related Agencies. This was $201.1 million (0.6%) less than the $32.35 billion approved by the House on June 26, 2009, and $228.3 million (0.7%) less than the $32.38 billion requested by the Obama Administration. A variety of funding and policy issues were debated during consideration of FY2010 legislation. They included oil and gas leasing in the Outer Continental Shelf, wildland fire fighting, Indian trust fund management, royalty relief, and climate change. Other issues included funding for Bureau of Indian Affairs construction, education, and housing; Indian Health Service construction and urban Indian health; wastewater/drinking water needs; land acquisition; and the Superfund program. Table 2 , below, contains information on H.R. 2996 , the Interior, Environment, and Related Agencies Appropriations bill for FY2010. The Bureau of Land Management (BLM) manages approximately 253 million acres of public land for diverse and sometimes conflicting uses, such as energy and minerals development, livestock grazing, recreation, and preservation. The agency also is responsible for about 700 million acres of federal subsurface mineral estate throughout the nation, and supervises mineral operations on an estimated 56 million acres of Indian Trust lands. The FY2010 Interior appropriations law contained $1.14 billion for BLM, which was less than the Administration's request for FY2010 of $1.15 billion but higher than the FY2009 omnibus appropriation of $1.04 billion. An additional $305.0 million in FY2009 stimulus funds were appropriated to the BLM. See Table 3 . Figures in this section do not include funds for DOI Wildland Fire Management. In the past, wildland fire funds were appropriated to BLM for fire fighting on all DOI lands, but currently they are appropriated to DOI as a department-wide program. (For more information, see " Wildland Fire Management .") Proposed funding for several key activities is discussed below. Management of Lands and Resources includes funds for an array of BLM land programs, including protection, recreational use, improvement, development, disposal, and general BLM administration. For this line item for FY2010, the Interior appropriations law included $958.6 million. This was $16.8 million less than the Administration's request of $975.4 million but $68.4 million higher than the FY2009 omnibus appropriation of $890.2 million. The FY2009 stimulus law contained an additional $125.0 million for Management of Lands of Resources, for activities including remediation of abandoned mines and wells and also maintenance, rehabilitation, and restoration of facilities, property, trails, and lands. In general, the FY2010 law provided increased appropriations over FY2009 for activities funded by this account, as had been requested by the Administration and supported by the House and Senate. For soil, water, and air management, there was an increase of $18.4 million over the $40.6 million appropriated for FY2009. The increase included $15.0 million to help BLM build capacity to assess, monitor, predict, and adapt to changes in BLM landscapes resulting from climate change. For land and realty management, the Interior appropriations law included an increase of $16.9 million, from $33.8 million for FY2009 to $50.7 million for FY2010. The additional funds were sought to facilitate and promote renewable energy development. Among other activities, the funds were sought to support development of wind and solar energy on public lands; develop regional environmental impact statements; establish renewable energy coordination offices to facilitate and streamline the review and approval of renewable energy projects; and provide additional renewable energy staff at other BLM offices. The conferees on the bill expressed concern about the impact of renewable energy development on federal lands. For instance, they directed DOI, in consultation with the Forest Service, to submit a report on how sites for renewable energy projects will be selected; how the agencies will coordinate the development of such projects, particularly in areas of mixed ownership or management; how the infrastructure will be removed from public lands when no longer functional; and other issues. For energy and minerals for FY2010, the Interior appropriations law contained a total of $156.2 million. The Administration, House, and Senate had supported funding at this level, although they differed as to the amounts to be derived from discretionary appropriations, mandatory funds, and fees. The Administration's request included discretionary appropriations of $110.7 million, and reflected collections of $45.5 million in offsetting fees. These revenues are derived through a program requiring payment for each new application for a permit to drill (APD) oil and gas wells. The fee was $4,000, and in its budget request the Administration proposed raising the fee to $6,500 per APD. Additionally, the Administration proposed the repeal of provisions of law that redirect mineral leasing revenues from the Treasury to a BLM Permit Processing Improvement Fund. The Administration anticipated that the resulting loss of these mandatory funds to the BLM ($21.0 million) would be offset by an increased appropriation for energy and minerals and the additional revenues collected through the APD fee increase. However, the House and Senate supported, and the FY2010 law included, $89.7 million in discretionary appropriations, $45.5 million in offsetting fees by increasing the APD fee to $6,500 as proposed by the Administration, and $21.0 million in mandatory funds. Total FY2009 funding for energy and minerals was $156.8 million, comprised of discretionary appropriations of $99.4 million, $36.4 million in offsetting fees, and $21.0 million in mandatory appropriations. The FY2010 Interior appropriations law provided historically high funding for the wild horse and burro program—$64.0 million. While this was $3.5 million less than the $67.5 million that the Administration had sought, it was $23.4 million more than the $40.6 million appropriated for FY2009. The increased funding over FY2009 was sought for activities to reduce the number of wild horses and burros on BLM lands to achieve the "appropriate management level" by 2013. These activities include additional gathers and removals of wild horses and burros from BLM lands, population control efforts, and animal adoptions. The funding increase also was intended to cover the escalating cost of caring for animals removed from the range in long-term pasture ("holding") facilities. In addition, the FY2010 law prohibited funds from being used for the slaughter of healthy, unadopted wild horses and burros under BLM management, or for the sale of wild horses and burros that results in their slaughter for processing into commercial products. Further, the conferees on the FY2010 bill required BLM to follow the Senate's directions for this program. Noting that the costs of gathering and holding horses and burros "have risen beyond sustainable levels," the Senate Appropriations Committee had directed BLM to develop and publish a new, long-term plan for management of wild horses and burros that includes private proposals. The committee also encouraged all federal agencies that need horses to first seek to acquire a wild horse from BLM, and encouraged BLM to expedite the provision of horses to state and local police forces. For the National Landscape Conservation System, the FY2010 law provided $74.6 million. This was an increase of $7.9 million over the FY2009 appropriation of $66.7 million and $2.5 million over the Administration's request for FY2010 of $72.1 million. This system, established legislatively in 2009, consists of BLM's protected areas, including BLM wilderness, national monuments, and national conservation areas. For FY2010, $8.6 million was appropriated for BLM construction. This was an increase of $2.0 million over the FY2009 omnibus level and the amount requested by the Administration for FY2010—$6.6 million. The FY2010 funding would be used for 13 construction projects in seven states as well as bureau-wide architectural and engineering services. The FY2009 stimulus law provided an additional $180.0 million to BLM for construction, including for energy efficient retrofits of existing facilities and for construction, reconstruction, decommissioning, and repair of roads, bridges, trails, property, and facilities. BLM construction funding over the past decade has ranged from a low of $6.4 million in FY2008 to a high of $16.8 million in FY2001. For land acquisition by the BLM, the FY2010 law provided $29.7 million. The Administration, House, and Senate had approved sizeable increases over the FY2009 appropriation of $14.8 million. The majority of the FY2010 funding would be for 13 specific acquisitions in five states. The appropriation for BLM acquisitions had fallen steadily from $49.9 million for FY2002 to $8.9 million for FY2008. Money for land acquisition is appropriated from the Land and Water Conservation Fund. (For more information, see the " The Land and Water Conservation Fund (LWCF) .") For Fish and Wildlife Service (FWS) accounts for FY2010, the Interior appropriations law contained $1.65 billion. The Administration had requested $1.64 billion. Both figures were more than the FY2009 omnibus appropriation ($1.44 billion), but less than the FY2009 total ($1.72 billion), which included $280.0 million in stimulus funds under the American Recovery and Reinvestment Act of 2009, P.L. 111-5 . See Table 4 . The FY2010 law included a Senate floor amendment to prohibit funds appropriated in the act from being used to "impede, prohibit, or restrict activities of the Secretary of Homeland Security on public lands to achieve operational control (as defined in section 2(b) of the Secure Fence Act of 2006)" over border areas. The Interior Appropriations subcommittee chair and the sponsor of the amendment also agreed to hold further discussions with relevant department heads. By far the largest portion of the FWS annual appropriation is the Resource Management account, for which the President requested $1.22 billion, an increase of 7% from the FY2009 omnibus level of $1.14 billion. Congress appropriated $1.27 billion, an increase of 11% over the FY2009 omnibus appropriation. Among the programs included in Resource Management are the Endangered Species program, the Refuge System, and Law Enforcement. The request included a new line item of $20.0 million within Resource Management for Climate Change Adaptive Science Capacity, which Congress accepted. (See " Climate Change Planning and Adaptive Science Capacity " below.) Funding for the Endangered Species program is part of the Resource Management account, and is one of the perennially controversial portions of the FWS budget. The Administration's FY2010 request was $164.2 million, an increase of 4% from the FY2009 omnibus level of $158.0 million. The FY2010 appropriation was $179.5 million (an increase of 14%). See Table 5 . The House Appropriations Committee's report also encouraged FWS to address a backlog of candidate species awaiting listing decisions. The Senate Appropriations Committee report urged improvement in the consultation program to address past deficiencies. The conference report specified an increase of $2.5 million in the consultation program to improve monitoring and record-keeping. The Cooperative Endangered Species Conservation Fund also benefits conservation of species that are listed, or proposed for listing, under the Endangered Species Act, through grants to states and territories. The President proposed to increase the program from $75.5 million in FY2009 to $100.0 million in FY2010. Congress appropriated a smaller increase, to $85.0 million (up 13%). See Table 5 . In total, the FY2010 appropriation was $264.5 million for the two programs, a 13% increase over FY2009. The FY2010 Interior appropriations law provided $503.3 million for refuge operations and maintenance, an increase over the Administration's request of $483.3 million and the FY2009 omnibus level of $462.9 million. The FY2010 appropriation would increase all categories of refuge spending over FY2009: wildlife and habitat management, refuge-based law enforcement, visitor services, and conservation planning. The FY2010 law included a Senate floor amendment related to refuges. (See " Fish and Wildlife Service " introduction.) Costs of operations have increased on many refuges, partly due to special problems such as hurricane damage and more aggressive border enforcement, but also due to increased use, invasive species control, and other demands. Refuge funding was not keeping pace with new demands, and these demands, combined with the rising costs of rent, salaries, fuel, and utilities, led to cuts in funding for programs to aid endangered species, reduce infestation by invasive species, protect water supplies, address habitat restoration, and ensure staffing at the less popular refuges. While increases were provided to address these problems in recent years, the FY2009 stimulus law provided additional funding to address these concerns. However, some observers contend that the system's problems are ongoing and will be significant after the stimulus funding is exhausted. Congress approved $65.8 million for nationwide law enforcement, more than the request ($63.8 million) and more than the FY2009 omnibus appropriations level ($62.7 million). Nationwide law enforcement covers border inspections, investigations of violations of endangered species or waterfowl hunting laws, and other activities. For FY2010, the Administration proposed a new line item of $20.0 million (under Resource Management) to address climate change, which Congress accepted. Half of the funding would support work with partners at federal, state, tribal, and local levels to develop strategies to address climate impacts on wildlife at local and regional scales. The other half would be used to support cooperative scientific research on climate change as it relates to wildlife impacts and habitat, and would provide scientific support to a network of newly created Landscape Conservation Cooperatives (LCCs) to ameliorate the effects of climate change. The LCCs appear to be an amalgam of research institutions, resource managers, and lands managed by agencies at various levels of government. The Administration requested $65.0 million for land acquisition, an increase of $22.5 million (53%) from the FY2009 omnibus appropriation of $42.5 million. The FY2010 Interior appropriations law provided a still higher increase—to $86.3 million (+103%). See Table 4 . As compared to recent years, the request and the appropriated level both devoted a somewhat higher percentage (70% and 77% respectively) of the funding to acquisition of land for specified federal refuges, rather than for closely related functions (e.g., acquisition management, land exchanges, emergency acquisitions, and purchase of inholdings). This program is funded with appropriations from the Land and Water Conservation Fund. (See " The Land and Water Conservation Fund (LWCF) ", below.) Under the Migratory Bird Conservation Account (MBCA), FWS (in contrast to the other three federal lands agencies) has a source of mandatory spending for land acquisition. The account is permanently appropriated, with funds for FY2010 estimated at $44.0 million, derived from the sale of duck stamps to hunters and recreationists, and import duties on certain arms and ammunition. It does not receive funding in annual Interior appropriations bills. The National Wildlife Refuge Fund (also called the Refuge Revenue Sharing Fund) compensates counties for the presence of the non-taxable federal lands of the NWRS. A portion of the fund is supported by the permanent appropriation of receipts from various activities carried out on the NWRS. However, these receipts are not sufficient for full funding of amounts authorized in the formula, and county governments have long urged additional appropriations to make up the difference. For FY2010, the Administration requested the FY2009 level of $14.1 million. The FY2010 appropriation was $14.5 million. With refuge receipts, the FY2009 omnibus appropriation level was estimated to fund about 37% of the authorized payment level. A projected increase in receipts, combined with the appropriation of $14.5 million, would increase the payment to 42% of the authorized level in FY2010. The Multinational Species Conservation Fund has generated considerable constituent interest despite the small size of the program. It benefits Asian and African elephants, tigers, rhinoceroses, great apes, and marine turtles. The President requested $10.0 million for FY2010, the same as the FY2009 level. Congress increased funding for the program to $11.5 million for FY2010. The President also requested $4.8 million for the Neotropical Migratory Bird Conservation Fund, a figure identical to the FY2009 level. The FY2010 appropriation was higher─$5.0 million. State and Tribal Wildlife Grants help fund efforts to conserve species (including nongame species) of concern to states, territories, and tribes. The grants have generated considerable support from these governments. The program was created in the FY2001 Interior appropriations law ( P.L. 106-291 ) and further detailed in subsequent Interior appropriations laws. (It has no separate authorizing statute.) Funds may be used to develop state conservation plans as well as to support specific practical conservation projects. A portion of the funding is set aside for competitive grants to tribal governments or tribal wildlife agencies. The remaining portion is for grants to states. A state's allocation is determined by formula. The Administration's request for FY2010 was $115.0 million, an increase over the $75.0 million for FY2009. The $40.0 million increase (53%) was proposed for states and tribes to incorporate climate change adaptation strategies into state wildlife action plans and to implement adaptation projects. See Table 4 , above. Congress appropriated $90.0 million, but did not provide the requested $40.0 million in additional funds for climate change activities. The Senate Appropriations Committee asserted that the states already had authority to address climate change within the existing program. In addition, the FY2010 appropriations law included language reducing the required state match from 50% to 25% for planning grants. It also reduced the required state share of implementation grants from 50% to 35%. This program provides grants to states on a formula basis for activities to benefit hunters and hunting related programs. It is currently funded by an excise tax on hunting equipment, and the receipts are available without further appropriation. As a result, while the program has existed for over 70 years, it normally does not appear in annual appropriations bills. However, this year the Administration's request included $28.0 million in discretionary spending for hunter education, training, and outreach to young people, especially those in traditionally under-represented groups such as minorities and urban youth. Participation in hunting among young people in these groups has been dropping for years. The new effort was intended to reduce this decline. Congress did not appropriate funding for this program for FY2010. The Senate Appropriations Committee held that sufficient funding for hunter and angler education programs is provided elsewhere. For FY2010, the Interior appropriations law provided total National Park Service (NPS) appropriations of $2.74 billion. The House, Senate, and Administration had supported increases over the FY2009 omnibus appropriation of $2.53 billion. With FY2009 stimulus appropriations of $750.0 million, total FY2009 funding was $3.28 billion. See Table 6 . The NPS administers the National Park System—391 units covering 85 million acres—to protect, preserve, and interpret the system's many, diverse natural and historic areas. The NPS also supports and promotes some resource conservation activities outside the park system through limited grant and technical assistance programs and cooperation with partners. For the Operation of the National Park System account in FY2010, the Interior appropriations law provided $2.26 billion. The House, Senate, and Administration all supported increases over the FY2009 omnibus appropriation for the account ($2.13 billion), but less than the total FY2009 funding ($2.28 billion) including the additional $146.0 million in the stimulus law. See Table 6 . This line item is the primary source of funding for the national parks, accounting for more than 80% of the total NPS budget. The majority of operations funding is provided directly to park managers for the activities, programs, and services essential to the day-to-day operations of the park system, and covers resource stewardship, visitor services, facility operations and maintenance, and park support programs, as well as administrative expenses. Within this account, the FY2010 Interior appropriations law provided $10.0 million for NPS climate change activities. FY2010 funding for the U.S. Park Police (USPP) was provided within the park protection sub-account of NPS Operations. The FY2010 Interior appropriations law appeared to provide $102.6 million for the USPP. The USPP is a law enforcement entity with primary jurisdiction at park sites in Washington, DC, New York City, and San Francisco. The USPP also assists law enforcement rangers in park units system-wide, as well as other law enforcement agencies during emergencies. For the "signature projects matching program," the funding for FY2010 was $15.0 million. This consisted of an appropriation of $5.0 million and the use of $10.0 million in carryover balances from the recreational fee program. The signature projects matching program was developed to help refurbish and prepare the National Park System for its 100 th anniversary in 2016. It was intended as a way to leverage private donations for certain park projects. Under the FY2010 Interior appropriations law, not less than 50% of the cost of each project is to be derived from non-federal sources. The Administration had sought $25.0 million for signature projects. While the House originally had supported this request, the Senate originally did not approve funds for signature projects. Further, no money was appropriated for this purpose in FY2009. In its report on the FY2010 appropriations bill, the conferees directed the Park Service to report, within 90 days, on the status of earlier projects and the criteria to be used to select new ones. The conferees on the FY2010 appropriations bill expressed concern with the Park Service's "ineffective management of its recreation fee revenues which has led to high unobligated carryover balances over many years. It is clear that dramatic changes are needed to address this problem." They conveyed that in response to congressional concern, the agency has developed a plan to "aggressively reduce" the carryover balance of more than $270.0 million (at the outset of FY2009). They noted that the Park Service has authority under law to reduce the amount of fees retained at any park unit from 80% to 60%, and encouraged the agency to use this authority to meet its goal of a carryover balance of not more than $80.0 million by January 2011. This was intended to redirect funds away from park units with the largest collections to important projects that can begin quickly. For National Recreation and Preservation (NR&P) in FY2010, the Interior appropriations law provided $68.4 million, a sizeable increase over the FY2009 level ($59.7 million) and the FY2010 requested level ($53.9 million). NR&P funds a variety of park system activities, including natural and cultural resource protection programs, environmental and compliance and review, and an international park affairs office, as well as programs providing technical assistance to state and local community efforts to preserve natural, historic, and cultural resources outside the National Park System. The FY2010 law included $5.9 million for statutory and contractual aid, slightly higher than the FY2009 level ($5.6 million). The Obama Administration proposed discontinuing funding, as had the Bush Administration. This program provides limited financial assistance through partnerships to a variety of areas not managed by the NPS, in support of NPS efforts with other organizations to promote systems of parks and open space nationwide. The appropriation for heritage partnership programs was $17.8 million. The Administration had sought to maintain the FY2009 level of $15.7 million. The program supports national heritage areas (NHAs), which are neither owned nor managed by the NPS. Appropriators have expressed concerns about the expanding numbers of NHAs, and have favored funding new areas principally by savings when mature programs graduate from federal support. The FY2010 law also included a provision to allow a private property owner within an NHA to opt out of participating in any plan, project, program, or activity conducted within the area. For "Preserve America," the FY2010 appropriation was $4.6 million. This matching grant program supports preservation efforts through heritage tourism, education, and historic preservation planning. The Historic Preservation Fund (HPF), administered by the NPS, provides grants-in-aid for activities specified in the National Historic Preservation Act (NHPA; 16 U.S.C. § 470), such as restoring historic districts, sites, buildings, and objects significant in American history and culture. The Fund's preservation grants are normally funded on a 60% federal and 40% state matching share basis. The HPF also includes funding for Save America's Treasures, a grant program for preservation and/or conservation work on nationally significant intellectual and cultural artifacts and historic structures and sites . For FY2010, the appropriations law provided $79.5 million for the HPF, $10.5 million more than the FY2009 omnibus appropriation of $69.0 million and $1.8 million more than the Administration's request. See Table 6 . The law provided $46.5 million for grants to states and $8.0 million for tribal preservation grants, as requested. The increases of $4.0 million in the state grant program and $1.0 million in the tribal grant program over FY2009 amounts were requested to assist with an escalation in Section 106 compliance reviews, due to the number of infrastructure projects funded through the stimulus law. For FY2010, the law included $25.0 million for Save America's Treasures, $5.0 million more than the FY2010 request and FY2009 appropriations. Of the $25.0 million, $10.2 million was allocated for 52 specific projects. The FY2010 Interior appropriations law moved the Preserve America program from the HPF to the National Recreation and Preservation account (see above). The FY2010 appropriation for NPS construction was $233.0 million. This was a $27.0 million increase over the Administration's request of $206.0 million and about level with the FY2009 omnibus appropriation of $232.5 million. An additional $589.0 million in stimulus funds was enacted for FY2009. The Construction line item funds new construction projects, as well as improvements, repair, rehabilitation, and replacement of park facilities. It also funds general management planning, including the special resource studies that evaluate potential park system additions. Additional funding also is provided for NPS road construction and repair through the Federal Lands Highway Program of the Federal Highway Administration. The Construction line item also includes an unspecified amount of funding for addressing deferred maintenance, a continuing NPS concern. While the NPS has improved inventory and asset management systems, the estimate of its deferred maintenance backlog has continued to mount. DOI estimates deferred maintenance for the NPS for FY2008 at between $8.23 billion and $12.11 billion, with a mid-range figure of $10.17 billion. The addition of $589.0 million for NPS construction from the stimulus law may begin to reverse the trend. For Land Acquisition and State Assistance in FY2010, the Interior appropriations law provided a total of $126.3 million, a sizeable increase over FY2009 appropriations of $64.2 million and the Administration's FY2010 request of $98.0 million. Funding for both NPS land acquisition and state assistance comes from the Land and Water Conservation Fund (LWCF). For NPS land acquisition, the law provided $86.3 million. Land acquisition funds are used to acquire lands, or interests in lands, for inclusion within the National Park System. For LWCF state assistance, the law contained $40.0 million. State assistance is for recreation-related land acquisition and recreation planning and development by the states, with the appropriated funds allocated among the states by formula and the states determining their spending priorities. (For more information, see " The Land and Water Conservation Fund (LWCF) ," below.) The U.S. Geological Survey (USGS) is a science agency that provides physical and biological information related to natural hazards; geological resources; and energy, mineral, water, and biological sciences. In addition, it is the federal government's principal civilian mapping agency and a primary source of data on the quality of the nation's water resources. Funds for the USGS are provided in the line item Surveys, Investigations, and Research for eight activities: Geographic Research, Investigations, and Remote Sensing; Geologic Hazards, Resources, and Processes; Water Resources Investigations; Biological Research; Enterprise Information; Science Support; Facilities; and Global Climate Change Research. The FY2010 Interior appropriations law provided $1.11 billion for the USGS, which was $67.9 million above the FY2009 omnibus appropriation of $1.04 billion. An additional $140.0 million in stimulus funding was appropriated for FY2009. The FY2010 appropriation also was $13.9 million over the Administration's request, $5.9 million over the original House-passed level, and $7.4 million over the original Senate-passed level. For all eight USGS activities, the FY2010 law provided more funding than FY2009 omnibus appropriations. See Table 7 . The FY2010 law provided new funding to address several DOI-wide programs, including the 21 st Century Youth Conservation Corps and Climate Impacts in the Arctic. Further, it reflected the Administration's proposal to transfer the National Geospatial Program from the Enterprise Information activity to the Geographic Research, Investigations, and Remote Sensing activity. Table 7 and discussions below reflect this change. This activity aims to provide public access to high-quality geospatial information. For this activity, the FY2010 Interior appropriations law provided $145.6 million, $3.5 million above the FY2009 enacted level of $142.1 million. The law transferred the National Geospatial Program to this activity as requested by the Administration and included in the House- and Senate-passed bills. This program provides operational support and management for the Federal Geographic Data Committee (FGDC). The FGDC is an interagency, intergovernmental committee that encourages collaboration to make geospatial data available to state, local, and tribal governments as well as communities. The law included $63.7 million for the Land Remote Sensing Program for FY2010, $2.0 million over the FY2009 enacted level of $61.7 million. This program supports the Landsat satellite series. Landsat 8 is a satellite that is being developed to take remotely sensed images of the Earth's land surface and surrounding coastal areas primarily for environmental monitoring. Landsat 5 and 7 are satellites currently providing data of the Earth's natural systems. For Geologic Hazards, Resources, and Processes activities, the FY2010 law contained $249.1 million for this program, $7.0 million over the FY2009 enacted level. These activities provide earth science information for a wide variety of partners and customers, including federal, state, and local agencies, non-government organizations, industry, and academia. This activity includes funds for geological hazards assessments such as of earthquakes, volcanoes, and landslides. The law included $92.8 million for geological hazards assessments, an increase of $2.2 million over the FY2009 level. Hazard assessments cover geologic landscape and coastal assessments as well as geologic resource assessments. The law also provided $4.0 million for developing plans for seafloor mapping expeditions of the continental shelf and a data management infrastructure for this effort. This work is being done through an interagency task force and is important for establishing claims as Arctic ice melts and opens up sea lanes near the polar regions. The FY2010 appropriation for water resources investigations was $232.3 million, $10.9 million over the FY2009 enacted level. The Water Resources activity supports water research and monitoring activities that address issues such as water availability, water quality, and flood and drought hazards. The Hydrologic Monitoring, Assessments, and Research subactivity includes six programs exclusively funded from federal appropriations. The programs are: groundwater resources, National Water-Quality Assessment Program (NAWQA), toxic substances hydrology, hydrologic research and development, National Streamflow Information Program (NSIP), and Hydrologic Networks and Analysis (HNA). These programs are primarily research oriented, with the exception of NSIP and portions of HNA, which focus on long-term data collection; and NAWQA, which provides status and trends information on water quality conditions across the nation. The FY2010 law provided $160.2 million for this activity, $9.5 million over the FY2009 enacted level. The increase reflects the aim to enhance the National Streamgage Network in support of climate change monitoring, among other activities. This effort tracks the flow of water and associated components in rivers and streams throughout the nation. It has 7,500 gages and is funded in partnership with over 800 federal, state, and local agencies. The increase was intended to re-establish up to 50 streamgages that were discontinued, primarily due to funding constraints. Another $1.0 million was included for the on-going U.S.-Mexico Transboundary Aquifer Assessment Program, which was not included in the Administration's request. The Biological Research Program generates and distributes information related to conserving and managing the nation's biological resources. The FY2010 Interior appropriations law contained $204.9 million for this activity, $19.6 million above the FY2009 enacted level. The law increased biological research and monitoring, including $5.0 million for scientific studies and analysis to support Fish and Wildlife Service efforts to prepare refuges and assist species for adapting to climate change, and $4.2 million for studying species at risk due to changing arctic ecosystems. Loss of arctic sea ice and terrestrial permafrost-supported habitats have potentially negative consequences for polar bears and other species and ecosystems in the Arctic region. The increase in funding would support a strategic expansion of the physical-biological forecasting capacity of USGS in the Arctic region. The conferees on the FY2010 bill encouraged the USGS to conduct further research and analyses on the interaction of endocrine disrupters on water quality and fish development. In addition, the House Appropriations Committee expressed concern over wildlife diseases, such as viral hemorrhagic septicemia─a fatal disease for fish; chytrid disease─which affects amphibians; and whitenose syndrome─which is fatal for cave-dwelling bats. The Enterprise Information activity consolidates funding of all USGS information needs including information technology, security, services, and resources management, as well as capital asset planning. The FY2010 appropriation was $46.0 million for this activity, $3.3 million over the FY2009 enacted level. Science Support focuses on costs associated with modernizing the infrastructure for managing and disseminating scientific information. The FY2010 law provided $69.2 million for this activity, $1.8 million above the FY2009 enacted level. Facilities focuses on the costs for maintenance and repair. The law contained $106.4 million for this activity, $4.3 million above the FY2009 enacted level. The FY2009 omnibus appropriations law combined most climate change activities of the USGS into an integrated global climate change research program. The FY2010 Interior appropriations law included $58.2 million for this activity, $17.5 million above the FY2009 enacted level. The climate change research program seeks to provide science, monitoring, and predictive modeling to generate information on climate change and its effect on the resources and landscape of the United States. Specifically for FY2010, scientists would continue to track indicators of climate change and link them to effects. Further, work is planned to develop decision support tools for policy makers and resource managers to develop and implement adaptation strategies. Of the $17.5 million increase, $5.0 million would be for the National Climate Change and Wildlife Science Center (NCCWSC). The Center would receive a total of $15.0 million for FY2010, according to the conference report on the FY2010 bill. The Center supports research, assessment, and synthesis of global climate change data for research managers of species and habitats. Further, it aims to evaluate global climate change models that are at scales useful for stakeholders. According to the conference report, locations for the regional centers under the NCCWSC are to be selected through a collaborative process that engages other federal, state and tribal agencies, universities, and other partners. The conference report also stated that the NCCWSC should serve as a model for implementing an integrated approach to climate change science and adaptation by the DOI. Another $7.0 million of the increase would be for research on geologic carbon sequestration (total funding was $10.0 million). USGS would use these funds to conduct studies and activities to begin the development of a National Assessment of Geological Storage Capacity for Carbon Dioxide. The Minerals Management Service (MMS) administers two programs: the Offshore Energy and Minerals Management (OEMM) Program and the Minerals Revenue Management (MRM) Program. OEMM administers competitive leasing on submerged lands in the Outer Continental Shelf (OCS) and oversees production of offshore oil, gas, other minerals, and offshore alternative energy. On April 22, 2009, the Obama Administration announced that regulations for the administration of alternative energy leases in the OCS had been finalized. MRM collects and disburses bonuses, rents, and royalties paid on federal onshore and OCS leases and Indian mineral leases. Revenues from onshore leases are distributed to states in which they were collected, the general fund of the U.S. Treasury, and designated programs. Revenues from offshore leases are allocated among coastal states, the Land and Water Conservation Fund, the Historic Preservation Fund, and the Treasury. MMS disbursed about $10.7 billion in FY2009 from mineral leases on federal and Indian lands, down from $23.5 billion in FY2008. This amount fluctuates annually based primarily on the prices of oil and natural gas. For about a decade prior to FY2007, royalties from natural gas production accounted for 40% to 45% of annual MMS receipts, while oil royalties were not more than 25%. However, in FY2007, oil royalties accounted for about 39% of MMS receipts. In FY2009, royalties from natural gas and oil leases contributed 29% and 41% respectively of total MMS receipts. Other sources of MMS receipts include bonus bids and rents for all leasable minerals and royalties from coal and other minerals. The FY2010 appropriation for MMS was $348.2 million (gross funding level), slightly higher than the $347.4 million requested by the Administration. However, the FY2010 appropriation was significantly higher than the FY2009 funding level of $310.4 million, primarily because of a new subactivity for renewable energy programs for FY2010. The FY2010 funding level was composed of: $136.5 in appropriations (net funding level); $45.0 million in cost sharing deductions; and $166.7 million in offsetting collections (which the MMS has been retaining since 1994). The offsetting collections included $10.0 million in new inspection fees. See Table 8 . The new subactivity on renewable energy programs had been proposed by the Administration at $21.4 million, and was supported by both the House and the Senate. The MMS already has created a new Office of Offshore Alternative Energy Programs to develop and implement its offshore renewable energy policies and comply with departmental goals. MMS expects to initiate its offshore renewable energy leasing program in the North Atlantic and Mid-Atlantic states in FY2010. The FY2010 Interior appropriations law reflected new inspection fees that the Administration had proposed. The Administration also had sought to impose an excise tax on certain OCS production (related to those leases without price threshold levels), impose fees on non-producing leases (as a disincentive to hold those leases with no prospect for development), repeal the royalty relief provisions, and review the royalty rate structure with the intention of making rate reforms and adjustments. These additional fees and royalty-related provisions were not contained in the law. Issues not directly tied to specific funding accounts remain controversial and were debated during consideration of the FY2010 Interior appropriations bill. Oil and gas development moratoria in the OCS along the Atlantic and Pacific Coasts, parts of Alaska, and the Gulf of Mexico had been in place since 1982, as a result of public laws and executive orders of the President. On July 14, 2008, President Bush lifted the executive moratoria, which included MMS Planning areas along the Atlantic and Pacific coasts. On September 30, 2008, moratoria provisions in annual appropriations laws expired, allowing these areas to potentially open for oil and gas leasing activity. Whether to lift the remaining moratorium in the eastern Gulf of Mexico under the Gulf of Mexico Energy Security Act (in P.L. 109-432 ) is controversial. This moratorium placed nearly all of the eastern Gulf under a leasing moratorium until 2022. The law also contained revenue sharing provisions for selected coastal states. Congressional proposals to lift the moratorium are supported in some quarters as an attempt to increase domestic oil and gas supply. Others favor continuing the moratorium due to concerns about adverse economic and environmental impacts of development. Those in favor of the moratorium maintain that there already are several thousand leases in the central and western parts of the Gulf of Mexico that are unexplored or in development and could potentially yield significant oil and natural gas. Issues related to the MMS five-year leasing program also were debated. The current MMS five-year leasing program is in effect, despite the April 17, 2009, order by the U.S. Court of Appeals for the D.C. Circuit to vacate and remand the 2007-2012 program. However, after clarification from the court, the decision would affect only the Alaska lease sales in the five-year program. In response to the court order, the Department of the Interior is in the process of conducting a more thorough environmental analysis of certain areas of the OCS. In addition, the Bush Administration had initiated a new leasing program in August 2008. Its draft program proposal published in January 2009, if finalized, would take effect in 2010. The Obama Administration, however, extended the comment period from its typical 60 days to 240 days. The extended comment period closed on September 21, 2009. Because of the uncertainty over resource assessments and environmental concerns, the Secretary of the Interior announced that the Department will continue to examine more closely the current information on the OCS. In April 2009, the Administration published a report on OCS resources that identified resource data gaps. Also, the conferees on the FY2010 Interior appropriations bill directed the MMS to complete a programmatic environmental impact statement (PEIS) for the Atlantic OCS and provide a timeline for completion no later than 90 days after enactment of the bill. Royalty relief for OCS oil and gas producers has been debated during consideration of Interior appropriations bills. The MMS has not been collecting royalties on leases awarded in 1998 and 1999 because price thresholds were inadvertently excluded from the lease agreements during those two years, according to a report issued by DOI's Inspector General. Without the price thresholds, producers may produce oil and gas up to specified volumes without paying royalties no matter what the price. The MMS asserts that placing price thresholds in the lease agreements is at the discretion of the Secretary of the Interior. In addition, the authority of the Secretary to impose price thresholds has come into question in a lawsuit filed by Kerr-McGee. On January 12, 2009, a three-judge panel of the 5 th U.S. Circuit Court of Appeals in New Orleans upheld a District Court decision in favor of Kerr-McGee, meaning that the Secretary of the Interior did not have authority to impose price threshold levels in leases issued under the Deep Water Royalty Relief Act (DWRRA, 1996-2000). On July 13, 2009, the Administration petitioned the U.S. Supreme Court to review the decision of the U.S. Court of Appeals. On October 5, 2009, the Supreme Court rejected the Administration's appeal. The ruling of the U.S. Court of Appeals could potentially apply to $23-$31 billion in future OCS royalties according to the MMS, but may not affect congressional efforts to impose new fees or establish new lease eligibility criteria. The Government Accountability Office (GAO) estimates the range of royalty revenue loss to the Treasury at $21-$53 billion over 25 years. The ranges of MMS and GAO estimated losses are based on assumptions including future prices and production rates. Another challenge confronting the MMS is to ensure that its audit and compliance program is consistently effective. Critics contend that less auditing and more focus on compliance review has led to a less rigorous royalty collection system and thus a loss of revenue to the federal Treasury. DOI's Inspector General has made recommendations to strengthen and improve administrative controls of the Compliance and Asset Management Program, including to adopt a risk-based compliance approach. According to the MMS, its FY2010 budget request reflected the agency's commitment to this approach. Further, DOI established an independent panel (the Royalty Policy Committee, or RPC) to review the MMS Mineral Leasing Program. The RPC offered over 100 recommendations to the MMS for improving its leasing program and auditing function. The review included an examination of the Royalty-in-Kind (RIK) Program, which grew significantly from 41.5 million barrels of oil equivalent (BOE) sold in 2004 to 112 million BOE sold in 2007. GAO issued a report on September 26, 2008, concluding that the RIK Program could be improved. After review of the RIK program, the Secretary of the Interior announced its "phased-in termination." The Surface Mining Control and Reclamation Act of 1977 (SMCRA, P.L. 95-87 ; 30 U.S.C. § 1201 note) established the Office of Surface Mining Reclamation and Enforcement (OSM) to ensure that land mined for coal would be returned to a condition capable of supporting its pre-mining land use. However, coal mining is an old activity in the United States, and at the time SMCRA was enacted there was a large inventory of abandoned mine sites that no company could be held accountable to reclaim. To address this problem, SMCRA established an Abandoned Mine Reclamation Fund, with fees levied on coal production, to reclaim abandoned sites that posed serious health or safety hazards. Monies accrue to the AML fund based on fees assessed on coal production. Through FY2007, disbursements from the AML fund to states and tribes, to reclaim abandoned sites, were determined strictly by annual appropriations. However, beginning with FY2008, under P.L. 109-432 , funding for state and tribal grants has been provided by both annual appropriations from the AML fund, and mandatory appropriations from general U.S. Treasury funds. Other activities exclusively receive annual appropriations. Among these are the expenses of federal AML programs in states with no OSM-approved reclamation programs, an emergency reclamation program, OSM administrative expenses, and the Clean Streams program. The addition of mandatory appropriations addressed the contention of western states that they were shouldering a disproportionate share of the reclamation expense because production had moved westward, but the great majority of the sites requiring remediation are in the East. Fee collections exceeded appropriations for a number of years. The total unappropriated balance—including allocations to federal and state share accounts that make up the total balance in the AML fund—was over $2.2 billion at the end of November 2008. Western states pressed for increases in the AML appropriations to return to them more of the unappropriated balances allocated to their state share accounts. Under the restructuring of the program established in P.L. 109-432 , the unappropriated balance of AML collections that had been allocated to state- and tribal-share accounts is being returned in seven annual installments from general Treasury funds to those states and tribes that had completed remediation of the highest priority sites. These states and tribes, referred to as "certified," also have been receiving those grants to which they are entitled, under a formula, from prior year collections. However, in its FY2010 budget proposal, the Administration expressed its intention to seek an end to these payments to certified states and tribes, asserting that because these funds can be used for any purpose, these distributions are inconsistent with the intent of the AML program. As these payments are made from the mandatory appropriations, the Administration's proposal will require a change in law, which is strongly opposed by the states and tribes that would be affected. Legislation to do so has not been introduced. The House approved the Administration's request for a total of $159.4 million for OSM in FY2010, while the Senate approved total OSM funding of $166.9 million. The enacted bill set total funding for FY2010 at $162.9 million, between the House and Senate levels. The House and Senate had agreed to the Administration's proposal of $127.3 million for Regulation and Technology, a $7.0 million increase over FY2009 appropriations. Most of the increase for Regulation and Technology was sought for state and tribal regulatory programs. The FY2010 Interior appropriations law included $127.3 million for Regulation and Technology. The House-passed bill set spending from the AML fund at $32.1 million, agreeing with an Administration proposal to end the program supporting federal emergency projects, and the provision of emergency grants to states and tribes. The Administration expected that funds from the mandatory appropriations would fully cover the expense of these programs. The Senate disagreed with the elimination of funding for federal and state emergency grants, and approved $39.6 million from the AML fund. This was $7.5 million over the Administration's request and House-passed level of $32.1 million. The FY2010 Interior appropriations law set spending from the AML fund at $35.6 million. This represented an increase of $3.5 million over the Administration's request and a decrease of $8.9 million from the FY2009 enacted level (net of an $8.5 million rescission in FY2009). Neither the FY2010 Interior appropriations law nor the accompanying conference report specified whether funding was included for federal and state emergency grants. See Table 9 . The Bureau of Indian Affairs (BIA) provides a variety of services to federally recognized American Indian and Alaska Native tribes and their members, and historically has been the lead agency in federal dealings with tribes. Programs provided or funded through the BIA include government operations, courts, law enforcement, fire protection, social programs, roads, economic development, employment assistance, housing repair, irrigation, dams, Indian rights protection, implementation of land and water settlements, and management of trust assets (real estate and natural resources). Education programs are now provided by the Bureau of Indian Education (BIE), a sister agency to BIA. The BIE appropriations remain within DOI's Indian Affairs appropriations. For FY2010, the Interior appropriations law contained $2.62 billion for BIA and BIE, an increase of $26.6 million (1%) over the Senate-passed amount, $60.9 million (2%) over the House, $82.2 million (3%) over the Administration's proposal, and $243.4 million (10%) over the FY2009 omnibus appropriations. The FY2009 stimulus law added $500.0 million in appropriations for the BIA, yielding total FY2009 appropriations of $2.88 billion. The stimulus law targeted $450.0 million toward BIA "priority critical" construction programs, specifically for road repair and restoration, construction of BIE replacement schools, and maintenance and repair of BIE schools and BIA detention centers, according to the explanatory statement. Of the remaining $50.0 million, the stimulus law specified $40.0 million for BIA's workforce training and housing improvement programs and $10.0 million for BIA's guaranteed loan program. Table 10 , below, presents funding figures for FY2009 and FY2010. Key programs for BIA include law enforcement, Indian land consolidation, and the Interior Department's process for acknowledging Indian tribes. BIE's key programs include education improvement, forward funding for tribal colleges, and education construction. BIA and Justice Department figures show rising crime rates, methamphetamine use, and juvenile gang activity on some Indian reservations. The federal government has lead jurisdiction over major criminal offenses on most Indian reservations, although in some states federal law has transferred criminal jurisdiction to the state. Tribes share jurisdiction, although under federal law tribal courts have limited sentencing options. BIA funds most law enforcement, jails, and courts in Indian country, whether operated by tribes or by the BIA. Currently, BIA supports 191 law enforcement agencies, 91 detention programs, and 288 court systems. In general, tribes and BIA have fewer law enforcement resources than comparable state and local jurisdictions. In policing, for instance, an independent 2006 analysis, adjusted by BIA for geographic comparability, showed that many BIA and tribal law enforcement agencies had fewer law officers per inhabitant than recommended by the Justice Department. Currently only 60% of BIA-funded law enforcement agencies have enough law enforcement officers to meet Justice's recommended ratio of 26 officers per 100,000 inhabitants. Further, detention and corrections facilities funded by BIA have significant shortfalls in staffing, training, operating procedures, reporting, and maintenance, according to a 2004 Interior Inspector General report. For BIA law enforcement , for FY2010 the appropriations law provided $303.2 million, the same as the Senate-passed amount and an increase of $20.0 million (7%) over the amount proposed by the Administration and passed by the House, and an increase of $48.1 million (19%) over the FY2009 omnibus appropriation. The $20.0 million increase was under the authorization of the Emergency Fund for Indian Safety and Health and was directed chiefly to criminal investigations and police services ($10.0 million increase above the House and Administration amount) and detention and corrections ($5.0 million increase), but also included added funding for police training. The Administration's request had included increases over FY2009 for criminal investigations and police services, chiefly to fund hiring more BIA and tribal law officers. Operation of detention and corrections facilities would receive $70.4 million under the Administration request for FY2010, an increase of $5.8 million (9%) over FY2009, for additional correctional officers, staffing of new facilities, and development of armed transport officer teams. Congress appeared to agree with these allocations. For tribal courts , whose BIA appropriations are separate from law enforcement, the Interior appropriations law contained $24.7 million, the same as the Senate and an increase of $5.0 million (25%) over the amount passed by the House and proposed by the Administration, and an increase of $10.2 million (70%) over FY2009. The increase was authorized under the Emergency Fund for Indian Safety and Health. The Administration's request had included increases over FY2009 for development and implementation of corrective action plans to improve nine individual tribal courts. In addition, under the Administration's proposal, the Tribal Justice Support item, under BIA law enforcement, would receive an additional $4.2 million (an increase of 290%), of which $3 million would be for the development of corrective action plans for an additional 6 tribal courts. Congress appeared to agree with these allocations. The purpose of the Indian land consolidation program is to reduce the fractionation of ownership of individual Indian trust lands—and the consequent multiplication of individual Indian trust accounts that the federal government must administer—by purchasing small ownership interests in individual trust lands and transferring the interest to the relevant Indian tribe (or to a holder of a large interest in the land). The land consolidation program was first funded in FY1999 in the Office of the Special Trustee for American Indians (see " Office of the Special Trustee for American Indians " below). The FY2009 omnibus appropriations law did not fund Indian land consolidation. See Table 10 . For FY2010, Congress agreed with the Administration's proposal to transfer the program to the BIA, with an appropriation of $3.0 million. The Bush Administration had not sought funding for FY2009, contending that the Indian land consolidation program had failed to reduce either the fractionation of ownership or the costs of trust management. The Obama Administration had stated that the FY2010 funding was for maintaining the program and developing alternative means of reducing fractionation. Federal recognition brings an Indian tribe unique benefits, including partial sovereignty, jurisdictional powers, and eligibility for federal Indian programs. Tribes have been acknowledged in many ways, but it was not until 1978 that the Interior Department established a regulatory process for acknowledgment decisions (25 CFR 83). First located within BIA, the recognition office is now in the office of the Assistant Secretary—Indian Affairs and is known as the Office of Federal Acknowledgment (OFA). OFA employs teams of professional ethnohistorians, genealogists, and anthropologists to consider recognition petitions. The OFA process has often been criticized for taking too long, one reason for which is a lack of resources. Tribes approaching Congress for acknowledgment legislation often cite as one reason the length of time the OFA process takes. The Administration's FY2010 proposal for the Executive Direction and Administrative Services budget activity, which funds the Assistant Secretary's office and hence OFA, included $2.7 million for OFA. This would be an increase of $58,000 (2%) over the FY2009 omnibus law, and would fund the same number of OFA professional employees as FY2009. Congress agreed with the Administration's proposed amount for FY2010. BIE funds an elementary-secondary school system and higher education programs. The BIE school system comprises 184 BIE-funded schools and peripheral dormitories, with over 2,000 structures, educating about 44,000 students in 23 states. At the beginning of school year 2008-2009, tribes and tribal organizations, under grants for tribally controlled schools and self-determination contracts, operated 124 of these institutions; BIE operated the remainder. BIE also operates two postsecondary schools and provides grants to 26 tribally controlled colleges and two tribally controlled technical colleges. Key problems for the BIE-funded elementary-secondary school system are low student achievement and the high proportion of schools failing to make adequate yearly progress (AYP). Key appropriations issues include increased formula funding to help meet AYP, forward funding for tribal colleges, and the large number of inadequate school facilities. In school years 2003-2007, 68%-70% of BIE-funded schools failed to make AYP, according to BIE. The chief source of BIE funding for school operations is the Indian School Equalization Program (ISEP) formula grant program, within the elementary/secondary education (forward-funded) budget activity. For FY2010, the Administration proposed $391.7 million in ISEP formula funding, an increase of $16.7 million (4%) from FY2009 omnibus appropriations. The FY2010 increase would be used for textbooks, classroom materials, equipment, and additional education specialists. Congress approved the Administration's proposal for ISEP. In addition, the House Appropriations Committee required BIE to report on the fiscal impact of restoring to the BIE system those schools removed from the system between 1951 and 1972. BIE administers operating grants authorized by the Tribally Controlled College or University Assistance Act, which is the major DOI funding source for 26 tribally chartered and controlled two-year, four-year, and graduate institutions of higher education. According to BIE, tribal college administrators have requested a change in funding distribution because the disjunction between school years (July 1-June 30) and fiscal years (October 1-September 30) made planning difficult and exacerbated financial insecurity. The Administration proposed to shift fiscal-year funding so as to fund the school year that begins during the same fiscal year as the appropriation. To do so would require a one-time advance appropriation for school year 2010-2011, in addition to the regular funding for school year 2009-2010. The Administration requested $50.0 million for the one-time appropriation to start forward funding for tribal colleges, and Congress agreed. Many BIE school facilities are old and dilapidated, with health and safety deficiencies. BIA education construction covers replacement of all of a school's facilities, or replacement of individual facilities at schools, as well as improvement and repair of existing school facilities and repair of education employee housing. School facilities are replaced or repaired according to priority lists. For FY2010, the Interior appropriations law contained $113.0 million for BIA education construction, the same as the Senate and House amounts and the Administration's request, and a decrease of $15.8 million (12%) from FY2009 omnibus appropriations. This decrease was contained in the budget for replacement school construction, for which $6.0 million was appropriated for FY2010, a reduction of $16.4 million (73%) from the FY2009 omnibus. The Administration had asserted that the reduction allowed the agency to focus on stimulus-funded construction. Under the stimulus law, BIA education construction received an additional $277.7 million, for a total of $406.5 million for education construction in FY2009. See Table 10 . Of the stimulus-act funding, replacement school construction received $134.6 million, for a total of $157.0 million for FY2009. OIA provides financial assistance to four insular areas—American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the U.S. Virgin Islands (USVI)—as well as three freely associated states in the Western Pacific—the Federated States of Micronesia (FSM), the Republic of the Marshall Islands (RMI), and the Republic of Palau. OIA staff manage relations between each jurisdiction and the federal government and work to build the fiscal and administrative capacity of local governments. OIA aid can be particularly important to the insular areas, which have experienced recent fiscal challenges. OIA funding also could support the ongoing strengthening of U.S. military forces on Guam. OIA funding consists of two parts: (1) permanent and indefinite appropriations, and (2) funds provided in the annual appropriations process (discretionary and current mandatory funds). The latter comes from two accounts: Assistance to Territories (AT) and Compact of Free Association (CFA). AT funding provides grants for the operation of the government of American Samoa, infrastructure improvement projects on many of the insular area islands, and specified natural resource initiatives. The CFA account provides federal assistance to the freely associated states pursuant to compact agreements negotiated with the U.S. government. The AT and CFA accounts, however, provide a relatively small portion of the office's overall budget; permanent and indefinite funds provide the bulk of U.S. financial assistance to U.S. insular areas, FSM, RMI, and Palau. The total OIA request (including permanent and indefinite annual appropriations) for FY2010 was $423.3 million. Of that amount, $336.9 million (80%) in permanent and indefinite funding is required through statutes, as follows: an estimated $207.9 million under conditions set forth in the respective Compacts of Free Association; and an estimated $129.0 million in fiscal assistance through payments to territories, divided between the U.S. Virgin Islands for estimated rum excise and income tax collections, and Guam for income tax collections. Discretionary and current mandatory funds in the AT and CFA accounts require annual appropriations that constitute the remainder of the OIA budget. The FY2010 Interior appropriations law provided $85.2 million in AT funding—1% more than the $84.0 million passed by the House and 5% more than the $81.1 million passed by the Senate. Of the $85.2 million appropriated, $75.9 million was to be reserved for various types of technical assistance to territories (e.g., grants supporting local governments and infrastructure projects), and $9.3 million is to be reserved for OIA salaries and expenses. The law also provided $5.3 million in CFA funds—the same amount requested and supported throughout the FY2010 appropriations process. The CFA appropriation provides funding for certain federal services, such as U.S. mail. In total, the FY2010 law appropriated $90.5 million in discretionary and current mandatory funds to OIA (AT and CFA accounts combined). This was a $6.5 million (8%) increase over the FY2009 level of $84.0 million. As is typical with OIA appropriations, the law provides that funding may be audited by the Government Accountability Office (GAO). Also, an "administrative provision" in the law would permit the Secretary of the Interior, at the request of the Governor of Guam, to transfer certain funds to the Secretary of Agriculture for rural development projects on the island. While this provision did not appear in the House-passed bill, the Senate-passed bill had included similar language. The Office of the Special Trustee for American Indians (OST), in the Secretary of the Interior's office, was authorized by Title III of the American Indian Trust Fund Management Reform Act of 1994. The OST generally oversees the reform of Interior Department management of Indian trust assets, establishment of an adequate trust fund management system, and support of department claims settlement activities related to the trust funds. OST also manages Indian funds directly, including operating the software systems and managing and archiving trust records (paper and electronic). Indian trust funds managed by OST comprise (1) tribal funds owned by over 250 tribes in approximately 2,700 accounts, with a total asset value over $3.0 billion; and (2) individual Indians' funds, known as Individual Indian Money (IIM) accounts, in about 380,000 accounts with a current total asset value over $440 million. The funds include monies received from claims awards, land or water rights settlements, and other one-time payments, and from income from land-based trust assets (e.g., land, timber, minerals), as well as from investment income. The Administration proposed $186.0 million for FY2010 for OST, an increase of $4.3 million (2%) over FY2009 omnibus appropriations. The FY2010 Interior appropriations law included this level. See Table 11 . Key issues for OST include balancing historical accounting expenditures for tribal and IIM accounts, and the possible effects of litigation involving IIM and tribal accounts (which may lead to significant awards against the United States). The transfer of the Indian land consolidation program from OST to BIA is discussed under " Bureau of Indian Affairs ," above. The historical accounting effort seeks to assign correct balances to all tribal and IIM accounts. Historical accounting activities are carried out through the Office of Historical Trust Accounting, which was transferred from the Interior Secretary's office to OST in July 2007. Appropriations for historical accounting usually have been made through OST. For FY2010, the Administration proposed limiting historical accounting to no more than $56.5 million, an increase of $91,000 (0.2%) from the FY2009 omnibus appropriation. Of the total, the Administration proposed reducing funds for IIM historical accounting to $31.5 million, a decrease of $8.5 million (21%) from FY2009, while increasing funds for tribal historical accounting to $25.0 million, an increase of $8.6 million (52%) over FY2009. Enacted FY2010 appropriations provided for no more than $56.5 million for historical accounting, as requested by the Administration. IIM and tribal historical accounting are both linked to litigation against the United States by IIM account holders and by Indian tribes (see " Litigation ," below). Early expenditures for historical accounting were almost entirely for IIM litigation, but in recent years an increase in tribal litigation has led to a shift in expenditures to tribal historical accounting. IIM historical accounting proved expensive and time-consuming, because of the large number of IIM accounts, the long historical period to be covered (some accounts date well back into the 19 th century), and a large number of missing account documents. OST's IIM historical accounting is based on a plan developed in 2003 and last revised in 2007. OST estimated in 2008 that its IIM plan would cost a total of $271 million and would be completed in FY2011 if funded at $40 million per year. IIM historical accounting is subject not only to executive and congressional actions but also to court rulings in the IIM suit, Cobell v. Salazar (see " Litigation "), where plaintiffs strongly disagreed with OST's plan. In January 2008, the district court in the Cobell suit rejected OST's IIM historical accounting plan, finding that a historical accounting was impossible given insufficient congressional appropriations. The district court, however, ordered neither a new or revised IIM historical accounting process, nor a cessation of IIM historical accounting. On appeal, the appeals court in July 2009 reversed the finding that a historical accounting was impossible, and instead ordered the district judge "to enforce the best accounting that Interior can provide, with the resources it receives, or expects to receive, from Congress." Following the appeals court decision, the district court did not issue an order to OST regarding its IIM historical accounting activities; OST continues its IIM historical accounting. A settlement of the IIM suit was announced (see " Litigation ," below). If the settlement is approved by Congress and the court, OST may change its allocation of historical accounting appropriations between IIM and tribal historical accounting. Tribal historical accounting activities are based on numerous tribal suits, many filed at the end of 2006 in fear of an impending statute of limitations deadline. According to OST, currently 94 tribal trust fund and accounting suits have been filed by 116 tribes. Each suit may require not only historical accounting but also data provision, accounting analysis, and other litigation support, separate from other suits. The IIM trust funds case, Cobell v. Salazar , is a class-action lawsuit filed against the federal government in 1996 by IIM account holders in the Federal District Court for the District of Columbia. A settlement in the Cobell suit was announced by the plaintiffs and the federal government on December 8, 2009. Under this settlement, the United States will pay a total of $3.4 billion from the Treasury Department's "Judgment Fund" as compensation for the IIM historical accounting claim (and for potential trust asset mismanagement claims). Of this total, $1.4 billion is to be distributed to plaintiffs under a formula in the settlement agreement. The remaining $2.0 billion will be placed in a fund for the purchase of fractionated land interests from IIM account-holders, on a voluntary basis, in order to consolidate the interests and transfer them to tribes under the Indian Land Consolidation Act ( P.L. 97-459 , as amended). Under the settlement agreement, both Congress and the district court must approve the settlement. Estimates of the total owed by the United States for the Cobell case had varied. DOI had estimated the total owed to be in the low millions of dollars. The Cobell plaintiffs (using different methods) had made varying estimates of the total owed; the highest estimate was $176 billion and the most recent estimate was $48 billion. Settlement proposals had similarly varied. In 2005 the Cobell plaintiffs had proposed $27.5 billion as a settlement amount, and in the 109 th Congress Members of Congress had proposed $8 billion. On August 7, 2008, the district court ruled that the United States owed $455.6 million in restitution to the IIM plaintiffs. Both the plaintiffs and the defendants appealed the award. The appeals court vacated the award in July 2009, ruling that the IIM historical accounting should proceed before an award could be made and distributed. As noted, the amount in the new settlement agreement is $3.4 billion. Many OST activities are related to the IIM case, including litigation support activities in Cobell . The most significant issues for appropriations, other than historical accounting, had concerned the amount the federal government might need to pay to settle the litigation and bring IIM accounts to their proper balances, and whether such payment would jeopardize spending on other Indian programs. The use of the Judgment Fund to settle the Cobell case, instead of OST or BIA appropriations, would relieve this concern, as long as there is no requirement that the Judgment Fund be reimbursed. The Cobell settlement does not settle the numerous tribal trust fund and accounting suits, which may involve much larger potential costs of settlements. Cumulatively, tribal claims may total far more than the IIM claim, since the value of tribal accounts (currently $3 billion) has always been larger than the value of IIM accounts (currently $440 million). Hence the potential costs of tribal settlements may be far larger than the cost of the Cobell settlement. The EPA's primary responsibilities include the regulation of air quality, water quality, pesticides, and toxic substances; the regulation of the management and disposal of solid and hazardous wastes; and the cleanup of environmental contamination. EPA also distributes grants to assist states and local governments in complying with federal requirements to control pollution. For FY2010, the Interior appropriations law provided $10.29 billion for EPA, an increase above the $10.16 billion proposed by the Senate but less than the $10.46 billion proposed by the House and the $10.49 billion included in the President's FY2010 budget request. The FY2010 appropriation was 35% above the FY2009 omnibus appropriations of $7.64 billion for EPA. Including the additional $7.22 billion in FY2009 stimulus appropriations, Congress appropriated a total of $14.86 billion for EPA in FY2009. Table 12 presents funding levels proposed and enacted for FY2010 compared to appropriations enacted in FY2009 for the eight statutory accounts that fund EPA. Much of the attention focused on federal assistance for wastewater and drinking water infrastructure projects, environmental cleanup, and climate change research and related activities. There was also interest in the Great Lakes Restoration Initiative, a new initiative that expands EPA's and other agencies' existing efforts to restore this ecosystem. This section provides a discussion of selected EPA funding issues that received more prominent attention in the FY2010 appropriations debate. Certain EPA regulatory actions also received attention. For example, one provision of the Interior appropriations law prohibited EPA from using funds to issue a final rule that would include fuel sulfur standards applicable to existing steamships that operate exclusively within the Great Lakes and their connecting and tributary waters. This provision impacts proposed EPA regulations of ship and port emissions under the Clean Air Act. The largest FY2010 funding increases for EPA above the FY2009 omnibus appropriations were for capitalization grants for the Clean Water and the Drinking Water State Revolving Funds (SRFs) within the State and Tribal Assistance Grants (STAG) account. SRF funding is used for local wastewater and drinking water infrastructure projects, such as construction of and modifications to municipal sewage treatment plants and drinking water treatment plants, to facilitate compliance with Clean Water Act and Safe Drinking Water Act requirements, respectively. The FY2010 Interior appropriations law provided $2.10 billion for the Clean Water SRF capitalization grants and $1.39 billion for the Drinking Water SRF capitalization grants. As indicated in Table 12 , these FY2010 appropriations were the same as proposed by the Senate but were below the amounts proposed by the House and the President. The FY2010 Clean Water SRF appropriation was more than three times the level provided in the FY2009 omnibus appropriations, and the appropriation for Drinking Water SRF capitalization grants was 67% above the FY2009 omnibus appropriation. The stimulus law provided substantial additional funding in FY2009 for the SRF grants, with $4.00 billion in supplemental funds for the Clean Water SRF grants and $2.00 billion in supplemental funds for the Drinking Water SRF grants. EPA allocates annual appropriations for these capitalization grants among the states based on a formula that is authorized in the Clean Water Act and on the needs surveys required by the Safe Drinking Water Act. States must provide 20% matching funds in order to receive the federal funds. States combine their matching funds with the federal monies to capitalize their SRFs, which they use to issue low-interest or no-interest loans to finance local water infrastructure projects in communities. The recipients must repay the loan to the issuing state. Monies that states collect from the repayment of these loans are deposited back into the SRFs to provide capital for issuing new loans. In this sense, the SRFs are intended to be "revolving" and eventually self-sustaining over the long term. The extent of federal assistance still needed to help states maintain sufficient capital in their SRFs to finance projects has been an ongoing issue. Some advocates of a substantial federal funding role have cited estimates of hundreds of billions of dollars in long-term needs among communities, and the expansion of federal water quality requirements over time, as reasons for maintaining or increasing the level of federal assistance. Others have called for more self-reliance in the water sector. The FY2010 Interior appropriations law required that, for FY2010, at least 20% of funds made available to each state under the Clean Water and Drinking Water SRFs be used for "green infrastructure," water and energy efficiency improvements, or other environmentally innovative projects. The law also required that states use, at a minimum, 30% of the funds made available for SRF capitalization grants to provide additional subsidies in the form of principal forgiveness, negative interest loans, or grants to eligible recipients. Similar provisions were included in the FY2009 stimulus law. Two administrative provisions in the FY2010 Interior appropriations law required that, for FY2010, any construction project using assistance made available through the Clean Water and Drinking Water revolving loan funds adhere to provisions of the Davis-Bacon Act. The Davis-Bacon Act requires, among other provisions, that not less than the locally prevailing wage be paid to workers employed, under contract, on federal construction work "to which the United States or the District of Columbia is a party." Compliance with, and the applicability of, Davis-Bacon to both programs has been an ongoing contentious issue among Members of Congress. Although the SRF capitalization grants represent the bulk of EPA funding for water infrastructure, Congress also has supported these needs through congressionally directed funding for "special project grants" in the STAG account. The FY2010 Interior appropriations law included $156.8 million for 333 special project grants distributed across the United States and technical corrections to prior year grants, as specified in the conference report. As identified in their respective reports, the House had proposed $160.0 million for 167 special project grants, and the Senate had proposed $150.0 million for 164 special project grants. The FY2009 omnibus appropriations included $145.0 million for 301 special project grants. As in past years, the FY2010 Interior appropriations law required recipients to provide 45% of a project's cost in matching funds, while authorizing EPA to make some exceptions in cases of financial hardship. The President's FY2010 budget did not include funding for these special projects, which is consistent with past administrations' budget requests. Administrations have viewed these projects solely to be the priorities of Congress. The Hazardous Substance Superfund (Superfund) account supports the assessment and cleanup of contaminated sites administered under EPA's Superfund program established under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). Most of the program's funding is allocated to sites that EPA has placed on the National Priorities List (NPL) of the most hazardous sites in the United States. The adequacy of funding to clean up the nation's most hazardous waste sites has been a long-standing issue. The FY2010 appropriation of $1.31 billion (prior to transfers) for the Superfund account for FY2010 was the same as proposed by the House, but $2.0 million less (for operations and administration) than the President and Senate had supported. Also, the FY2010 appropriation was $21.5 million more than the FY2009 omnibus appropriation of $1.29 billion. See Table 12 . Funding for the Superfund account has remained fairly close to these levels over the past several years. The stimulus law provided an additional $600.0 million for the Superfund account, exclusively for "remedial" cleanup projects. Within the Superfund total, the Interior appropriations law included $605.0 million for remedial cleanup projects, nearly the same as the FY2009 omnibus appropriations. Remedial projects receive nearly half of the funding within the Superfund account. These projects are long-term cleanup actions that are intended to provide a more permanent solution to address potential risks to human health and the environment, as opposed to "removal" actions that typically are shorter term actions intended to address more immediate risks. Some Members of Congress have maintained that a steady level of federal funding in the Superfund account allows for a constant pace and adequate degree of cleanup, and have emphasized that contributions from responsible parties augment federal monies to meet overall cleanup needs. Other Members have countered that more federal funds could help to improve the pace and quality of cleanup at sites where there are no viable parties to pay the costs, and could allow the listing of more sites on the NPL that may warrant cleanup. There also has been some concern that, as a result of inflation over time, the amount of funding today cannot accomplish as much cleanup as that same amount in the past. There has been renewed interest in reinstating Superfund taxes on industry to help support the Hazardous Substance Superfund Trust Fund. Congress appropriates monies out of this trust fund to finance the Superfund appropriations account that funds EPA's Superfund program, discussed above. The authority to collect these taxes expired on December 31, 1995. As the remaining revenues were expended over time, Congress has increased the amount of revenues from the General Fund of the U.S. Treasury that historically have contributed to the Superfund Trust Fund, in an effort to make up for the shortfall from the expired industry taxes. Congress now supports the Superfund Trust Fund mostly with general Treasury revenues, but other sources do contribute some revenue. Although the special taxes on industry have expired, industry continues to contribute to the Superfund Trust Fund through corporate income taxes that contribute to general Treasury revenues, along with individual income taxes and other federal receipts and collections. In addition to Superfund, EPA administers a program to clean up contaminated "brownfields" as established by amendments to CERCLA in 2002. Typically, brownfields are abandoned, idled, or underutilized commercial and industrial properties with levels of contamination less hazardous than an NPL site, but for which cleanup still may be needed to make the land suitable for reuse. Section 104(k) of CERCLA authorizes EPA to award competitive grants directly for the assessment and cleanup of individual brownfields, and Section 128 authorizes EPA to award grants to the states (and territories) to establish or enhance their own brownfields programs. These state programs complement the federal program, as they also aid communities with the cleanup of individual brownfields. Congress appropriates funding for both of these grants within the STAG account, and funding for EPA's expenses to administer these grants within the Environmental Programs and Management (EPM) account. The Interior appropriations law provided $173.4 million for EPA's Brownfields program within these accounts. The House had proposed $174.1 million, the Senate had proposed $174.4 million, and the President had requested $174.7 million. Funding for administrative expenses is the primary reason for the differences in the FY2010 levels. All the amounts were an increase above the FY2009 omnibus appropriation of $169.5 million but less than the total appropriation of $269.5 million for FY2009 (including stimulus funding of $100.0 million for Section 104(k) grants). The efforts of EPA and other federal agencies to address climate change and greenhouse gas emissions were an area of interest to Congress during the debate on FY2010 appropriations. EPA is one of 13 federal agencies that have received appropriations annually for climate change activities in recent fiscal years. EPA funding represents a relatively small portion (less than 2%) of total federal funding for climate change activities. FY2010 funding for EPA climate change activities was included in three EPA accounts: Science and Technology (S&T), EPM, and STAG. Within the three accounts, the Interior appropriations law included $161.5 million for FY2010 for EPA climate change research and implementation activities. The House had proposed $163.1 million, and the Senate had proposed $151.5 million, the same as requested by the Administration. All are above the FY2009 enacted appropriations of $139.0 million for these activities. The FY2010 appropriations law included a provision in Title II requiring EPA to study domestic and international black carbon emissions. Black carbon refers to a form of particulate air pollution most often produced from diesel exhaust and burning of biomass. The study is to include an inventory of the major sources of black carbon, an assessment of the impacts of black carbon on global and regional climate, an assessment of potential metrics and approaches for quantifying the climatic effects of black carbon emissions and comparing those effects to the effects of carbon dioxide and other greenhouse gases, and an identification of cost-effective approaches for mitigating black carbon emissions. EPA is to report the results of the study to committees of Congress within 18 months of enactment. Title IV of the FY2010 Interior appropriations law included two provisions restricting the use of funds for certain climate change activities affecting livestock operations, and another provision requiring the President to submit a report detailing expenditures and obligations for climate change. Section 424 prohibited funds in the act and any other act from being used to promulgate or implement any regulation requiring the issuance of permits under Title V of the Clean Air Act for carbon dioxide, nitrous oxide, water vapor, or methane emissions resulting from biological processes associated with livestock production. Section 425 prohibited the use of funds in the act and any other act to implement any provision in a rule if that provision requires mandatory reporting of greenhouse gas emissions from manure management systems. More broadly, Section 426 required the President to report to the Appropriations Committees on all federal (including EPA) obligations and expenditures, domestic and international, for climate change programs and activities in FY2009 and FY2010. The report is to include expenditures and associated costs by agency and is to be submitted no later than 120 days after submission of the President's FY2011 budget request. Central to the climate change debate were EPA's efforts to finalize or implement a proposed rule: "Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act" published April 24, 2009. Multiple amendments that were filed in the Senate had contained provisions to delay or restrict certain aspects of EPA's implementation of the proposed rule, including limiting regulation of carbon dioxide from stationary sources specifically. Other amendments that were filed had contained provisions concerning impacts of regulating greenhouse gas emissions on agriculture production, including aspects of biofuel requirements, and implementation of the renewable fuel program in general. None of these amendments were offered on the Senate floor. The President's FY2010 request included a proposal for a new Great Lakes Restoration Initiative, intended to target the most significant problems in the Great Lakes ecosystem, such as aquatic invasive species, nonpoint source pollution, and toxics and contaminated sediment. Projects and programs are expected to be based on strategic planning and recommendations of the Great Lakes Interagency Task Force, and are to be implemented through the issuance of grants and agreements with states, tribes, municipalities, universities, and other organizations. The Interior appropriations law provided $475.0 million within EPA's EPM account for the new initiative, the same as proposed by the House and the President; the Senate had proposed $400.0 million. The FY2010 Interior appropriations law included a provision authorizing EPA to transfer funding to, or establish interagency agreements with, other federal departments and agencies including the Departments of Homeland Security, Defense, Transportation, Agriculture, the Interior, Health and Human Services, and State. A portion of the funding is to be retained by EPA for its Great Lakes programs, including grants to state and local governments, nonprofit organizations, and other entities. A substantial portion of all funding is to be provided for restoration activities conducted by non-federal partners. If an agency that administers one of the grant programs under the Great Lakes Restoration Initiative has the discretionary authority to reduce or waive a matching funds requirement based on financial hardship of the recipient, the conferees encouraged such financial relief "in recognition of the exceptional economic circumstances of the region and the significant ongoing investments made by non-Federal partners." The new initiative subsumes activities of several federal Great Lakes programs, including EPA's Great Lakes National Program Office, and the agency's implementation of the Great Lakes Legacy Act (as reauthorized in 2008, P.L. 110-365 ) to clean up contaminated sediments in the Great Lakes. The conference report directed EPA to develop a comprehensive restoration plan using the existing Great Lakes Regional Collaboration Strategy as a basis and with additional input from Great Lakes stakeholders. Beginning, on March 1, 2010, EPA is to provide annual reports that give funding allocations by each federal agency and identify any adjustments from the request. Beginning in 2011 and each year thereafter, EPA is to provide detailed yearly program accomplishments and compare specific funding levels allocated for participating federal agencies from fiscal year to fiscal year. For FY2010, the Interior appropriations law provided $5.30 billion in appropriations for the Forest Service (FS), $122.9 million (2%) less than House, $71.5 million (1%) less than the Senate, and $70.6 million (1%) more than the Administration requested. The enacted level was $551.5 million (12%) more than the FY2009 omnibus appropriations of $4.75 billion. With stimulus and other FY2009 emergency funds, the FY2009 total was $6.10 billion. As shown in Table 13 , FS appropriations are provided in several major accounts: Forest and Rangeland Research (FS Research); State and Private Forestry; National Forest System; Wildland Fire Management; Capital Improvement and Maintenance (Capital); Land Acquisition; and Other programs. Wildland Fire Management, nearly half of the FS budget request, is discussed with DOI Wildland Fire Management in the " Cross-Cutting Topics " section at the end of this report. For FY2010, one significant budget issue was funding for wildfire suppression, as discussed in that later section. Another significant issue in the FS budget concerns cabin user fees. In Section 433, the FY2010 Interior appropriations law modified Senate-passed language on cabin fees. The enacted provision prohibited funding in the act and any other act to implement fee increases in 2010 of more than 25% of the 2009 fee. The FY2010 Interior appropriations law included $312.0 million for FS Research. This was $3.4 million more than the House, $5.0 million more than the Senate, and $11.4 million more than the Administration. The enacted level matched the higher Senate-passed funding for forest inventory and analysis and nearly matched the higher House-passed funding for research and development, including additional funding for global climate change science. State and Private Forestry (S&PF) programs provide financial and technical assistance to states and to private forest owners. For FY2010, the Interior appropriations law contained $308.1 million for S&PF, $0.6 million more than the House and $2.0 million more than the request, and $31.1 million more than the Senate. The FY2010 enacted level was $42.2 million more than the FY2009 omnibus appropriations of $265.9 million. See Table 14 . The FY2010 enacted S&PF funding reflected various changes from the Senate- and House-passed levels and from the Administration's request. The FY2010 law increased forest health management programs (for insect and disease surveys and control) from FY2009, splitting the difference between the House- and Senate-passed levels for federal lands and increasing funds for cooperative (non-federal) lands. For cooperative fire assistance, enacted funding matched the House-passed level and was $4.0 million above the Senate-passed level and the Administration's request. The FY2010 enacted level was between the differences in the House- and Senate-passed levels for forest stewardship (assistance for state forestry programs), urban and community forestry (assistance for local forestry projects), and international forestry assistance; the enacted funding was above the funding requested by the Administration for these accounts. For the forest legacy program (to acquire lands or easements to preserve forests threatened by conversion to non-forest uses), the enacted level was $76.5 million (plus $3.0 million of prior-year balances). This was slightly ($0.2 million) more than the House, $21.3 million more than the Senate, and $14.6 million less than the President's request. The FY2010 law also provided $5.0 million for the Economic Action Program (assistance for diversification to communities dependent on natural resources), as passed by the Senate—a slight increase from FY2009. The House had agreed with the Administration's request to terminate funding for the program. For the National Forest System (NFS), the FY2010 Interior appropriations law provided $1.55 billion, $1.1 million less than the Senate, $13.5 million less than the House, and $44.8 million more than the Administration's request (after the proposed $10.0 million rescission). Nearly every activity received more than was requested, and funding for four activities matched the House-passed level, the Senate-passed level, or both (for grazing management, forest products, law enforcement operations, and Valles Caldera). Funding for other activities was between the House-passed and Senate-passed level on most accounts (land management planning; inventory and monitoring; recreation, heritage, and wilderness; wildlife and fish habitat management; minerals and geology management; and land ownership management [boundary surveying]) The exception was vegetation and watershed management, which was reduced modestly from the House- and Senate-passed levels ($1.2 million and $0.8 million, respectively). This account includes funding for the construction and maintenance of facilities, roads, and trails, as well as for deferred maintenance (i.e., the maintenance backlog). For FY2010, the Interior appropriations law provided $538.1 million, $42.6 million more than the Senate and $4.6 million less than the House. The enacted level nearly matched the request ($0.9 million less), before the enacted deferral of $18.0 million in payments to the road and trail fund. The Interior appropriations law increased funding over the Administration's request for facility construction, road construction, and trail maintenance and construction. Deferred maintenance and the backlog of needed infrastructure improvements has continued to be a concern; the agency's backlog of deferred maintenance was estimated at $5.1 billion as of September 30, 2008 (the most recent estimate). The appropriations law matched the Senate- and House-passed levels and the request for the specific deferred maintenance account—$9.1 million. The statute included $90.0 million for legacy road remediation (to decommission roads, repair and maintain roads and trails, remove fish passage barriers, and protect community water resources). This was $10.0 million (10%) less than the House-passed level and $40.0 million more than the Senate-passed level. The Interior appropriations law did not fund the proposed new "Presidential Initiative: Protecting the National Forests" to address critical deferred maintenance and operational components of FS infrastructure (proposed at $50.0 million). For FY2010, the Interior appropriations law provided $64.8 million for FS land acquisition, including $63.5 million for LWCF. This was $4.3 million less than the LWCF funds approved by the Senate, $26.7 million (73%) more than the LWCF funds approved by the House, and $34.8 million (121%) more than the LWCF request. In its report, the House Appropriations Committee expressed concern that the FS land acquisition budget request "was entirely at odds with" the DOI land acquisition request. (For more information, see " The Land and Water Conservation Fund (LWCF) .") The Indian Health Service (IHS) in the Department of Health and Human Services (HHS) is responsible for providing comprehensive medical and environmental health services for approximately 1.9 million American Indians and Alaska Natives (AI/AN) who belong to 564 federally recognized tribes located in 35 states. Health care is provided through a system of facilities and programs operated by IHS, tribes and tribal groups, and urban Indian organizations. As of October 2008, IHS operated 31 hospitals, 61 health centers, 2 school health centers, and 30 health stations. Tribes and tribal groups, through IHS contracts and compacts, operated another 14 hospitals, 227 health centers, 13 school health centers, 102 health stations, and 166 Alaska Native village clinics. Urban Indian organizations operated 34 ambulatory or referral programs. IHS, tribes, and tribal groups also operate 12 residential youth substance abuse treatment centers and over 2,200 units of residential quarters for staff working in the facilities. For FY2010, the Interior appropriations law contained $4.05 billion for IHS, which was the same as the House amount, $17.8 million (0.4%) more than the Senate amount and Administration's request, and $471.3 million (13%) more than the FY2009 omnibus appropriations ($3.58 billion). From the FY2009 stimulus law, IHS received an additional $500.0 million for FY2009, chiefly for facilities construction and improvement. Besides discretionary appropriations, IHS also receives funding from third-party reimbursements, appropriations for a special Indian diabetes program, and rents on personnel quarters. The sum of appropriations, reimbursements, diabetes funding, and rent is IHS's "program level" total. See Table 15 . IHS funding is separated into two budget categories: Health Services, and Facilities. Of IHS appropriations for FY2010, approximately 90% were for Health Services and 10% for the Facilities program. Reimbursements from Medicare/Medicaid and private insurance go to Health Services, while collections from personnel quarters go to Facilities. IHS's most salient FY2010 budget issues concern, in Health Services, the Indian Health Care Improvement Fund, Contract Health Services, and contract support costs, and, in Facilities, the health care facilities construction program. Congress approved the Administration's proposed FY2010 appropriation of $45.5 million for the Indian Health Care Improvement Fund (IHCIF), an amount that was $30.5 million (204%) more than the FY2009 omnibus appropriation of $15.0 million. IHCIF provides added funding, above an IHS operating unit's usual allocation, for the purposes of reducing deficiencies and shortfalls in health status and resources and reducing funding disparities among the operating units. IHCIF allocation is based on a formula that measures, for each of 269 IHS-funded operating units, the percentage of the unit's health care funding needs met, per capita, as compared to a benchmark. Once the percentages of unmet needs are calculated, IHCIF funds are allocated so as to reduce disparities among IHS operating units, by granting funds first to units with the lowest percentage of funding needs met (as measured by the formula) in order to bring their funding up to a particular level. As calculated under the formula, in FY2008 IHS operating units nationwide received 54.5% of their total needed funds, but among the operating units the proportion of need funded ranged from 25.1% to 100%; 46 operating units were below 40% in FY2008. IHS calculated that FY2009 IHCIF funding would bring all operating units up to at least 40% of need. IHS did not estimate the effect of the large increase proposed for FY2010, but the House Appropriations Committee directed that FY2010 IHCIF funding be distributed to bring all operating units up to at least 45% of need. The FY2010 Interior appropriations law contained $779.3 million for Contract Health Services (CHS), the same as the Senate, House, and Administration amounts, and an increase of $144.9 million (23%) from the FY2009 omnibus appropriation ($634.5 million). CHS is a program that funds the purchase of essential health services from local and community health care providers when IHS cannot provide medical care and specific services through its own system. CHS is especially important in IHS regions that have fewer direct-care facilities or no inpatient facilities. Funding for CHS has not allowed it to meet all requests, or even all IHS referrals to non-IHS providers, so IHS prioritizes CHS payments based on relative medical need and denies other CHS requests. IHS estimated that the proposed 23% increase would "significantly reduce denials" of CHS requests in FY2010, but did not estimate the proportion by which denials would be reduced. Included in the CHS program is the Catastrophic Health Emergency Fund (CHEF), which is used to pay contract health care costs in critical, high-cost cases (above $25,000), such as disaster victims or catastrophic illnesses. As with the rest of the CHS program, funding does not always meet demand. The FY2010 law appropriated $48.0 million for CHEF, the same as the Senate, House, and Administration amounts and an increase of $17.0 million (55%) over the FY2009 appropriation ($31.0 million). IHS estimated the increase would allow funding for "700 additional high cost cases that were not previously funded by the CHEF program" but did not estimate the proportion of CHEF requests that would be funded. For contract support costs (CSC) for FY2010, the Interior appropriations law contained $398.5 million, which was the same as the House amount, an increase of $9.0 million from the Senate and Administration's amount, and an increase of $116.1 million (41%) over FY2009 omnibus appropriations ($282.4 million). CSC funds are provided to tribes to help pay the costs of administering IHS-funded programs under self-determination contracts or self-governance compacts authorized by the Indian Self-Determination and Education Assistance Act. CSC pays for costs that tribes incur for such items as financial management, accounting, training, and program start-up. The CSC program has long been subject to shortfalls, causing reduced services or decreased administrative efficiency for contracting and compacting tribes. CSC shortfalls also may discourage other tribes from initiating contracts or compacts. IHS stated that the Administration's proposed increase would significantly increase CSC funding for tribes that already have contracts or compacts, but did not state whether the increase would fully fund CSC for existing contracts or compacts. Congress approved the Administration's proposed $29.2 million for construction of health care facilities, a decrease of $10.8 million (27%) from the omnibus FY2009 appropriations of $40.0 million. The stimulus appropriations law provided an additional $227.0 million for FY2009 health care facilities construction, to complete up to two facilities from IHS's current construction priority list on which work had already been initiated. With the $227.0 million in stimulus funding, total health care facilities construction funding for FY2009 was $267.0 million. See Table 15 . IHS's FY2010 request was to continue construction of a hospital and two health centers. According to IHS, the request for reduced appropriations for FY2010 was to focus on completion of projects funded under the stimulus law and other projects already begun. Indian health organizations assert that many IHS facilities are old and in poor repair and that increased appropriations are needed for health care facility construction. The Office of Navajo and Hopi Indian Relocation (ONHIR) and its predecessor were created pursuant to a 1974 act to resolve a lengthy dispute between the Hopi and Navajo tribes involving lands originally set aside by the federal government for a reservation in 1882. Pursuant to the 1974 act, the lands were partitioned between the two tribes. Members of one tribe living on land partitioned to the other tribe were to be relocated and provided new homes, and bonuses, at federal expense. Most families subject to relocation were Navajo. Relocation is to be voluntary. ONHIR's chief activities consist of land acquisition, housing acquisition or construction, infrastructure construction, and post-move assistance and support, all for families being relocated. ONHIR also certifies families' eligibility for relocation benefits. The FY2010 appropriations law contained $8.0 million for ONHIR, the same as the Senate, House, and Administration amounts and an increase of $0.5 million (6%) over FY2009 omnibus appropriations. Issues for ONHIR include the speed with which relocation is carried out and the possibility of evictions. Navajo-Hopi relocation began in 1977. By the end of FY2007, according to ONHIR, 98.5% of the 3,600 Navajo families currently eligible and 100% of the 26 eligible Hopi families had completed relocation. Newly added families, however, may postpone the completion of relocation. Besides the few certified relocatees awaiting replacement homes, ONHIR estimated that about 125 Navajo families who live on Hopi land, and who signed "accommodation agreements" under a 1996 act that allowed them to stay on Hopi land under Hopi law, might wish to opt out of these agreements and relocate using ONHIR benefits. ONHIR had estimated that the addition of Navajo families opting out of accommodation agreements, or with late applications that are approved, would extend relocation moves beyond FY2009. In addition, required post-move assistance to relocatees would necessitate another two years of expenditures after the last relocation move, according to ONHIR. The Smithsonian Institution (SI) is a museum and research complex consisting of 19 museums and galleries and the National Zoo in addition to nine research facilities throughout the United States and around the world. More than 25.2 million people visited Smithsonian facilities in 2008. Established by federal legislation in 1846 in acceptance of a trust donation by the Institution's namesake benefactor, SI is funded by both federal appropriations and a private trust, with $1 billion in total revenue from all sources of funding for FY2008. For FY2010, the Interior appropriations law provided $761.4 million for SI, an increase of $30.0 million over the FY2009 omnibus appropriations level of $731.4 million and of $2.2 million over the Administration's request of $759.2 million. See Table 16 . Funding was provided for three main line items: Salaries and Expenses, Facilities Capital, and the Legacy Fund. For FY2010, the law contained $636.2 million, $2.0 million over the requested amount, for salaries and expenses for SI's museums, research centers, and administration. This $42.8 million increase over FY2009 funding was for increases in salaries, utilities, and rent, and to fund operating priorities including increased security, information technology improvements, facilities maintenance, collections care and preservation, and governance support. The $2.0 million over the requested amount was for a museum-wide collections care initiative to support efforts to preserve historical collections. A Senate amendment to make $250,000 of the funds provided available for the SI to carry out activities under the Civil Rights History Project Act of 2009 was included in the FY2010 law. External studies and the SI estimate that an investment of $2.5 billion over ten years is needed to address advanced facilities deterioration. For FY2010, the Interior appropriations law provided $125.0 million for Facilities Capital, a category that includes projects involving major repairs or replacement of declining and failed infrastructure to address the causes of advanced deterioration. The FY2010 appropriation was equal to the Administration's request and an increase of $2.0 million over the FY2009 omnibus appropriations. Another $25.0 million in stimulus funding was provided for FY2009. Of the $125.0 million for FY2010, $89.3 million was for revitalization. This was the same as the amount requested but $15.2 million less than the FY2009 omnibus appropriation. The remaining $35.7 million was for facilities planning and design, of which $20.0 million would fund design work for the National Museum of African American History and Culture (NMAAHC). Established by Congress in 2008 ( P.L. 110-161 ), the Legacy Fund was intended to address the backlog of facilities capital repairs. In FY2008, up to $14.8 million in federal funding was provided for the initiative, with a requirement that private dollars match each federal dollar two to one. The SI did not request funds for this purpose in FY2009 or FY2010, as the institution was developing plans to raise the matching private funds. The FY2009 omnibus appropriations law, however, provided $15.0 million for the Legacy Fund, with a requirement for a one-to-one match of private donations, and further stated that none of the funds could be used for day-to-day maintenance, general salaries and expenses, or programmatic purposes. For FY2010, the Interior appropriations law provided $30.0 million for the Legacy Fund, while rescinding the fund's unobligated balance of $29.8 million for FY2008 and FY2009 and revising conditions for the fund's use. The fund is to be used for the development of a public-private partnership for the purpose of reopening the Arts and Industries Building, and the 1:1 matching requirement can be met with major in-kind donations and with privately contributed endowments designated for the care and renewal of permanent exhibitions installed in the Arts and Industries Building. In addition to federal appropriations, the Smithsonian Institution receives income from trust funds which support salaries for some employees, donor-designated capital projects and exhibits, and operations. In FY2008, the SI's net assets decreased by almost four percent to a total of just under $2.4 billion. One of the primary vehicles for federal support for the arts and the humanities is the National Foundation on the Arts and the Humanities, composed of the National Endowment for the Arts (NEA), the National Endowment for the Humanities (NEH), the Federal Council on the Arts and Humanities, and the Institute of Museum and Library Services (IMLS). The NEA and NEH authorization (P.L. 89-209; 20 U.S.C. § 951) expired at the end of FY1993, but the agencies have been operating on temporary authority through appropriations measures. IMLS receives funding through the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Acts. The NEA is a major federal source of support for all arts disciplines. Since 1965 it has provided more than 130,000 grants that have been distributed to all states. For FY2010, the Interior appropriations law provided $167.5 million for the NEA, an increase of $6.2 million over the amount requested by the Administration and an increase of $12.5 million over the FY2009 omnibus appropriations of $155.0 million. The majority of the increase in appropriations was for grants, which increased from $128.2 million in FY2009 to $138.7 million in FY2010. See Table 17 . The NEH generally supports grants for humanities education, research, preservation and public humanities programs; the creation of regional humanities centers; and development of humanities programs under the jurisdiction of the state humanities councils. Since 1965, NEH has provided more than 61,000 grants. NEH also supports a Challenge Grant program to stimulate and match private donations in support of humanities institutions. The FY2010 Interior appropriations law contained $167.5 million for NEH for FY2010, an increase of $12.5 million over the FY2009 omnibus appropriations and $6.2 million over the amount requested by the Administration. The federal/state partnership grants program, NEH's largest program, received $40.4 million, an increase of $5.4 million over FY2009 and $1.9 million over the Administration's request. The "We the People" initiative, which supports exhibitions, films, library programs, professional development programs for teachers, scholarly research on American history and culture, and collection preservation, received $14.5 million for FY2010, equal to the budget request and a decrease of $1.3 million from FY2009 funding. The Administration's proposed relocation of the administration of the National Capital Arts and Cultural Affairs Program from the Commission of Fine Arts to the NEH was not included in the FY2010 appropriations law. Altered natural flows of water by a series of canals, levees, and pumping stations, combined with agricultural and urban development, are thought to be the leading causes of environmental deterioration in South Florida. In 1996, Congress authorized the U.S. Army Corps of Engineers (Corps) to create a comprehensive plan to restore, protect, and preserve the entire South Florida ecosystem, which includes the Everglades ( P.L. 104-303 ). A portion of this plan, the Comprehensive Everglades Restoration Plan (CERP), was completed in 1999, and provides for federal involvement in restoring the ecosystem. Congress authorized the Corps to implement CERP in Title IV of the Water Resources Development Act of 2000 (WRDA 2000, P.L. 106-541 ). While restoration activities in the South Florida ecosystem are conducted under several federal laws, WRDA 2000 is considered the seminal law for Everglades restoration. Appropriations for restoration projects in the South Florida ecosystem have been provided to various agencies in multiple annual appropriations bills. The Interior, Environment, and Related Agencies appropriations laws have provided funds to several DOI agencies for restoration projects. Specifically, DOI conducts CERP and non-CERP activities in southern Florida through the National Park Service, Fish and Wildlife Service, U.S. Geological Survey, and Bureau of Indian Affairs. From FY1993 to FY2009, federal appropriations for projects and services related to the restoration of the South Florida ecosystem exceeded $3.3 billion, and state funding topped $12.0 billion. The average annual federal cost for restoration activities in southern Florida in the next 10 years is expected to be approximately $286 million per year. For FY2010, the Interior appropriations law did not specify total funding for Everglades restoration in bill language or report language. Generally, total funding for Everglades restoration for a fiscal year is not known until the Administration's budget request is submitted for the subsequent year. The Modified Water Deliveries Project (Mod Waters; see below for a description of the project), however, was addressed by the appropriations law. The conference agreement specified $8.4 million for Mod Waters: $4.2 million to be used by the NPS and $4.2 million to be used by the Corps. This funding level represented a significant reduction from the FY2009 omnibus level of $60.0 million for Mod Waters. Detailed information on DOI activities related to Everglades restoration is provided in Table 18 . Mod Waters is designed to improve water deliveries to Everglades National Park and, to the extent possible, to restore the natural hydrological conditions within the park. The completion of this project is required prior to construction of certain projects under CERP. Funding and planning for the Tamiami Trail portion of Mod Waters is being conducted by the Corps. The FY2009 omnibus appropriations law provided that funding in the law, as well as any prior acts, for implementation of Mod Waters shall be made available to the Corps to implement a project regarding the Tamiami Trail, as described in the Limited Reevaluation Report with Integrated Environmental Assessment and Addendum (LRR). This report details a project to increase water flows southward to Everglades National Park by creating a 1-mile bridge on Tamiami Trail and increasing the height of a canal by 1 foot. The project is expected to cost $227 million. According to the conference report and the House Appropriations Committee report for FY2010, funding for Mod Waters is expected to allow for continuous work on the Tamiami Trail and bridge modifications, which both reports state is to be completed at the earliest possible date. The House committee further urged DOI to continue its work on restoring the Everglades and to focus on those projects with the greatest restoration benefits. The level of commitment by the federal government to implement restoration activities in the Everglades continues to receive attention. Some observers measure commitment by the frequency and number of projects authorized under CERP, and the appropriations they receive. Because only three restoration projects have been authorized since WRDA 2000, these observers are concerned that federal commitment to CERP implementation is waning. Others assert that the federal commitment will be measurable by the amount of federal funding for construction, expected when the first projects break ground in the next few years. Some state and federal officials contend that federal funding will increase compared to state funding as CERP projects move beyond design into construction. Still others question whether the federal government should maintain the current level of funding, or increase its commitment, because of escalating costs and project delays. The LWCF (16 U.S.C. §§ 460 l -4, et seq.) is authorized at $900 million annually through FY2015. However, these funds may not be spent without an appropriation. The LWCF is used for three purposes. First, the four principal federal land management agencies—Bureau of Land Management, Fish and Wildlife Service, National Park Service, and Forest Service—draw primarily on the LWCF to acquire lands. Second, the LWCF funds acquisition and recreational development by state and local governments through a grant program administered by the NPS, sometimes referred to as stateside funding. Third, Congress has appropriated money from the LWCF to fund some related activities, with programs varying from year to year. From FY1965 through FY2009, about $32 billion was credited to the LWCF. Roughly $15 billion of that amount has been appropriated. Annual appropriations from LWCF have fluctuated considerably over time. Table 19 shows funding for LWCF since FY2006. For FY2010, the Administration, House, and Senate supported increases in LWCF appropriations over the FY2009 total appropriation of $275.3 million. The Interior appropriations law for FY2010 provided even higher funding—a total of $450.4 million from LWCF. The Administration, House, and Senate sought to increase funds for federal land acquisition for FY2010 over the FY2009 level of $152.2 million. The FY2010 Interior appropriations law provided still higher funding for land acquisition—$265.8 million. The law also included an additional $12.1 million for land appraisals related to federal land acquisition, to be derived from LWCF, as had been supported by the Administration, House, and Senate. Most of the appropriations for federal acquisitions generally are specified for management units, such as a specific National Wildlife Refuge. The FY2010 appropriation for land acquisition was more than double the level of five years ago—$111.9 million for FY2006. The variability of funding for this activity throughout history reflects a tension regarding the extent of federal land ownership. The conferees on the FY2010 bill expressed concern with the processes for acquiring lands, and provided several related directives to the agencies. Conferees directed the agencies to use funds for inholdings to acquire high-priority lands that are threatened by development, and address delays in conducting land appraisals, including by considering alternative organizational structures. The conferees expressed their intention that, to the maximum extent possible, there be a single set of policies among the four agencies for conducting land acquisitions. They directed the DOI and Agriculture Secretaries to jointly examine their acquisition policies and practices and to submit a report with findings and recommendations to the House and Senate Appropriations Committees. Further, the conferees expressed concern that lands acquired with LWCF funds are being used in ways inconsistent with the recreation, conservation, or public access uses for which they were purchased, and directed the DOI and Agriculture Secretaries to notify the Appropriations Committees before changing the use of the lands. For stateside grants, the FY2010 appropriation was $40.0 million. This was more than double the FY2009 level of $19.0 million. The Administration, House, and Senate had sought increased funds for the stateside program over FY2009. The appropriations for the state grant program typically are not specified for individual projects or areas, but rather are allocated to states in accordance with a formula in law. Over the past decade (since FY2000), stateside funding has ranged from a high of $143.9 million in FY2002 to a low of $19.0 million in FY2009. Through provisions of the Gulf of Mexico Energy Security Act of 2006 ( P.L. 109-432 ), a portion of revenues from certain OCS leasing are provided (without further appropriation) to the stateside grant program. An estimated $9.7 million in revenue from such OCS leasing was projected to be collected in FY2009 and disbursed to the stateside program in FY2010. The Administration, House, and Senate had sought varying levels of funds from LWCF for two other purposes—FWS Cooperative Endangered Species grants and the FS Forest Legacy program. The FY2010 Interior appropriations law funded these two programs at $56.0 million and $76.5 million, respectively. For FY2006 and FY2007, the largest portion of the LWCF appropriation was for other programs, as shown in Table 19 . Since FY2008, the largest portion of the LWCF appropriation has been for land acquisition. Table 20 shows the other programs for which Congress appropriated funds for FY2006 through FY2010. Wildfire protection programs and funding continue to be controversial. Ongoing discussions include questions about the high cost of fire suppression efforts; locations for various fire protection treatments; and whether, and to what extent, environmental analysis, public involvement, and legal challenges to administrative decisions hinder fuel reduction and post-fire rehabilitation. The FS and DOI wildfire line items include funds for fire suppression, preparedness, and other operations. Comparing FY2010 appropriations with Senate- and House-passed levels, Administration-requested funds, and FY2009 appropriations is difficult. This is due in part to the treatment of suppression funds and the inclusion of any emergency, contingency, and prior year funds. For FY2010, the Interior appropriations law provided a total of $3.37 billion for the FS and DOI for Wildland Fire Management ($2.52 billion for the FS and $855.9 million for DOI), after adjusting for $200.0 million in prior-year funds. Including these prior-year funds, the statute contained $3.57 billion for FY2010, which was $87.5 million (2%) less than the House, $6.3 million (0.2%) more than the Senate, and $77.7 million (2%) more than the request. Further, the FY2010 total was $183.5 million (5%) less than total FY2009 funding (including $250.0 million in FY2009 emergency funding in P.L. 111-32 and $515.0 million in the stimulus law, P.L. 111-5 .) The FY2010 law established two new FLAME funds in Title V—the Federal Land Assistance, Management, and Enhancement (FLAME) Act of 2009—with related funding for DOI and the FS. Both the Senate and the House had included funding for a new fire suppression reserve, as had been proposed in the Administration's request. The Senate also included funds for a recently authorized Collaborative Forest Landscape Restoration Fund, and for a new FLAME fund in the section creating the fund. (See " Wildfire Suppression and Emergency Funds ," below.) See Table 21 . Enacted FY2010 funding for wildfire preparedness—equipment, training, baseline personnel, fire prevention, and fire detection—totaled $965.5 million, $5.0 million more than the Administration's request. The statute matched the $675.0 million requested for FS fire preparedness, and was less than the Senate- and House-passed levels. For DOI, the Interior appropriations law provided $290.5 million, the same as the House-passed level, $1.3 million more than the Senate-passed level, and $5.0 million (2%) more than the Administration's request. For FY2010, the Interior appropriations law modified the traditional approach to funding wildfire suppression. Title V, the Federal Land Assistance, Management, and Enhancement (FLAME) Act of 2009, established in the Treasury the FLAME Wildfire Suppression Reserve Fund for DOI and the FLAME Wildfire Suppression Reserve Fund for the Department of Agriculture (for the Forest Service). The funds are to be used to cover the costs of large or complex fires, when amounts provided in the Wildland Fire Management accounts for suppression and emergency response are exhausted. The requirements are the same for the two accounts. Each Secretary may transfer funds from the FLAME fund into the respective Wildland Fire Management account, for suppression activities, upon a secretarial declaration. The declaration may be issued if the fire covers at least 300 acres or threatens lives, property, or resources, among other criteria. The conferees stated their intent that the money in the FLAME funds, together with appropriations through the Wildland Fire Management accounts, should fully fund suppression needs and prevent borrowing funds from other programs. They directed the Secretaries to develop new methods of estimating fire suppression funding needs as part of their FY2011 budget requests. The Interior appropriations law included $474.0 million ($413.0 million for the FS and $61.0 million for DOI) for the FLAME funds. This would supplement the FS and DOI fire suppression funding in the law, which totaled $1.38 billion ($997.5 million for the FS and $383.8 million for DOI). Thus, FY2010 appropriations for wildfire suppression totaled $1.86 billion ($1.41 billion for the FS and $444.8 million for DOI). The total wildfire suppression funding in the House-passed bill and the Administration's request matched the enacted level, $1.86 billion, but differed in structure. The Administration and the House included $1.50 billion for wildfire suppression ($1.13 billion for the FS and $369.8 million for DOI), and $357.0 million for a proposed Wildland Fire Suppression Contingency Reserve Fund (comprising $282.0 million for the FS and $75.0 million for DOI). The Senate also had approved $1.86 billion, but structured the funding differently still. The Senate had provided $664.3 million for wildfire suppression ($369.5 million for the FS and $294.8 million for DOI), $357.0 in Wildland Fire Suppression Reserve Funds ($282.0 million for the FS and $75.0 million for DOI), and $834.0 million for a new FLAME fund (with no allocation between the FS and DOI). Other wildland fire operations include an array of activities—burned area rehabilitation, biomass fuels reduction, research, and assistance to states and private entities. For FY2010, the Interior appropriations law provided $751.9 million for other operations, $20.1 million (3%) more than the Senate, $69.4 million (8%) less than the House, and $72.7 million (11%) more than the Administration's request. Fuel reduction—activities to protect resources and infrastructure by removing "excess" biomass fuels from forests—has received the bulk of other operations funding. (For background, see CRS Report R40811, Wildfire Fuels and Fuel Reduction , by [author name scrubbed].) The Interior appropriations law provided $556.5 million for fuel reduction in FY2010 ($350.3 million for the FS and $206.2 million for DOI). This was an increase of $36.1 million (7%) over the Administration's request. The enacted level matched the Senate-passed level (including the $10.0 million for the Collaborative Forest Landscape Restoration Fund authorized in Section 4003(f) of P.L. 111-11 ). The House had provided $611.2 million for fuel reduction in FY2010 ($378.1 million for the FS and $233.1 million for DOI). For burned area rehabilitation—to control erosion and restore vegetation on burned areas—in FY2010, the FY2010 Interior appropriations law provided $31.9 million, matching the House-passed level and slightly exceeding the Senate level (by $0.1 million). The enacted level was also slightly ($0.1 million) more than the FY2009 appropriations and an increase of $2.6 million more than the request. Also, FS funds for emergency burned area rehabilitation can be drawn from suppression funding, while additional funds to restore burned areas are provided in the various accounts for the National Forest System. For related activities of FS forest health management—to survey and control insects, diseases, and invasive species—the FY2010 law included $32.2 million, an increase of $6.3 million (44%) above the request for federal lands and of $4.4 million (63%) above the request for cooperative (non-federal) lands. The enacted level was less than the House-passed level of $37.2 million but more than the Senate-passed level of $27.2 million. (This activity also receives funds through State and Private Forestry; see Table 14 , above.) The FY2010 appropriations matched the House, Senate, and Administration levels of wildfire appropriations for fire research at the FY2009 level. DOI funding for the Joint Fire Science Program remained at $6.0 million; FS funding for the Joint Fire Science Program remained at $8.0 million. Wildfire funding for FS fire plan research and development was kept at $23.9 million. (Fire research also receives funds under FS Research; see above.) Further, the law maintained the FY2009 level for DOI wildfire facilities—$6.1 million. For FS fire assistance to states, the FY2010 law included $80.3 million. This included $71.3 million for state fire assistance, $8.8 million less than the House, $15.0 million more than the Senate, and $21.3 million more than the request. For volunteer fire departments, the law included $9.0 million, which matched FY2009 omnibus funding and the Senate-passed level, and was $1.0 million less than the House and $2.0 million more than the request. (FS fire assistance also is funded through State and Private Forestry; see Table 14 above.) DOI funding for community assistance remained at $7.0 million, as passed in both the House and Senate bills. | The Interior, Environment, and Related Agencies appropriations bill includes funding for the Department of the Interior (DOI), except for the Bureau of Reclamation, and for agencies within other departments—including the Forest Service within the Department of Agriculture and the Indian Health Service (IHS) within the Department of Health and Human Services. It also includes funding for arts and cultural agencies, the Environmental Protection Agency, and numerous other entities. The Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010 (P.L. 111-88), contained a total of $32.29 billion for FY2010. This was $4.45 billion (16%) higher than the FY2009 appropriation of $27.84 billion (excluding stimulus appropriations). The House, Senate, and Administration had all supported significantly higher levels for FY2010—ranging between 15% and 16% higher—than the FY2009 appropriation of $27.84 billion. P.L. 111-5, the American Recovery and Reinvestment Act of 2009, contained an additional $10.95 billion in emergency funds for FY2009 for some of the accounts within agencies typically funded by the annual Interior, Environment, and Related Agencies appropriations laws. In general, the funds were made available for obligation until September 30, 2010 (the end of FY2010). The FY2010 appropriation of $32.29 billion in P.L. 111-88 was $6.50 billion (17%) less than the total FY2009 appropriations of $38.79 billion, including stimulus appropriations. A variety of funding and policy issues were debated during consideration of the FY2010 Interior, Environment, and Related Agencies appropriations bill. They included oil and gas leasing in the Outer Continental Shelf, wildland fire fighting, Indian trust fund management, royalty relief, and climate change. Other issues included funding for Bureau of Indian Affairs construction, education, and housing; Indian Health Service construction and urban Indian health; wastewater/drinking water needs; land acquisition; and the Superfund program. This report is not expected to be updated. |
Most capital punishment cases are state cases. There are several federal crimes, however, for which the death penalty is a sentencing option. Legislation to amend federal capital punishment law introduced in the 110 th Congress included proposals to amend the Constitution to remove impediments to imposition of the death penalty, to abolish the federal death penalty, to increase the number of federal capital offenses, and to adjust the procedure under which capital cases are tried and sentencing determinations are made. None were enacted. This is an overview of some of those proposals. The United States Constitution does not mention capital punishment or death penalty in so many words. It does, however, prohibit imposition of cruel and unusual punishments as well as the deprivation of life without due process of law. The Supreme Court recently held that the Eighth Amendment cruel and unusual punishment clause made applicable to the states through the due process clause of the Fourteenth Amendment precludes imposition of the death penalty for rape of child under twelve years of age when the victim was neither killed nor intended to be killed. Two constitutional amendments were offered at least in partial response. H.J.Res. 96 (Representative Chabot) would simply have amended the Constitution to state that "The penalty of death for the forcible rape of a child who has not attained the age of 12 years does not constitute cruel and unusual punishment." H.J.Res. 83 (Representative Broun) is equally terse although seemingly more sweeping: "The death penalty is permitted under the Constitution and does not constitute cruel and usual punishment, including when the death penalty is imposed for the rape of a child under sixteen years old." Both proposals would have removed any Eighth Amendment impediment to capital punishment as a sentencing option in child rape cases. The Broun proposal was apparently designed to remove any Eighth Amendment impediment to capital punishment as a sentencing option in any case. At some point, due process concerns may have contained the sweep of the proposals had they been accepted. H.J.Res. 80 (Representative McCollum), in contrast, would have abolished capital punishment as a sentencing alternative for either state or federal crimes. The proposed amendment would have extended to both pending and subsequent capital cases. Existing federal law treats capital cases differently. There is no statute of limitations for capital offenses. There is a preference for the trial of capital cases in the county in which they occur. Defendants in capital cases are entitled to two attorneys, one of whom "shall be learned in the law applicable to capital cases." The Attorney General must ultimately approve the decision to seek the death penalty in any given case. Defendants are entitled to notice when the prosecution intends to seek the death penalty, and at least three days before the trial, to a copy of the indictment as well as a list of the government's witnesses and names in the jury pool. Defendants have twice as many peremptory jury challenges in capital cases as in other felony cases and prosecutors more than three times as many. Should the defendant be found guilty of a capital offense the sentencing hearing procedures set forth in chapter 228 of title 18 of the United States Code come into play. The chapter divides federal capital offenses into three categories for purposes of determining whether the death penalty should be imposed in light of the aggravating and mitigating facts presented in the case. The first group consists of espionage and treason; the second, of homicide offenses; and the third, of drug offenses. In homicide cases, the sentencing hearing involves two determinations: whether the defendant acted with the intent required in section 3591(a)(2) of the chapter and whether the weighing of the pertinent aggravating and mitigating circumstances warrant imposition of the death penalty in section 3592(c). In order to keep the two inquiries distinct and to avoid confusion and unfair prejudice, federal courts will generally permit the inquiries to be conduct sequentially. The same list of mitigating factors applies to each of the three categories of capital offenses. The list consists of seven specific statutory factors – impaired capacity, minor participation, disparate treatment of codefendants, no prior criminal record, mental or emotional disturbance, and victim consent – but also includes a catch-all, open-ended factor. Each of the three categories has its own list of statutory aggravating factors. They share a catch-all, open-ended aggravating factor available for each of the three categories of capital offenses which the jury may weigh, but the death penalty may only be imposed after first finding at least one of the more specific, designated aggravating factors. The list of designated aggravating factors relating to espionage and treason is the shortest of the three: prior espionage or treason conviction, grave risk to national security, and grave risk of death. The list of the designated homicide aggravating factors contains sixteen entries, including the fact that the murder was committed during the course of one of group of other federal offenses. The drug aggravating factors focus on prior convictions, the risk to children, the use of firearms, and lethal adulteration. The jury must unanimously agree that an aggravating factor has been established before the factor may be weighed in determining whether to impose the death penalty; on the other hand the finding of a single juror is sufficient for consideration of a mitigating factor. The death penalty may only be imposed if the jury unanimously finds that the aggravating factors outweigh the mitigating factors; or if the court so finds in the absence of a jury. During the 110 th Congress, proposals were offered that would have modified existing law relating to: - where a capital offense may be tried, - the appointment of counsel in capital cases, - the pre-trial notification which the parties must exchange in capital cases, - the procedures that apply when the defendant claims to be mentally retarded, - adjustments in the statutory aggravating and mitigating circumstances, - jury matters, and - the site of federal executions. The Constitution provides that "the trial of all crimes . . . shall be held in the state where the said crimes shall have been committed; but when not committed within any State, the trial shall be at such place or places as the Congress may by law have directed," and that "in all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law." From the beginning, Congress has provided in language that now appears in 18 U.S.C. 3235, that where possible capital cases should be tried in the county in which they occur. It has also long specifically provided that murder and manslaughter cases shall be tried where the death- inflicting injury occurs regardless of where the victim dies, as 18 U.S.C. 3236 now states. Furthermore, for some time it has provided in the words of 18 U.S.C. 3237 that multi-district crimes may be tried where they are begun, continued, or completed and that offenses involving the use of the mails, transportation in interstate or foreign commerce, or importation into the United States may be tried in any district from, through, or into which commerce, mail, or imports travel. Although some of the venue proposals offered in the 110 th Congress dealt primarily with venue for newly created or newly amended federal capital offenses, H.R. 3156 (Representative Lamar Smith) and S. 1860 (Senator Cornyn) addressed venue in capital cases generally. They struck the language of section 3235 that calls for the trial of capital cases in the county in which they occur if possible. In its place, they would have installed two subsections whose precise scope was somewhat uncertain. The proposal was apparently intended to repeal both the "county trial in capital cases" feature of section 3235 and, by indirection, the murder portion of the "murder-manslaughter trial" feature of section 3236. It seemed to replicate the continuing offense language of section 3237 with one significant addition; it would have permitted trial where commerce-related conduct occurred. The scope of the proposed amendment would likely have depended in part on the application of constitutional constraints. The proposed amendment must operate within constitutional venue and vicinage limitations, that is that "The trial of all crimes . . . shall be held in the state where the said crimes shall have been committed," and that "In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed." The Supreme Court in United States v. Cabrales held that in light of these provisions the crime of money laundering committed in Florida could not be tried in Missouri where the laundered funds had been criminally generated – absent other circumstances. Shortly thereafter, the Court held in United States v. Rodriguez-Moreno , that the crime of using a firearm during and in relation to the crime of kidnaping could be tried in New Jersey into which the victim had been carried, notwithstanding the fact that the firearm was acquired and used in Maryland after the victim had been moved there from New Jersey. Cabrales is not as restrictive as it might seem at first; nor is Rodriguez-Moreno as permissive. Cabrales laundered the Missouri drug money in Florida, but there was no evidence that she was a member of the Missouri drug trafficking conspiracy or that she had transported the money from Missouri to Florida. The Court acknowledged that she might have been tried in Missouri had either been the case. Rodriguez-Moreno and his confederates kidnapped a drug trafficking associate and transported him over the course of time from Texas to New Jersey and then to Maryland. Rodriguez-Moreno acquired the firearm with which he threatened the kidnap victim in Maryland but was tried in New Jersey for using a firearm "during and in relation to a crime of violence [kidnaping]" in violation of 18 U.S.C. 924(c)(1). Section 924(c)(1) in the eyes of the Court has "two distinct conduct elements . . . using and carrying of a gun and the commission of a kidnaping." A crime with distinct conduct elements may be tried wherever any of those elements occurred; kidnaping is a continuous offense that in this case began in Texas and continued through New Jersey to Maryland; venue over the kidnaping, a conduct element of the section 924(c)(1), was proper in Texas, New Jersey or Maryland; consequently venue over the violation of section 924(c)(1) was proper in either Texas, New Jersey or Maryland. The Court was quick to distinguish Cabrales from Rodriguez-Moreno : "The existence of criminally generated proceeds [in Cabrales ] was a circumstance element of the offense but the proscribed conduct – defendant's money laundering activity – occurred after the fact of the offense begun and completed by others." In Rodriguez-Moreno , "given the 'during and in relation to' language, the underlying crime of violence is a critical part of the §924(c)(1) offense." Subsequent lower federal appellate courts have read Cabrales and Rodriguez-Moreno to require that a crime be tried where at least one of its elements occurs. It is not clear how the proposed venue amendment would have fared in light of Cabrales and Rodriguez-Moreno . It stated that "(a) The trial for any offense punishable by death shall be held in the district where the offense was committed or in any district in which the offense began, continued, or was completed. (b) If the offense, or related conduct, under subsection (a) involves activities which affect interstate or foreign commerce, or the importation of an object or person into the United States, such offense may be prosecuted in any district in which those activities occurred." The amendment would appeared to have permitted trial of an offense in a district in which related conduct affecting interstate or foreign commerce occurred even if the offense itself and each of its elements were committed entirely in another district. The Cabrales ' money generating drug trafficking in Missouri would seem to qualify as "conduct related" to the laundering in Florida for purposes of the proposal, and yet in Cabrales that was not enough. Nor would the proposal always appear to meet Rodriguez-Moreno 's "conduct element" standard. There was nothing in the proposal that would have required that the "related conduct affecting interstate commerce" be an element of the offense to be tried. In fact, the alternative wording – "if the offense, or related conduct . . . involves activities which affect interstate commerce" – seemed to contemplate situations in which affecting commerce was not an element, conduct or otherwise, of the offense. Such applications might have appeared to a reviewing court to do more than the Constitution permits. In the case of proposed venue provisions for new or existing federal capital offenses, one common proposal would have built upon the scheme approved in Rodriguez-Moreno . The statute before the Court there, 18 U.S.C. 924(c)(1), outlaws the use of a firearm "during and in relation" to a crime of violence or serious drug offense. Several bills – e.g., H.R. 880 (Representative Forbes), H.R. 3150 (Representative Keller), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) – would have created a new federal crime, one that would have prohibited the commission of a crime of violence "during and in relation" to a drug trafficking offense, proposed 21 U.S.C. 865. They would have permitted prosecution for such an offense "in (1) the judicial district in which the murder or other crime of violence occurred; or (2) any judicial district in which the drug trafficking crime may be prosecuted," proposed 21 U.S.C. 865(b). This analogy to Rodriguez-Moreno seems likely to have worked. The new crime, like section 924(c) in Rodriguez-Moreno , would have two elements, a crime of violence and a simultaneous, related drug trafficking offense. Rodriguez-Moreno involved a continuing offense. Many drug trafficking offenses are likely to be considered continuing offenses for venue purposes, but some may not be. It should not matter. Rodriguez-Moreno insists only that the crime may be tried where one of its conduct elements (crime of violence or drug trafficking crime) occur. The several of the same bills – e.g., H.R. 880 (Representative Forbes), H.R. 3150 (Representative Keller), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) – would have added, to the existing federal capital offense of committing a crime of violence in aid of a racketeering (RICO) offense, an explicit venue provision. The addition would have stated that prosecution for a violation of section 1959 might be brought where the crime of violence occurs or where the racketeering activity of the enterprise occurs. Even without the explicit addition, the Second Circuit has held that since a RICO violation is an element of a section 1959 offense, venue for trial of a violation of section 1959 is proper wherever the underlying RICO might be tried, i.e., wherever an element of a RICO violation occurs. Capital defendants are entitled to the assignment of two attorneys for their defense. There is some uncertainty over whether they are to be appointed immediately following indictment for a capital offense or whether they need only be appointed "promptly" sometime prior to trial; and whether the right expires with the decision of the government not to seek the death penalty. The Justice Department expressed concern that under existing law the Fourth Circuit has held that the right to appoint counsel does not expire with the government's decision not to seek the death penalty. The Department also noted the inefficiencies experienced in other circuits in cases where it is clear the death penalty will not be sought but where a second attorney must be retained until the formal decision is announced. H.R. 851 (Representative Gohmert) would have amended section 3005 so that prosecutor's notice of an intent to seek the death penalty, rather than indictment for a capital offense, would trigger the right to the appointment of second counsel. Critics have suggested that both the interests of the defendant and the interests of the government are best served by early appointment of counsel, expert in defense of capital cases. Section 3593 obligates the prosecutor to advise the defendant and the court, "a reasonable time before trial" or before the acceptance of a plea, of the government's intention to seek the death penalty. The Fourth and Eleventh Circuits have held that a failure to provide timely notice may preclude the effort of a prosecutor to seek the death penalty. More exactly, they have held (1) that a death notice filed unreasonably close to the date set for trial is properly subject to a motion to strike the government's death notice, without which the government may not seek the death penalty, and (2) that an interlocutory appeal may be taken from the denial of such a motion. The Second Circuit, on the other hand, concluded that section 3593(a) does not create a right to avoid the death penalty because of the government's untimely death notice and that consequently a refusal to strike the death notice is not a matter from which an interlocutory appeal may be taken. Prosecutors will sometimes provide a "protective death notice" in order to preserve the option to seek the death penalty before a final decision is made. The notice is withdrawn should the Attorney General decide not to seek the death penalty. The arrangement is not one which the Justice Department prefers. On the other hand, both the right to a speedy trial and the fact that the defendant in a capital case is not likely to be free on bail prior to trial may argue for such incentives for expeditious prosecutorial determinations. H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) would have amended section 3593(a) to authorize a continuance in the face of a delayed notification of an intent to seek the death penalty. They also would have made it clear that a defendant may not foreclose the government's option by pleading guilty before prosecutors have had time to seek the Attorney General's approval to seek the death penalty. H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) would have also balanced the prosecution's obligation to disclose any aggravating factors upon which it intends to rely with a similar defense obligation to notify the prosecution of mitigating factors upon which it intends to rely when the prosecution seeks the death penalty. Elsewhere, once the government has announced its intention to seek the death penalty, the bills would have afforded defendants the advantage of a continuance when necessary to address the additional issues raised. Here, the bills would have afforded the prosecution a similar benefit. Critics may question the symmetry. Neither the insanity defense nor the prohibitions against trial of the mentally incompetent necessarily preclude prosecution and conviction of the mentally retarded. Nevertheless, section 3592(a) seems to permit evidence of mental retardation as a mitigating factor under section 3592(a)(1) (impaired capacity), 3592(a)(6)(disturbance), or 3592(a)(8)(mitigation generally). Moreover, neither the Constitution nor federal statutory provisions allow the execution of a federal capital defendant suffering from mental retardation. The limited available case law suggests – with some exception – that the determination of the issue may be assigned to the court (rather than the jury) to be established by the defendant under preponderance of the evidence standard prior to trial. As for the definition of mental retardation, the Court in Atkins cites two clinical definitions of mental retardation, which it encapsulates with the observation that, "As discussed above, clinical definitions of mental retardation require not only subaverage intellectual functioning, but also significant limitations in adaptive skills such as communication, self-care, and self-direction that became manifest before age 18," 536 U.S. at 318. H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) would have made several procedural adjustments to accommodate claims of mental retardation in federal capital cases. First, as noted earlier they would have established a reciprocal pre-trial notification requirement. After the prosecution notified the defendant of its intention to seek the death penalty and of the aggravating factors upon which it intends to rely, the defendant would have been required to notify the government of the mitigating factors, including mental retardation, upon which he intended to rely. Second, they would have called for comparable notice when the defendant intended to claim mental retardation as a bar to execution. Third, they would have given the prosecution the right to an independent mental health examination of any defendant claiming retardation and to a continuance to prepare for trial and sentencing if necessary. Fourth, they would have conditioned the defendant's presentation of evidence and argument relating to mental retardation, at least for mitigation purposes, to instances where the defendant had provided the required prior notification. Fifth, they would have stated that the defendant bears the burden of establishing mental retardation by a preponderance of the evidence. Sixth, they would have instructed the trier of fact, be it judge or jury, to consider the issue of mental retardation only if an aggravating factor had been found and if so to consider the issue of mental retardation first among the mitigating factors. Seventh, they would have provided that a capital defendant found to be mental retarded is be sentenced to imprisonment for a term of years or to life imprisonment without the possibility of release. Eighth, they would have supplied a statutory definition of mental retardation with three components: that the defendant have an IQ of 70 or less, that he have had continuously since under 18 years of age, and that it has continuously impaired mental functions including the ability to learn, reason, and control impulses. The Justice Department endorsed similar legislative proposals in the 109 th Congress as a means of introducing consistency into federal practice in the area. There may be objections, however. The definition of mental retardation might be thought too narrow to embrace all those constitutionally protected. Resolution of mental retardation issues, some would contend, should occur prior to trial as a matter of fairness and judicial economy if nothing else. The proposal may also be criticized for its failure to mirror the procedure governing the prosecution's right to an independent mental health examination in the case of insanity defense claims. Furman v. Georgia , 408 U.S. 238 (1972), condemned state capital punishment procedures, and by implication federal procedures, for failure to reserve the death penalty to the most egregious capital cases. The procedures have been adjusted to provide juries with aggravating and mitigating factors to guide the exercise of their discretion and ensure that the death penalty is only imposed in the most serious cases. Several bills suggested adjustments in the designated aggravating and mitigating circumstances described in section 3592. For instance, some proposals would have amended the mitigating circumstance that now applies when "another defendant or defendants, equally culpable in the crime, will not be punished by death," H.R. 851 (Representative Gohmert), H.R. 1914 (Representative Carter). The amendment would have limited the factor to instances where the prosecution had elected not to seek the death penalty for a codefendant. In doing so it would have eliminated from coverage of instances where the defendant's codefendant is under 18 years of age, or mentally retarded, or extradited with an agreement not to execute, or where an earlier jury had declined to sentence a codefendant to death for the same offense. The amendment might be thought to have largely symbolic impact. Section 3592(a)(8) allows a defendant to offer evidence of "any circumstance of the offense that mitigate[s] against imposition of the death penalty." Thus, it seems that any circumstances removed from a specific statutory mitigating factor might be claimed under the catch-all provisions of section 3592(a)(8). Some commentators have suggested, however, the courts might construe removal as a limitation on the catch-all provision as well. Another proposal would have added an aggravating factor to the espionage and treason category to cover offenses involving substantial planning, H.R. 1914 (Representative Carter). Espionage and treason, by their nature, would involve substantial planning in most instances. The proposal would have permitted imposition of the death penalty even in the absence of any of the other aggravating factors: prior espionage or treason conviction, grave risk to national security, grave risk of death. Treason has been a capital crime almost since the founding of the Republic, but it is not clear that the death penalty may be imposed for any crime that does not involve the taking of a human life. The Constitution may limit the circumstances under which the death penalty may be imposed upon a first time offender, convicted of espionage in a case where there is neither a grave risk to national security nor a grave risk of death. Most federal capital punishment statutes do not proscribe murder as such. They outlaw murder under particular circumstances, circumstances that themselves might be considered aggravating, such as the murder of a Member of Congress or a murder committed in conjunction with the rape of the victim. Section 3592(c)(1) recognizes as an aggravating factor that murder was during the course of one of a list of designated federal crimes. Several bills would have placed other offenses on the list. H.R. 851 (Representative Gohmert) would have added receipt of military training from a foreign terrorist organization (18 U.S.C. 2332D) to section 3592(c)(1). H.R. 851 and other bills would have inserted additional offenses including - 18 U.S.C. 241 (conspiracy against civil rights), - 18 U.S.C. 245 (federal protected rights), - 18 U.S.C. 247 (interference with religious exercise), - 18 U.S.C. 37 (violence at international airports), - 18 U.S.C. 1512 (witness tampering), and - 18 U.S.C. 1513 (retaliating against a witness), H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), S. 1860 (S. Cronyn). The rationale for expansion appears to be that (1) capital punishment should be reserved for the "worst of the worst;" (2) murders committed in the course of the most serious federal crimes fit that description; and (3) one or more such most serious federal crimes are not now listed in section 3592(c)(1). The rationale of opponents seems to be two-fold. First, as with mitigating circumstances, specific designation is less significant when the catch-all provision would allow presentation to the jury in any event. In the case of aggravating circumstances, however, expressly adding new crimes to the "murder plus" factor status is significant because the existence of a specifically designated aggravating factor is a sine qua non for imposition of the penalty; the mere presence of a catch-all aggravating factor is insufficient. Second, the list of death-qualifying, specifically designated aggravating factors is now so close to all-encompassing that some special justification may be in order before the list is expanded. The creation of a new obstruction of justice aggravating factor was a common proposal, H.R. 851 (Representative Gohmert); H.R. 1914 (Representative Carter), H.R. 3156 (Representative Lamar Smith), S. 1860 (Senator Cornyn). The proposal rests on the premise that killing witnesses and other participants in the judicial process "strikes at the heart of the system of justice itself." Critics suggest that its breadth threatens to push the federal system to a point where it has made all murders capital, where the exceptions to the "narrowing" use of aggravating factors have eliminated any narrowing impact. Section 3592(c)(2) now recognizes as a statutory aggravating factor the fact that: For any offense, other than an offense for which a sentence of death is sought on the basis of section 924(c), the defendant has previously been convicted of a Federal or State offense punishable by a term of imprisonment of more than 1 year, involving the use or attempted or threatened use of a firearm (as defined in section 921) against another person. [Emphasis added.] Section 924(c) provides additional penalties when a defendant uses or possesses a firearm during and in relation to the commission of a federal crime of violence or drug trafficking. Violation is a capital offense when in the course of the crime the firearm is used to commit a murder. The italicized portion of section 3593(c)(2) is open to interpretation, and several proposals would have dropped the language. H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), S. 1860 (Senator Cornyn). One of the bills, H.R. 851 (Representative Gohmert), would have amended section 3592(c)(2) further to make it clear that the new provision did not cover the conviction that had resulted in the capital sentencing hearing at issue, but only prior adjudications resulting in firearms conviction. One critic has argued that in view of the breadth of section 924(c) the amendment would make an aggravating factor out of the possession of a firearm during any federal crime of violence or drug trafficking that ended in murder. Gregg v. Georgia ")(Bruck statement). Section 3592(c)(8) is what might be taken for a murder-for-hire aggravating factor: "The defendant committed the offense as consideration for the receipt, or in expectation of the receipt of anything of pecuniary value." A casual reading might suggest that the factor covers murder for hire when the murder is paid either before or after the murder. Instead, the courts have concluded that the phrase "as consideration for" covers the for-hire murders, and the phrase "in expectation of the receipt" covers murders from which there is a more general anticipated gain. Yet the factor only applies when the murder was motivated by monetary gain. It is not enough that the gain was incidental to or a consequence of the murder. The Justice Department has suggested that as now worded the factor is susceptible to uneven application since it does not include instances where the murder is committed to preserve a defendant's ill-gotten treasure. There were proposed amendments that would have addressed the issue by altering the section to read: The defendant committed the offense as consideration for the receipt, or in expectation of the receipt, or in order to retain illegal possession of anything of pecuniary value, H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), S. 1860 (Senator Cornyn). The amendment would have like brought most murders committed incidental to a robbery within the factor's purview. The objections voiced over other aggravating factor amendments may be heard again: "Run of the mill" murders are being made capital. The death penalty is no longer reserved for the worst of the worst murderers. This is the situation the Court found unacceptable in Furman . Or so the argument may run. H.R. 3153 (Representative Gerlach) would have made an aggravating factor of the fact that the murder victim was a law enforcement officer. Murder of a federal law enforcement officer during or on account of the performance of his or her duties is already an aggravating factor. The amendment would have expanded the factor to include state law enforcement officers, federal law enforcement officer murdered other than during or on account of the performance of their official duties, and attempts to kill either state or federal law enforcement officers. In California v. Brown , the Supreme Court upheld a state court instruction which informed a capital jury that "they must not be swayed by mere sentiment, conjecture, sympathy, passion, prejudice, public opinion or public feeling." H.R. 851 (Representative Gohmert) would have introduced a similar directive into the federal process in capital cases. H.R. 3156 (Representative Lamar Smith) and S. 1860 (Senator Cornyn) would have used the same language but dropped references to "sentiment" and "sympathy," perhaps in response to criticism of an earlier version of the proposal. Many federal capital punishment statutes offer but two sentencing alternatives, death or life imprisonment. Several others, however, offer a third option: imprisonment for any term of years. In recognition of this fact, existing law states that if no aggravating factors are found to exist "the court shall impose a sentence other than death authorized by law." And if the trier of fact finds that the death penalty should not be imposed in spite of the presence of one or more aggravating factors, existing law calls for "life imprisonment without possibility of release or some other lesser sentence ." Several proposals, H.R. 3156 (Representative Lamar Smith), S. 1860 (Senator Cornyn), and H.R. 851 (Representative Gohmert) among them, would have eliminated the possibility of a sentence for a term of years, if one of the aggravating factors were found. A number of proposals in the 110 th Congress address problems associated with selecting and maintaining a panel of qualified jurors in capital cases. Existing law states the jury at the sentencing phase of a capital case "shall consist of 12 members, unless, at any time before the conclusion of the hearing, the parties stipulate with the approval of the court, that it shall consist of a lesser number." H.R. 851 (Representative Gohmert) and H.R. 1914 (Representative Carter) would have amended the provision to permit the court to approve a lesser number for good cause, without requiring the approval of the defendant or the prosecutor. Imposition of the death penalty upon the recommendation of a jury of less than twelve members over the objection of the defendant is likely to draw criticism. Perhaps to ensure that recourse to juries of less than twelve would only be necessary in extreme cases, the two bills would have increased the number of permissible alternate jurors from six to nine and afforded each side four addition peremptory challenges in the cases where more than six alternates are impaneled. H.R. 851 (Gohmert) also would have amended section 3592 to discourage the dismissal of alternate jurors in capital cases until sentencing has been completed. Other proposals, notably H.R. 3156 (Representative Lamar Smith) and S. 1860 (Senator Cornyn), would have left the number of jurors and alternates as is and merely directed the court to retain alternates until sentencing has been completed. Existing law permits a capital jury to unanimously recommend a sentence of death or life imprisonment without the possibility of release; if they do not, the court is to sentence the defendant to any lesser sentence authorized by law, i.e., imprisonment for life or for a term of years. H.R. 1914 (Representative Carter) would have provided that if the jury cannot agree on a capital recommendation, a new sentencing hearing must be impaneled and new sentencing hearing conducted. Existing law provides that the states are to execute federal death sentences. H.R. 851 (Representative Gohmert), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) would have authorized execution in federal facilities as well, pursuant to regulations promulgated by the Attorney General. The change reflects the availability of federal facilities. They would also have added a confidentiality clause under which the identity of executors and witnesses at the execution could not have been publicly disclosed without their consent. S. 607 (Senator Vitter) would have outlawed interference with federal disaster relief efforts; when death resulted from a violation of the proscription, the defendant might have been sentenced to death or life imprisonment. H.R. 3806 (Representative Forbes) would have made sabotage committed against a nuclear facility a capital offense if a death resulted from the commission of the offense. It is a federal capital offense under existing law to murder a member of the United States armed forces during or on account of the performance of their duties, 18 U.S.C. 1114. H.R. 3884 (Representative Murphy) would have made it a federal offense to murder a member of the United States armed force regardless of whether the offense were committed during or on account of the performance of the victim's duties, proposed 18 U.S.C. 1123. The bills drafted to counter gang violence – e.g., H.R. 3150 (Representative Keller), H.R. 880 (Representative Forbes) – frequently included two new federal death penalty offenses. One would have proscribed the use of interstate facilities with the intent to commit multiple murders and would have been a capital offense where death resulted. The second, modeled after the provision that condemned the use of a firearm during or in relation to a crime of violence or a drug offense, would have outlawed crimes of violence committed during or in relation to a drug trafficking offense and would have made the offense punishable by death if a death results. The murder committed during and in relation to a drug trafficking offense appeared as a capital offense in other bills as well ( H.R. 1118 (Representative Keller); H.R. 3156 (Representative Lamar Smith); S. 1860 (Senator Cornyn)); as does the new capital multiple murder proposal ( H.R. 3156 (Representative Lamar Smith); S. 1860 (Senator Cornyn)). In addition, H.R. 3150 would have condemned murder along with other violent crimes in furtherance or in aid of a criminal street gang, an offense it would have made punishable by death. Existing law proscribes overseas murder and assault committed against Americans by terrorists, 18 U.S.C. 2332. H.R. 2376 (Representative Franks), H.R. 3147 (Representative Wilson), H.R. 3156 (Representative Lamar Smith), S. 1320 (Senator Kyl), and S. 1860 (Senator Cornyn) would have proscribed overseas kidnaping of Americans by terrorists and propose the death penalty as a sentencing option when a death results. Several of the immigration bills – e.g., H.R. 1645 (Representative Gutierrez), S. 330 (Senator Isakson), S. 1348 (Senator Reid) – would have proscribed evasion of border inspection and made the offenses punishable by death, imprisonment for any term of years, or for life if death results from a violation, proposed 18 U.S.C. 556. Rather than amend existing non-capital federal terrorist offenses to make them capital offenses when they result in a death, H.R. 855 (Representative Lungren), H.R. 3156 (Representative Lamar Smith), and S. 1860 (Senator Cornyn) would have created a new separate federal offense which outlaws the commission of, or attempt or conspiracy to commit various federal terrorist offenses when a death results, proposed 18 U.S.C. 2339E. Violations would have been punishable by death or imprisonment for any term of years or for life. Its impact might have been less dramatic than might appear at first glance since many of its predicate offenses are already capital crimes or would have been elevated to capital offenses elsewhere in the bills. Nevertheless, as a consequence of section 2339E the following would have become capital offenses when a death occurs during the course of their commission: - 18 U.S.C. 81 (arson within special maritime and territorial jurisdiction), - 18 U.S.C. 175 or 175b ( biological weapons), - 18 U.S.C. 351 (congressional, cabinet, and Supreme Court murder or kidnaping), - 18 U.S.C. 831 (nuclear materials), - 18 U.S.C. 842(m) or (n) (plastic explosives), - 18 U.S.C. 956(a)(1) (conspiracy to murder, kidnap, or maim persons abroad), - 18 U.S.C. 1030(a)(1), 1030(a)(5)(A)(i)(protection of computers), - 18 U.S.C. 1361 (destruction of government property or contracts), - 18 U.S.C. 1362 (destruction of communication lines, stations, or systems), - 18 U.S.C. 1366(a) (destruction of an energy facility), - 18 U.S.C. 2155 (destruction of national defense materials, premises, or utilities), - 18 U.S.C. 2156 (national defense material, premises, or utilities), - 18 U.S.C. 2332d (financial transactions with terrorist supporting countries), - 18 U.S.C. 2339 (harboring terrorists), - 18 U.S.C. 2339A (providing material support to terrorists), - 18 U.S.C. 2339B (providing material support to terrorist organizations), - 18 U.S.C. 2339C (financing of terrorism), - 18 U.S.C. 2339D (military-type training from a foreign terrorist organization), - 18 U.S.C. 2340A (torture), - 21 U.S.C. 960a (narco-terrorism), - 42 U.S.C. 2122 (prohibitions governing atomic weapons), - 42 U.S.C. 2284 (sabotage of nuclear facilities or fuel), - 49 U.S.C. 46504 (second sentence)(assault on a flight crew with a dangerous weapon), - 49 U.S.C. 46505(b)(3) or (c) ( explosive or incendiary devices, or endangerment of human life by means of weapons, on aircraft), - 49 U.S.C. 60123(b) (destruction of interstate gas or hazardous liquid pipeline facility). On the other hand, some of predicate offenses do not outlaw attempts to violate their proscriptions. In these cases, section 2339E would have established not only a new federal capital offense but a new federal crime when death results from the attempt: - 18 U.S.C. 1203 (hostage taking), - 18 U.S.C. 2339 (harboring terrorists), - 18 U.S.C. 2339D (receipt of foreign terrorist military training). H.R. 855 (Representative Lungren), H.R. 3156 (Representative Lamar Smith), H.R. 3147 (Representative Wilson), and S. 1860 (Senator Cornyn) would have established the death penalty as a sentencing option when death results as a consequence of a violation of: 18 U.S.C. 832 (participation in foreign programs involving weapons of mass destruction); 18 U.S.C. 2332g (anti-aircraft missile offenses); 42 U.S.C. 2272 (atomic weapons offenses); 18 U.S.C. 2332h (radiological dispersal device offenses); and 18 U.S.C. 175c (variola virus (small pox) offenses). The gang bills would have rewritten the federal criminal gang statute (18 U.S.C. 521) to permit imposition of capital punishment for a death-resulting violation of the newly crafted provisions whose predicate offenses include various crimes of violence, money laundering, drug offenses, credit card fraud, Travel Act violations, and interstate transportation of stolen property, H.R. 880 (Representative Forbes), H.R. 3150 (Representative Keller). H.R. 3156 (Representative Lamar Smith) and S. 1860 (Senator Cornyn) had the same proposal. The Travel Act, 18 U.S.C. 1952, among other things, outlaws interstate travel to commit a crime of violence in furtherance of various drug, gambling, or extortion offenses. H.R. 3156 (Representative Lamar Smith) and S. 1850 (Senator Cornyn) would have permitted imposition of the death penalty when a violation results in death. S. 447 (Senator Feingold)/ H.R. 6875 (Representative Kucinich) would have eliminated the death penalty as a sentencing option for federal and military capital offenses. It would have prohibited imposition of the death penalty and provided that prisoners under sentence of death at the time of enactment shall be sentenced to life imprisonment without the possibility of release. It would have repealed the procedures for implementation of the death penalty, 18 U.S.C. ch. 228. It would have eliminated as well 18 U.S.C. 3235 which dictates that the trial of a capital offense be conducted in the county in which it occurred. It would have amended the statute of limitations of 18 U.S.C. 3281 to list specific previous capital offenses which may be tried at any time. It would have mades comparable adjustments in the Code of Military Justice. The general statute of limitations for federal crimes is 5 years, 18 U.S.C. 3282. Federal crimes punishable by death may be prosecuted at any time, 18 U.S.C. 3281. Federal crimes of terrorism as defined in 18 U.S.C. 2332b(g)(5)(B) that result in death or involve a risk of death may also be prosecuted at any time, 18 U.S.C. 3286(b). Moreover, federal sexual offenses and crimes against children proscribed by 18 U.S.C. 1201 or 18 U.S.C. chs. 109A (sexual abuse), 110 (sexual exploitation of children), or 117(travel of illicit sexual purposes) may likewise be brought any time, 18 U.S.C. 3299. S. 447 / H.R. 6875 would have replaced the language of section 3281 for crimes carrying the death penalty with a list of federal crimes (now punishable by death) which may be prosecuted at any time notwithstanding the bill's elimination of the death penalty. The list was not exhaustive. Some of the omissions were covered by exceptions for crimes against children, sex offenses, or the federal crimes of terrorism. Some were not. The crimes which now can be prosecuted at any time but which S. 447 / H.R. 6875 would appear to have made subject to the general 5-year statute of limitations were violations of: 7 U.S.C. 2146 (killing federal animal transportation inspectors) 15 U.S.C. 1825(a)(2)(C) (killing those enforcing the Horse Protection Act) 18 U.S.C. 115(a)(1)(A) (murder of a family member of a United States officer, employee or judge with intent to impede or retaliate for performance of federal duties) 18 U.S.C. 115(a)(1)(B) (murder of a former United States officer, employee or judge or any member of their families in retaliation for performance of federal duties) 18 U.S.C. 229 (death resulting from chemical weapons) 18 U.S.C.1119 (murder of a U.S. national by another outside the U.S.) 18 U.S.C.1120 (murder by a person who has previously escaped from a federal prison) 18 U.S.C.1201 (kidnaping where death of an adult results) 18 U.S.C.1503 (murder to obstruct federal judicial proceedings) 18 U.S.C. 1513 (retaliatory murder of a federal witness or informant) 18 U.S.C. 3261 (murder committed by members of the United States armed forces or accompanying or employed by the United States armed forces overseas) 21 U.S.C.461(c) (murder of federal poultry inspectors during or because of official duties) 21 U.S.C.675 (murder of federal meat inspectors during or because of official duties) 21 U.S.C. 848(c), 18 U.S.C. 3592(b) (major drug kingpins and attempted murder by drug kingpins to obstruct justice) 21 U.S.C.1041(c) (murder of an egg inspector during or because of official duties) 42 U.S.C.2283 (murder of federal nuclear inspectors during or because of official duties). Federal Rules of Criminal Procedure: Rule 12.2 (a) Notice of an Insanity Defense. A defendant who intends to assert a defense of insanity at the time of the alleged offense must so notify an attorney for the government in writing within the time provided for filing a pretrial motion, or at any later time the court sets, and file a copy of the notice with the clerk. A defendant who fails to do so cannot rely on an insanity defense. The court may, for good cause, allow the defendant to file the notice late, grant additional trial-preparation time, or make other appropriate orders. (b) Notice of Expert Evidence of a Mental Condition. If a defendant intends to introduce expert evidence relating to a mental disease or defect or any other mental condition of the defendant bearing on either (1) the issue of guilt or (2) the issue of punishment in a capital case, the defendant must—within the time provided for filing a pretrial motion or at any later time the court sets—notify an attorney for the government in writing of this intention and file a copy of the notice with the clerk. The court may, for good cause, allow the defendant to file the notice late, grant the parties additional trial-preparation time, or make other appropriate orders. (c) Mental Examination. (1) Authority to Order an Examination; Procedures. (A) The court may order the defendant to submit to a competency examination under 18 U.S.C. § 4241. (B) If the defendant provides notice under Rule 12.2(a), the court must, upon the government's motion, order the defendant to be examined under 18 U.S.C. § 4242. If the defendant provides notice under Rule 12.2(b) the court may, upon the government's motion, order the defendant to be examined under procedures ordered by the court. (2) Disclosing Results and Reports of Capital Sentencing Examination. The results and reports of any examination conducted solely under Rule 12.2(c)(1) after notice under Rule 12.2(b)(2) must be sealed and must not be disclosed to any attorney for the government or the defendant unless the defendant is found guilty of one or more capital crimes and the defendant confirms an intent to offer during sentencing proceedings expert evidence on mental condition. (3) Disclosing Results and Reports of the Defendant's Expert Examination. After disclosure under Rule 12.2(c)(2) of the results and reports of the government's examination, the defendant must disclose to the government the results and reports of any examination on mental condition conducted by the defendant's expert about which the defendant intends to introduce expert evidence. (4) Inadmissibility of a Defendant's Statements. No statement made by a defendant in the course of any examination conducted under this rule (whether conducted with or without the defendant's consent), no testimony by the expert based on the statement, and no other fruits of the statement may be admitted into evidence against the defendant in any criminal proceeding except on an issue regarding mental condition on which the defendant: (A) has introduced evidence of incompetency or evidence requiring notice under Rule 12.2(a) or (b)(1), or (B) has introduced expert evidence in a capital sentencing proceeding requiring notice under Rule 12.2(b)(2). (d) Failure to Comply. (1) Failure to Give Notice or to Submit to Examination . The court may exclude any expert evidence from the defendant on the issue of the defendant's mental disease, mental defect, or any other mental condition bearing on the defendant's guilt or the issue of punishment in a capital case if the defendant fails to: (A) give notice under Rule 12.2(b); or (B) submit to an examination when ordered under Rule 12.2(c). (2) Failure to Disclose. The court may exclude any expert evidence for which the defendant has failed to comply with the disclosure requirement of Rule 12.2(c)(3). (e) Inadmissibility of Withdrawn Intention. Evidence of an intention as to which notice was given under Rule 12.2(a) or (b), later withdrawn, is not, in any civil or criminal proceeding, admissible against the person who gave notice of the intention. Federal Crimes Punishable by Death 7 U.S.C. 2146 (murder of a federal animal transportation inspector) 8 U.S.C. 1324 (death resulting from smuggling aliens into the U.S.) 15 U.S.C. 1825(a)(2)(C) (killing those enforcing the Horse Protection Act) 18 U.S.C. 32 (death resulting from destruction of aircraft or their facilities) 18 U.S.C. 33 (death resulting from destruction of motor vehicles or their facilities used in United States foreign commerce) 18 U.S.C. 36 (murder by drive-by shooting) 18 U.S.C. 37 (death resulting from violence at international airports) 18 U.S.C. 115(a)(1)(A) (murder of a family member of a United States officer, employee or judge with intent to impede or retaliate for performance of federal duties) 18 U.S.C. 115(a)(1)(B) (murder of a former United States officer, employee or judge or any member of their families in retaliation for performance of federal duties) 18 U.S.C. 229 (death resulting from chemical weapons offenses) 18 U.S.C. 241 (death resulting from conspiracy against civil rights) 18 U.S.C. 242 (death resulting from deprivation of civil rights under color of law) 18 U.S.C. 245 (death resulting from deprivation of federally protected activities) 18 U.S.C. 247 (death resulting from obstruction of religious beliefs) 18 U.S.C. 351 (killing a Member of Congress, cabinet officer, or Supreme Court justice) 18 U.S.C. 794 (espionage) 18 U.S.C.844(d) (death resulting from the unlawful transportation of explosives in United States foreign commerce) 18 U.S.C. 844(f) (death resulting from bombing federal property) 18 U.S.C. 844(i) (death resulting from bombing property used in or used in an activity which affects United States foreign commerce) 18 U.S.C. 924(c) (death resulting from carrying or using a firearm during and in relation to a crime of violence or a drug trafficking offense) 18 U.S.C.930(c) (use of a firearm or dangerous weapon a firearm or other dangerous weapon in a federal facility) 18 U.S.C.1091 (genocide when the offender is a United States national) 18 U.S.C.1111 (murder within the special maritime jurisdiction of the United States) 18 U.S.C.1114 (murder of a federal employee, including a member of the United States military, or anyone assisting a federal employee or member of the United States military during the performance of (or on account of) the performance of official duties) 18 U.S.C.1116 (murder of an internationally protected person) 18 U.S.C.1119 (murder of a U.S. national by another outside the U.S.) 18 U.S.C.1120 (murder by a person who has previously escaped from a federal prison) 18 U.S.C.1121(a) (murder of another who is assisting or because of the other's assistance in a federal criminal investigation or killing (because of official status) a state law enforcement officer assisting in a federal criminal investigation) 18 U.S.C.1201 (kidnaping where death results) 18 U.S.C.1203 (hostage taking where death results) 18 U.S.C.1503 (murder to obstruct federal judicial proceedings) 18 U.S.C.1512 (tampering with a federal witness or informant where death results) 18 U.S.C. 1513 (retaliatory murder of a federal witness or informant) 18 U.S.C. 1716 (death resulting from mailing injurious items) 18 U.S.C. 1751 (murder of the President, Vice President, or a senior White House official) 18 U.S.C. 1958 ( murder for hire in violation of U.S. law) 18 U.S.C. 1959 (murder in aid of racketeering) 18 U.S.C. 1992 (attacks on railroad and mass transit systems engaged in interstate or foreign commerce resulting in death) 18 U.S.C. 2113 (murder committed during the course of a bank robbery) 18 U.S.C. 2119 (death resulting from carjacking) 18 U.S.C.2241, 2245 (aggravated sexual abuse within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C.2242, 2245 (sexual abuse within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C.2243, 2245 (sexual abuse of a minor or ward within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C.2244,2245 (abusive sexual contact within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C. 2251 (murder during the course of sexual exploitation of a child) 18 U.S.C. 2280 (a killing resulting from violence against maritime navigation) 18 U.S.C. 2281 (death resulting from violence against fixed maritime platforms) 18 U.S.C. 2282A (murder using devices or dangerous substances in U.S. waters) 18 U.S.C. 2283 (transportation of explosives, biological, chemical, radioactive or nuclear materials for terrorist purposes on the high seas or aboard a U.S. vessel or in U.S. waters) 18 U.S.C. 2291 (murder in the destruction of vessels or maritime facilities) 18 U.S.C. 2332 (killing an American overseas) 18 U.S.C. 2332a (death resulting from use of weapons of mass destruction) 18 U.S.C. 2322b (multinational terrorism involving murder) 18 U.S.C. 2332f (death resulting from bombing of public places, government facilities, public transportation systems or infrastructure facilities)(effective when the terrorist bombing treaty enters into force for the U.S.) 18 U.S.C. 2340A (death resulting from torture committed outside the U.S.) 18 U.S.C. 2381 (treason) 18 U.S.C. 2441 (war crimes) 18 U.S.C. 3261 (murder committed by members of the United States armed forces or accompanying or employed by the United States armed forces overseas) 21 U.S.C.461(c) (murder of federal poultry inspectors during or because of official duties) 21 U.S.C.675 (murder of federal meat inspectors during or because of official duties) 21 U.S.C. 848(c), 18 U.S.C. 3592b) (major drug kingpins and attempted murder by drug kingpins to obstruct justice) 21 U.S.C.848(e)(1) (drug kingpin murders) 21 U.S.C.1041(c) (murder of an egg inspector during or because of official duties) 42 U.S.C.2283 (killing federal nuclear inspectors during or because of official duties) 49 U.S.C. 46502 (air piracy where death results) 49 U.S.C.46506 (murder within the special aircraft jurisdiction of the United States) | Most capital offenses are state crimes. In 1994, however, Congress revived the death penalty as a federal sentencing option. More than a few federal statutes now proscribe offenses punishable by death. A number of bills were offered during the 110th Congress to modify federal law in the area. None were enacted. One, S. 447 (Senator Feingold)/H.R. 6875 (Representative Kucinich), would have abolished the federal death penalty. Another, H.J.Res. 80 (Rep McCollum), would have amended the Constitution to abolish capital punishment as a sentencing alternative for either state or federal crimes. Other proposed amendments would have eased constitutional limitations on the death penalty as a sentencing option, particularly in cases involving the rape of children, H.J.Res. 83 (Representative Broun), H.J.Res. 96 (Representative Chabot). Several bills would have increased the number of capital offenses to include one or more newly created offenses or existing non-capital offenses newly designated as capital offenses, e.g., H.R. 855 (Representative Lungren), H.R. 880 (Representative Forbes), H.R. 1118 (Representative Keller), H.R. 1645 (Representative Gutierrez), H.R. 2376 (Representative Franks), H.R. 3147 (Representative Wilson), H.R. 3150 (Representative Keller), H.R. 3156 (Representative Lamar Smith), S. 330 (Senator Isakson), S. 607 (Senator Vitter), S. 1320 (Senator Kyl), S. 1348 (Senator Reid), and S. 1860 (Senator Cornyn). Numbered among the new capital offenses and newly designated capital offenses were murder related to street gang offenses or Travel Act violations, murder committed during and in relation to drug trafficking, murder committed in the course of evading border inspection, murder of disaster assistance workers, and various terrorism-related murders. A third category of proposals would have adjusted in one way or another the procedures used to try and sentence capital defendants, including those relating to where a capital offense may be tried, the appointment of counsel in capital cases, the pre-trial notification which the parties must exchange in capital cases, the procedures that apply when the defendant claims to be mentally retarded, adjustments in the statutory aggravating and mitigating circumstances, jury matters, and the site of federal executions. Among the bills offering one or more of these proposals were: H.R. 851 (Representative Gohmert), H.R. 880 (Representative Forbes), H.R. 1645 (Representative Gutierrez), H.R. 1914 (Representative Carter), H.R. 3150 (Representative Keller), H.R. 3153 (Representative Gerlach), H.R. 3156 (Representative Lamar Smith), S. 1320 (Senator Kyl), and S. 1860 (Senator Cornyn). An abridged version of this report – without footnotes, appendices, and most citations, is available as CRS Report RS22719, Capital Punishment Legislation in the 110th Congress: A Sketch, by [author name scrubbed]. |
The U.S. effort to develop and deploy ballistic missile defenses (BMD) based on the concept of hit-to-kill or kinetic energy kill began three decades ago. This effort gained momentum as the primary focus of the U.S. BMD program in the mid-1980s with the announcement of President Reagan's Strategic Defense Initiative (SDI). Since that time, the United States has pursued numerous major kinetic energy BMD programs; these have produced hundreds of various flight test results. These test results and some very limited operational experience in wartime provide sufficient data for at least some conclusions regarding the decades-long U.S. investment in hit-to-kill as a concept for BMD. This overview report examines the U.S. investment in that concept, what that investment has produced, and raises various questions that might be considered. The development of BMD has shown important technological differences between efforts designed to attack and destroy short or medium-range ballistic missiles and those designed for long-range or intercontinental ballistic missiles. Therefore, this report will review and distinguish between the program results of theater missile defense (TMD) and national missile defense (NMD). CRS received historical flight test data from the Missile Defense Agency (MDA) in June 2005. It is important to note that for each of these flight tests there were various primary and multiple secondary objectives. Such flight tests are inherently complex and relatively costly. Therefore, multiple test objectives are designed to maximize the potential benefit derived from each flight test. The determination as to whether each of these objectives was reached was made by each relevant agency or military branch. All of the references to flight test results in this report are derived from the Flight Tests Results memorandum provided by the MDA unless otherwise referenced. CRS currently is awaiting an update of the historical flight test data from MDA, which will be reviewed and included in an updated version of this report later in 2007. Analysis of flight test data shows that the U.S. effort to develop, test, and deploy effective BMD systems based on this concept has produced mixed and ambiguous results. The actual performance in war-time of one kinetic-energy system currently deployed by the United States (i.e., the Patriot PAC-3) is similarly ambiguous. Further, it is not yet possible to assess the operational effectiveness the other deployed system (i.e., the National Defense System) against long-range ballistic missile threats. The United States has pursued four major kinetic energy interceptor long-range BMD or NMD programs since the early 1980s: Homing Overlay Experiment (HOE), Exoatmospheric Reentry Interceptor Subsystem (ERIS), National Missile Defense (NMD), and Ground-based Midcourse Defense (GMD). Each of these is briefly discussed below. The Army developed HOE in the late 1970s and early 1980s to test the viability of the emerging hit-to-kill concept. It conducted four intercept flight tests in 1983 and 1984. Three of the tests failed to intercept the intended target, but the fourth was considered a success. The Army did not identify any secondary flight test objectives. Nonetheless, the nascent SDI program then viewed the single reported success as evidence of the promise of non-nuclear BMD interceptor technologies. The technologies tested in HOE served as the basis for its successor program, ERIS. ERIS went through a lengthy development program before flight testing began in 1991 with the first of four intercept flight tests. Although the first was considered a successful intercept of the target, the following three intercept attempts through 1992 failed to destroy their intended targets. Even so, officials concluded that half of the primary and secondary test flight objectives were accomplished, and that the primary BMD concept being pursued held significant promise. The NMD program followed ERIS with a series of eight flight tests from 1997 to 2001. The first three were planned "fly-by" tests. There were no intercept attempt objectives. The first one failed to launch; however, the other two were deemed successful in their primary objectives. No secondary objectives were identified. Of the five planned intercept attempts, three reportedly intercepted their intended targets; one ended in failure because the interceptor kill vehicle did not deploy and the other failed because the on-board sensors designed to track and intercept the target failed. Officials concluded that 17 of the 20 primary objectives were met or partially met and all the secondary objectives by the planned intercept tests were met. The current GMD program (NMD's successor) began flight testing in 2002. Since that time six flight tests have taken place. Five of these flight tests were planned intercept attempts, with three resulting in failure to intercept. Officials concluded that about 80% of the program's 40 or so primary intercept flight test objectives were met; all the secondary objectives were met fully or partially. In 2004, the GMD undertook a new configuration with a different booster and interceptor. It flew a successful integration flight test (non-intercept test) in early 2004 with all primary and secondary objectives met. This system was deployed in Alaska and California in 2004 and declared operational after eight missiles were placed in silos. Subsequently, two planned intercept flight tests in December 2004 and February 2005 failed to launch. The currently deployed system thus remains to be tested successfully against targets it might be expected to intercept. In September 2006, a successful flight test exercise of the GMD system too place. Although not a primary objective of the data collection test, an intercept of the target warhead was achieved. Flight tests whose primary objectives are intercepts were scheduled for later in 2006, but have been delayed into 2007. Each of the four NMD programs were different, but they built on the limited successes of their predecessors. Of the eighteen or so attempted intercepts since the early 1980s, seven of them were considered successful, or roughly a 39% intercept rate in tests. Officials cited several reasons, including program hardware and software, as well as interceptor silo and target launch failures. From that, there do not appear to be any recognizable patterns that emerge to account for the mostly unsuccessful history of the effort. Nor is there conclusive evidence of a learning curve, such as increased success over time relative to the first tests of the concept 20 years ago. Program supporters can point to limited evidence that, under controlled conditions, there is reason to support the contention that kinetic energy interceptor technology for use against long-range ballistic missiles holds promise. Critics of the flight test effort to date, whether they support missile defense or not in general, can raise questions about the success rate and the realism of the testing effort, given a generation of U.S. investment in its development. Can kinetic energy interceptor technologies for use against long-range ballistic missiles be developed successfully and deployed as an effective part of the U.S. military posture? The answer appears to be ambiguous at this juncture. Can the now-deployed NMD system protect the United States from long-range ballistic missile attacks? Currently, there is insufficient empirical data to support a clear answer. There have been a number of major kinetic-energy TMD programs since the early 1990s: Extended Range Intercept Technology (ERINT), Flexible Lightweight Agile Guided Experiment/Small Radar Homing Intercept Technology (FLAGE/SRHIT), Navy Lightweight Exoatmospheric Projectile (LEAP), the Navy Aegis BMD, Patriot PAC-3, and Theater High Altitude Area Defense (THAAD). Each of these are briefly examined below. The Army's FLAGE/SRHIT program conducted eight flight tests from 1984-1987 to prove the feasibility of lower atmosphere intercepts. Five of these flight tests were planned intercept attempts. From the data provided by MDA all the primary and secondary test objectives in the series were achieved. The targets included stationary targets in the atmosphere and an air-launched target. Only one target, however, was a short-range missile. The degree to which any conclusions might be drawn regarding very short-range hit-to-kill in this effort is therefore limited. Building on the SRHIT effort, the Army's ERINT flight test program (1992-1994) conducted five flight tests. Three of these were planned intercepts; two of these three flight tests successfully intercepted their targets (the failure cited was hardware related). Despite the missed intercept, the Army concluded that all of its primary test objectives for the three tests were met fully or partially, and that all but one of the 26 secondary objectives in the three tests were met. As far as the two non-intercept flight tests were concerned, the Army determined that all of its primary and secondary flight test objectives were met. The Navy developed its own indigenous LEAP program, which flight tested from 1992-1995. Three non-intercept flight tests achieved all primary and secondary objectives. Of the five planned intercept tests, only the second was considered a successful intercept, however. Failures were due to various hardware, software, and launch problems. Even so, the Navy determined that it achieved about 82% of its primary objectives (18 of 22) and all of its secondary objectives in these tests. Building on some of its previous efforts in SRHIT and ERINT, the Army's THAAD program nevertheless experienced significant challenges from 1995 to 1999. After three relatively successful non-intercept flight tests (almost all of the primary and secondary test objectives were partially or fully met), THAAD failed to intercept in seven of its nine planned attempts. However, the THAAD intercept flight test program met about half of its primary and secondary objectives. Because the last two intercepts were successful (the last being in 1999), the Department of Defense and Congress agreed to further develop, but revamp, the THAAD program. The current THAAD program is a redesign of the former THAAD system. Recently, the program conducted its first flight test (non-intercept) to examine the launch, boost, and fly-out functions of the THAAD missile. MDA officials considered this test successful. The Army's Patriot (Phased Array Tracking to Intercept of Target) program has a history dating to the 1960s as an air-defense weapon. Only in the mid-to-late 1980s at the insistence of Congress was the program given a specific anti-missile role. Using a focused explosive charge (non-nuclear and not hit-to-kill technology), Patriot PAC-2's (Patriot Antitactical Capability) 1991 Desert Storm performance remains controversial. After the war, Patriot improvements for missile defense were widely supported. Testing of the Patriot PAC-3 with a kinetic energy interceptor began in 1997. After the initial two successful non-intercept flight tests (most of the objectives were met), the Patriot PAC-3 attempted 27 intercept tests, of which 21 (about 78%) were considered successful intercepts. Additionally, some 92% of the primary intercept test objectives were met, as well as almost all of the known secondary objectives. In terms of actual wartime use, the Patriot PAC-3 was used in Operation Iraqi Freedom (OIF) in 2003, but its role was very limited (four missiles fired in two successful engagements) and thus, while suggestive of significant promise, its operational effectiveness remains uncertain based on limited empirical data. Building on its previous efforts as well, the Navy (as of mid-2005) had conducted six (of seven) successful intercept tests of its Aegis BMD (or Navy sea-based) program using the Standard Missile-3 (SM-3) Block 1 missile (2002-2005). The most recent test included in the data sheets provided to CRS was against a warhead target that separated from the booster rocket itself, in contrast to earlier intercept tests against SCUD-type ballistic missiles. The most recent flight test intercept attempt (in December 2006) was not completed due to technical problems aboard the Aegis cruiser involved prior to the launch of the two interceptor missiles themselves. Primarily because of the Patriot PAC-3 flight test and operational record and the more recent Navy BMD program, the concept of hit-to-kill for TMD appears promising. Older TMD efforts were not as suggestive, and the foundation for the current THAAD program is based mostly on prior test failures. Nonetheless, because there is no flight test data yet on the current THAAD program, nothing conclusive can be said about its potential future for success. And, although the Patriot PAC-3 shows promise, some might note that the Patriot system itself has been evolving for about 40 years now. Additionally, much of the Navy infrastructure and technology supporting the Aegis SM-3 is decades old and is comparable in evolution to the Patriot air and missile defense system. A central question might be: at this stage how well is the United States doing in developing effective ballistic missile defenses based on this kinetic energy kill concept? Since the announcement of the SDI program in the mid-1980s the United States has spent about $100 billion on missile defense with a primary focus on the kinetic energy or hit-to-kill concept. U.S. programs began looking at that concept a decade earlier into the mid-1970s. Supporters of hit-to-kill could argue that what the United States is striving to do has indeed proven to be challenging, but that progress is being made. Furthermore, success measured in terms of operationally effective deployed BMD systems based on this concept, loom on the horizon. They could also argue that threats posed from the proliferation of ballistic missiles and weapons of mass destruction (WMD) must be addressed by developing effective BMD systems. Supporters and skeptics could argue the need for an independent, comprehensive evaluation of the test record to determine whether any systemic or conceptual challenges are impeding the U.S. effort. Although some defense officials have provided testimony and private and government agencies have looked in detail at a few of these tests, some might argue that a comprehensive and independent review of the entire record to date has not been undertaken and is warranted. Other observers might argue that alternatives should be pursued as a hedge against the possible failure of this concept for either NMD or TMD. Such alternatives could be military in nature, such as reducing the emphasis on BMD in favor of increased emphasis on counter-force (i.e., attacking and destroying enemy missile systems before their missile could be launched). Alternatives also could focus on other ways to mitigate ballistic missile proliferation (e.g., arms control). Some alternatives, such as a return to nuclear BMD concepts or emphasis toward more exotic technologies (e.g., lasers or weapons in space) might face opposition on political or technical grounds. Still other observers could argue that in general the United States needs to make a more concerted effort to increase developmental testing across the board, before these systems are ready for more realistic testing regimes. They could argue that almost all the testing to date is of a developmental nature and that an operational testing regimen has not been developed, but remains essential. Only then, they could argue, could assessments to confirm the validity of the hit-to-kill concept for BMD be made with confidence. | For some time, U.S. ballistic missile defense (BMD) programs have focused primarily on developing kinetic energy interceptors to destroy attacking ballistic missiles. These efforts have evolved over 30 years and have produced a significant amount of test data from which much can be learned. This report provides a broad overview of the U.S. investment in this approach to BMD. The data on the U.S. flight test effort to develop a national missile defense (NMD) system remains mixed and ambiguous. There is no recognizable pattern to explain this record nor is there conclusive evidence of a learning curve over more than two decades of developmental testing. In addition, the test scenarios are considered by some not to be operational tests and could be more realistic in nature; they see these tests as more of a laboratory or developmental effort. Success and failure rates (and their technical causes) have shown relative consistency through this period. The U.S. flight test effort to develop theater missile defense (TMD) systems appears more promising. In relative terms, developmental and operational testing of TMD systems has been more successful than the NMD effort. Nonetheless, TMD systems that evolved from mature, existing ground and sea-based air-defense systems have demonstrated greater test success than other TMD programs. How effective has the U.S. investment been in developing kinetic energy BMD systems? Observers could make any number of arguments as to what the record means and what could be done to improve the effectiveness of systems under development and of those deployed. Some observers have suggested that the 110th Congress might review the U.S. investment in the kinetic energy concept to date to determine how best to proceed with the U.S. BMD effort in the coming years. This report will be updated as events warrant. |
The Comprehensive Nuclear-Test-Ban Treaty, or CTBT, would ban all nuclear explosions. It was opened for signature in September 1996; as of February 2008, 178 nations had signed it and 144 of them had ratified. To enter into force, 44 nations with nuclear reactors must ratify it; so far, 35 of them have ratified and another 7 have signed. The United States signed the treaty in September 1996; the Senate rejected it in October 1999. Nuclear test bans have a long history (see Appendix A ). There has been strong international support for test ban treaties; U.S. opinion has been divided. Most U.S. Presidents have sought agreements to limit testing. The Eisenhower Administration devoted great, but unsuccessful, effort to negotiating a treaty. The Kennedy Administration sought a CTBT; when that proved nonnegotiable, it achieved the Limited Test Ban Treaty (LTBT) in 1963, which bans nuclear tests in the atmosphere, under water, and in space. The Nixon Administration negotiated the Threshold Test Ban Treaty (TTBT) with the Soviet Union in 1974, which limits underground tests to a yield of 150 kilotons. The Ford Administration negotiated the Peaceful Nuclear Explosions Treaty (PNET) in 1976, which extended the 150-kiloton limit to peaceful nuclear explosions. The Carter Administration did not pursue entry into force of these two treaties, but sought a CTBT; partly because of strong opposition within the Administration, no treaty was concluded. The Reagan Administration rejected the TTBT and PNET because of verification concerns, but in 1987 began to negotiate new verification protocols. The George H.W. Bush Administration concluded negotiation of these protocols; the Senate approved the two treaties in 1990, and they entered into force in that year. President Bush also signed into law a provision implementing a nine-month moratorium on nuclear testing starting in October 1992. President Clinton extended the moratorium; he had initially thought to pursue a test ban treaty of limited duration and permitting a low explosive yield, but in 1995 he opted for a CTBT of zero yield and unlimited duration. The George W. Bush Administration has continued the moratorium but has not pursued the CTBT. U.S. interest in the CTBT waned after 1999, but has since reemerged. In the wake of 9/11 and the rise of nuclear programs in Iran and North Korea, the risk of nuclear proliferation has become more stark; some claim the treaty would curb that risk. An op-ed in January 2007 by Henry Kissinger, Sam Nunn, William Perry, and George Shultz called for steps toward eliminating nuclear weapons, including ratification and entry into force of the CTBT. The Administration is pursuing the Reliable Replacement Warhead (RRW), which it argues would make nuclear testing less likely; some envision a CTBT-RRW bargain. Scientists around the world have made progress in detecting nuclear explosions, and U.S. scientists have made progress in maintaining nuclear weapons without testing; both topics were of concern in the 1999 debate. Others hold that monitoring capability is insufficient and that new weapons requiring testing are needed. International pressure for the treaty has continued through U.N. General Assembly votes and international conferences. The treaty might be an issue in the presidential campaign. Several bills and resolutions in the 110 th Congress call for ratification of the CTBT. Opinions on the treaty reflect contending views on how to obtain security; the role of nuclear weapons; nuclear nonproliferation and its relationship, if any, to nuclear disarmament; and international relations generally. (1) Some opponents would revoke the U.S. signature of the treaty and resume testing to maintain U.S. nuclear weapons, weapons expertise, and the credibility of the nuclear deterrent, and to develop new weapons. (2) Some supporters and opponents prefer to maintain the moratorium because of concern for political and international ramifications, but would test if necessary to fix a warhead problem. (3) Some supporters favor the treaty on grounds that it has significant value for nonproliferation and can help the United States monitor nuclear testing by other nations. (4) Others favor the CTBT as a step toward abolition of nuclear weapons. While many people of all stripes favor abolition of nuclear weapons as an ultimate goal, those in the fourth group see abolition as a realistic if long-term possibility and believe that the CTBT is a critical step toward reaching that goal. These views are on a continuum, with overlaps and shades of gray between positions. Still others feel the treaty would make little difference in restraining weapons development because technical advances enable such development without testing, or that it would make little difference in countering nuclear proliferation as a stand-alone measure. While the United States has observed a nuclear test moratorium since 1992, few appear to hold it as their preferred position; instead, the treaty's supporters accept the moratorium as better than a return to testing, and opponents accept it as better than the CTBT. This report seeks to present information that may help Members understand many CTBT issues and to assess whether, on balance, the United States is better off with or without the CTBT. It is organized around three aspects of how the treaty might affect U.S. security that were prominent in the 1999 debate: the CTBT and deterrence; monitoring and verification; and implications for nuclear nonproliferation and disarmament. In the public debate since 1999, CTBT supporters have written extensively on all aspects of the treaty, while opponents have written much less. To provide balance, CRS has obtained many comments from people representing all perspectives. As a result, this report contains a substantial amount of new material. During the Cold War, the United States and Soviet Union engaged in an arms competition, often called an "arms race" or "action-reaction cycle." This competition was dynamic. The United States built submarines carrying ballistic missiles; the Soviet Union followed suit. The Soviet Union built deeply buried bunkers for its leaders; the United States built very high yield weapons to destroy them. Scores of such examples could be listed. Despite this effort, U.S. and Soviet nuclear strategies and programs resulted in a rough parity between the two sides, and the Cold War passed into history with no nuclear or conventional war between them. While deterrence has had many permutations over the years, most in the United States supported it during the Cold War for want of a better alternative. To be sure, some argued that the United States should seek superiority, while others held that a minimum deterrent sufficed. Others reluctantly supported deterrence as an interim measure, arguing that while it purports to reduce the risk of nuclear war, that very outcome could be expected if a low probability per year is aggregated over many years. Despite these differing views, Congress supported the forces to implement a deterrent strategy over many decades. The capability to deter the Soviet Union was by far the most stressing case, so it was seen as more than sufficient to deter other threats. In that environment, nuclear testing served many purposes. Nuclear tests were mainly conducted for weapons development, but also for safety, weapons physics, stockpile confidence, and certification of modifications. Tests also served to maintain skills in weapons science, engineering, and manufacturing, and to demonstrate the credibility of the U.S. deterrent. With the end of the Cold War and the Soviet Union, the "comfort" of dealing for four decades with a single more-or-less predictable adversary ended, to be replaced by considerable uncertainty. R. James Woolsey, in his 1993 nomination hearing to be Director of Central Intelligence, said "Yes, we have slain a large dragon, but we live now in a jungle filled with a bewildering variety of poisonous snakes. And in many ways the dragon was easier to keep track of." Despite this changed situation, there remains wide, but not universal, agreement in the United States on the need to maintain a nuclear deterrent for the foreseeable future. Lawrence Korb and Max Bergmann of the Center for American Progress wrote, "To maintain an effective deterrent, the United States must continue to possess conventional and nuclear forces capable of quickly and decisively destroying these regimes," referring to "extreme regimes ... such as Iran and North Korea." Sidney Drell and James Goodby, in an Arms Control Association report, "estimate that a U.S. strategic force of some 500 operationally deployed warheads would be more than adequate for deterrence. ... this force level would be enough to provide a degree of flexibility in a fluid security environment." A responsive force of 400 to 500 warheads would supplement this force. The Administration's Nuclear Posture Review of 2001 stated that with the end of the Cold War, "U.S. nuclear forces still require the capability to hold at risk a wide range of target types. This capability is key to the role of nuclear forces in supporting an effective deterrence strategy relative to a broad spectrum of potential opponents under a variety of contingencies." At issue, though, is what is needed for deterrence. The aim of deterrence has always been to make an adversary fear it will suffer unacceptable consequences if it takes certain actions. Many believe that the U.S.-Soviet deterrent relationship worked during the Cold War because threats were credible and each side understood the consequences of attacking the other. In the post-Cold War, post-9/11 world, many questions arise. Who is to be deterred, by what threats? What weapons are needed to make them credible? Is deterrence dynamic, with constant weapons development needed to respond to changing threats, or is a modest number of nuclear weapons of existing designs, together with U.S. conventional forces and economic might, more than sufficient? Are existing nuclear weapons sufficient to deter North Korea, or are new ones needed that could destroy underground bunkers where leaders might hide, or is the nation so irrational that it is beyond deterrence, or is a North Korean nuclear attack wildly implausible? Is a satisfactory outcome possible through diplomacy? What capabilities are needed to deter Iran or to roll back its nuclear program? Do nuclear forces have any relevance to deterring terrorists or their state sponsors? This report now considers CTBT and nuclear testing issues that link to these broader issues of deterrence. Without testing, can the United States maintain the facilities and skilled personnel supporting U.S. nuclear weapons? This question is considered first because these capabilities are the bedrock on which nuclear weapons rest. Can existing weapons be maintained without testing? This is a necessary criterion for deterrence under the CTBT, as it would take many years to develop and deploy new weapons. Does deterrence require new weapons that incorporate new military capabilities, and is testing required to develop them? Do U.S. weapons need more features for safety and security, and is testing required to add them? Such features might deter terrorist attempts to seize and detonate these weapons. The nuclear weapons enterprise is here taken to mean the nuclear weapons complex managed by the National Nuclear Security Administration (NNSA), a semiautonomous agency of the Department of Energy (DOE) responsible for the U.S. nuclear weapons program; scientists, engineers, and production staff of the complex; and Department of Defense (DOD) agencies that deal with nuclear weapons. Collectively, they provide the skills and capabilities that support and would use nuclear weapons. Whether the United States can maintain this enterprise without nuclear testing has been at issue for decades. In 1963, the Joint Chiefs of Staff conditioned their support for the LTBT on four "safeguards," or actions this nation would take within the confines of that treaty. The first three would help maintain this enterprise: Safeguard A, an aggressive underground nuclear test program; Safeguard B, technology facilities and programs to attract and retain scientists; Safeguard C, maintenance of the ability to resume atmospheric testing promptly; and Safeguard D, improvement of monitoring capability. President Kennedy's assurance to Senators Mansfield and Dirksen, the majority and minority leaders, that the United States would observe these and other safeguards was instrumental in securing Senate advice and consent to ratification. The safeguards have been observed over time, though Safeguard C has been modified as the perceived need for atmospheric tests waned and ended. As Appendix A details, other nuclear test limitation treaties were negotiated and entered into force between 1974 and 1990. The Hatfield-Exon-Mitchell amendment, Section 507 of the FY1993 Energy and Water Development Appropriations Act, P.L. 102-377 , mandated a nine-month moratorium on nuclear testing beginning in October 1992, limited testing thereafter, and directed the President to report on a plan for achieving a CTBT by September 30, 1996. President Clinton extended the moratorium several times. In response to the prospect of a permanent halt to testing, Congress, in Section 3138 of P.L. 103-160 , the FY1994 National Defense Authorization Act, and the President, in Presidential Decision Directive 15, mandated a Stockpile Stewardship Program (SSP) to maintain U.S. nuclear capabilities in a no-test era. In 1995, President Clinton announced his decision to seek a zero-yield CTBT. He conditioned the CTBT on six safeguards: (A) SSP, (B) modern laboratory facilities and nuclear technology programs to attract and retain scientists, (C) the "basic capability to resume nuclear test activities," (D) continued R&D to improve the ability to monitor compliance with the treaty, (E) continued improvement of intelligence capabilities to provide information on nuclear weapons programs worldwide, and (F) the understanding that if a key nuclear weapon type could no longer be certified as safe or reliable, "the President, in consultation with Congress, would be prepared to withdraw from the CTBT under the standard 'supreme national interests' clause in order to conduct whatever testing might be required." Safeguards A, B, C, and F would help maintain the nuclear weapons enterprise. In the 1999 CTBT debate, SSP, as the core of U.S. ability to maintain the nuclear weapons enterprise without testing, was a major issue. SSP had been in being for a short time, resulting in uncertainty on its ability to maintain existing weapons. Former National Security Adviser Brent Scowcroft, former Secretary of State Henry Kissinger, and former Deputy Secretary of Defense John Deutch questioned whether funding would be maintained and wrote that SSP "is not sufficiently mature to evaluate the extent to which it can be a suitable alternative to testing." Former Secretary of Defense Caspar Weinberger said, "[i]f we need nuclear weapons, we have to know that they work. That is the essence of their deterrence.... The only assurance that you have that they will work is to test them." John Browne, Director of Los Alamos, argued that Safeguard F was absolutely essential, while Weinberger expressed concern that the President would not exercise it. Six former Secretaries of Defense were concerned that an indefinite-duration CTBT could lead to loss of expertise, the topic of President Clinton's Safeguard B: Another implication of a CTBT of unlimited duration is that over time we would gradually lose our pool of knowledgeable people with experience in nuclear weapons design and testing. Consider what would occur if the United States halted nuclear testing for 30 years. We would then be dependent on the judgment of personnel with no personal experience either in designing or testing nuclear weapons. In place of a learning curve, we would experience an extended unlearning curve. Such uncertainties cast doubt for some Senators on the CTBT. Senator Olympia Snowe said, "there are [SSP] methods that are yet to be proven and we are years or decades away from knowing whether or not they are reliable." Senator John Warner said, "there are honest differences on both sides leaving clearly a reasonable doubt, and I come from the old school that it should be beyond any reasonable doubt if we are going to take a step that affects our vital security interests for decades to come, indeed possibly into perpetuity as it relates to this cadre of weapons." The treaty's defenders tried to give assurance on these points. Secretary of State Madeleine Albright said, "We have also now said that [the nuclear weapons laboratories] would have $45 billion over a 10-year period to be able to update and keep going all of the various parts of the stewardship program," and the United States would "maintain the capability to test again should the need ever arise." Secretary of Energy Richardson "stress[ed] that the President, in consultation with Congress, can withdraw from this treaty if a high level of confidence in the safety and reliability of a nuclear weapon critical to our nuclear deterrent cannot be certified. As Secretary of Energy, I would not hesitate to so advise the President in the event it becomes necessary for our country to conduct tests." Senator Carl Levin also emphasized Safeguard F: if lab directors and other experts ... cannot certify to us 2 years, 4 years, 6 years, 10 years from now that this is a safe and reliable stockpile, then we are giving everybody notice who signs this treaty that under our supreme national interest clause we are prepared to withdraw. So in a sense this treaty is almost a year to year treaty. How have President Clinton's safeguards fared since 1999? Safeguards A and B called for SSP and facilities and programs to attract and retain scientists. CTBT supporters claim that SSP has made great progress under NNSA. They cite Thomas D'Agostino, then Acting NNSA Administrator, who said, "stockpile stewardship is working. This program has proven its ability to successfully sustain the safety, security and reliability of the stockpile without the need to conduct an underground test for well over a decade." K. Henry O'Brien, RRW Program Manager at Lawrence Livermore National Laboratory, called SSP a "dramatic success." SSP has developed sophisticated computer models of nuclear weapons and explosions, has built some of the world's most powerful computers, is building the world's largest laser, and conducts nonnuclear experiments. Its surveillance program examines warheads for problems, and its Life Extension Program (LEP) is designed to correct them by replacing components that are, or are expected to become, defective. Life-extended W87 warheads have been certified for use in the stockpile. While the first RRW design, "WR1," is to replace some W76s, Barry Hannah, Chairman of the RRW Project Officers Group, called the W76 LEP an "excellent program" that he believes "meets the Navy's needs." Richard Garwin, IBM Fellow Emeritus who has been involved with nuclear weapon issues since 1950, does not "agree with the generally stated assumption that confidence and the reliability of our existing nuclear weapons will inevitably decline with time as the weapons age." Instead, "with the passage of time and the improvement in computing tools, I believe that confidence in the reliability of the existing legacy weapons will increase rather than diminish." SSP has permitted 12 annual assessments that the U.S. nuclear stockpile is safe and reliable. It has permitted design of RRW, as discussed later. NNSA is planning to modernize the nuclear weapons production complex. For FY2001-FY2007, SSP received about $42.2 billion; its FY2008 current appropriation is $6.3 billion and its FY2009 request is $6.6 billion. CTBT opponents are concerned that without nuclear tests that integrate all phenomena, there is no experimental basis on which designers can be sure that their understanding of a design corresponds to what they would learn with a nuclear test. As Kathleen Bailey, former Assistant Director for Nuclear and Weapons Control, Arms Control and Disarmament Agency, testified in 1998, "Virtual reality cannot replace reality." Without new nuclear test data, in this view, stewardship tools are unvalidated, so certifications are political statements and it is not possible to be certain that the stockpile is safe and reliable. Supporters say that the computer models are valid because they fit a vast array of experimental data, notably including the results of the U.S. nuclear test program; critics respond that while the performance of an individual electronic component can be validated through repeated testing, a nuclear explosion is an integrated event that cannot be predicted by analyzing the performance of individual components. It is a different, and easier, exercise to fit computer models to past tests, they argue, than to see how well a computer model predicts the outcome of a future test. SSP rests on skilled personnel. CTBT opponents point to concerns raised by Carol Burns of Los Alamos National Laboratory: "In 2006, NNSA indicated that about 40% of nuclear weapons program technical staff members were eligible for retirement." She noted a decline in production of students with doctoral degrees in nuclear science, and pointed to a drop in doctoral degrees earned at U.S. universities in radiochemistry and nuclear chemistry from 33 in 1968 to 4 in 2003. Opponents see problems with LEPs. As Ambassador Linton Brooks, then Administrator of NNSA, said in 2005, "it is becoming more difficult and costly to certify warhead remanufacture. The evolution away from tested designs resulting from the inevitable accumulations of small changes over the extended lifetimes of these systems [i.e., warheads] means that we can count on increasing uncertainty." John Foster, former Director of Defense Research and Engineering, raised other concerns: The Stockpile Stewardship Program has been a lifesaver for the nuclear weapons labs. It has attracted and maintained scientists and engineers and provided new world-class tools for understanding nuclear weapon performance and advancing weapon science. But I have three salient concerns. First, U.S. nuclear weapon pit production was stopped in 1989, leading quickly to a halt in weapons production. The capability to produce nuclear weapons has atrophied since then. Second, we have not conducted underground nuclear tests since 1992 and we are running risks regarding the safety, reliability and performance of the stockpile. Third, periodic surveillance of the aging stockpile has revealed the necessity to initiate Life Extension Programs to refurbish several warhead types. This process introduces new materials and components into the warheads, which introduces the possibility of "birth defects" that raise risks. Supporters claim that Safeguard C, the "basic capability to resume nuclear test activities," has been met, as NNSA reduced the time needed to conduct a nuclear test from 36-plus months to 24 months. Opponents respond that without nuclear testing, the capability to test declines as skills atrophy, procedures become outdated, and equipment falls into disuse. Safeguards D and E do not deal with SSP. One cannot prove whether the United States would withdraw from the CTBT, as per Safeguard F, especially as it has not ratified the treaty. U.S. withdrawal from the Antiballistic Missile Treaty in 2002 might make the prospect of withdrawal from the CTBT appear more credible, though critics see prospects for withdrawal dependent on who is President, and thus uncertain. During the Cold War, as noted, deterrence was dynamic, with nuclear moves and counter-moves by the United States and Soviet Union. Testing was essential for both sides to develop new weapons. In the 1999 debate, arguments over the treaty and deterrence played a minor, and predictable, part. Both sides in the debate agreed that maintaining the nuclear deterrent was crucial. Opponents held that without testing, it would be impossible to do so. As former Secretary of Defense James Schlesinger testified, "In the absence of testing, confidence in the reliability of the stockpile will inevitably, ineluctably decline." They questioned whether the United States could, in 1999 if ever, rely on SSP to maintain weapons. The treaty's supporters had a different view. Secretary of State Madeleine Albright said, "Under the treaty, America would retain a safe and reliable nuclear deterrent." And General Henry Shelton, Chairman of the Joint Chiefs of Staff, testified: Senator Levin: What you are telling us is that our top uniformed leadership unanimously support this Treaty? General Shelton: I might add, Senator Levin, that we would never say that unless we felt that we could maintain a credible nuclear deterrent and also a safe and reliable stockpile. Since 1999, support has continued for this nation to maintain nuclear weapons as long as it retains them. There are three main approaches for so doing. Supporters of the Reliable Replacement Warhead (RRW) program and supporters of the Life Extension Program (LEP) each argue that their approach will reduce the likelihood of testing while the other will increase it. In contrast, others believe that neither RRW nor LEP can provide sufficient confidence in the safety and reliability of current warheads without nuclear testing; they therefore see testing as necessary. RRW, as a funded program, began in the FY2005 Consolidated Appropriations Act, P.L. 108-447 ; it was described as a "program to improve the reliability, longevity, and certifiability of existing weapons and their components." In the FY2006 National Defense Authorization Act, P.L. 109-163 , Congress set as an objective that the program "further reduce the likelihood of the resumption of underground nuclear weapons testing." The first proposed RRW, WR1, would be used in place of some W76 warheads on Trident II submarine-launched ballistic missiles. WR1s would be designed to meet post-Cold War requirements, such as enhanced safety, increased ease of manufacture, and high confidence without nuclear testing. However, the FY2008 Consolidated Appropriations Act, P.L. 110-161 , eliminated RRW funds, leaving its prospects unclear. An issue for any future CTBT debate is which approach—RRW or LEP—is less likely to require nuclear testing in the long term. NNSA claims that RRW will make the need for testing unlikely because of steps to increase confidence. For example, RRW designers used high margins, basically building in more performance than is needed, to make material deterioration or design or manufacturing defects less likely to degrade warhead performance below the minimum required. They argued that they could do so because the design was unconstrained by technologies and design choices made decades ago. They view added margin as the single most important goal of the design. Another basis for confidence is that the design stayed close to past experience. Lawrence Livermore National Laboratory, which designed the nuclear components of WR1, states that components very similar to those of the WR1 were nuclear tested in the past. For this and other reasons, "there is direct nuclear test proof that the [WR1] design will perform properly." NNSA and its labs have expressed concerns that, over the long term, minor changes to current warheads through repeated LEPs will introduce defects and make it harder to maintain reliability, possibly requiring nuclear testing. They argue that LEPs replace defective or deteriorated components with replicas. As Thomas D'Agostino said, "The W76 LEP and the life extension approach is an exact rebuild of what we've had in the Cold War stockpile. We try to mimic the manufacturing processes exactly the way it was done 30 years ago." The concern is that components and manufacturing processes cannot be replicated precisely, pushing the warhead beyond the design envelope validated by nuclear testing. This problem could result in defects in life-extended warheads that could cause them to fail. LEP supporters question whether RRW will provide high confidence. As Steven Fetter of the University of Maryland said, "Like most other warheads, RRW will have, or could be expected to have, birth defects or reliability problems that would be discovered and corrected soon after the warhead was deployed. No one can say whether the unreliabilities introduced by these birth defects would be greater or smaller than the unreliabilities that would crop up in the existing warheads due to their age." They thus doubt that a new-design RRW can be certified without testing. Robert Peurifoy, a former vice president at Sandia National Laboratories, stated, "The present nuclear weapon stockpile contains 8 or so nuclear weapon types. That population has enjoyed perhaps 100 successful yield tests. These weapons have benefitted from a test base of perhaps 1,000 yield tests conducted during the 40 or so years when nuclear testing was allowed. Is the DoD really willing to replace tested devices with untested devices?" LEP's supporters argue that current warheads are reliable, as evidenced by 12 stockpile assessments, and that LEP can keep them reliable for many years without testing. While problems emerge, solutions do as well, and LEP supporters argue that SSP has been keeping at least even in this race. RRW supporters agree that SSP is making progress; an NNSA official stated, "Each year, we are gaining a more complete understanding of the complex physical processes underlying the performance of our aging nuclear stockpile." Further, say LEP advocates, current warheads stay within design parameters validated by nuclear tests. In this view, SSP and LEP can maintain margins through careful remanufacture to minimize changes. They also state, to general agreement, that margins for some warheads could be increased in certain ways with no change to a warhead. While RRWs, as new designs, are likely to have "birth defects," LEP supporters claim such defects have been wrung out of existing designs. Some, however, doubt that either LEP or RRW can be assessed as reliable, in the case of RRW because it will never be tested and in the case of LEPs because small changes will undermine confidence in reliability. In this view, SSP has enabled only political assessments rather than technical ones. Since SSP emerged after the moratorium on testing began, these critics hold that its tools were never validated with nuclear tests dedicated to that purpose, so they could lead to false conclusions. Accordingly, in this view, NNSA will not know for sure if SSP, and thus RRW or LEP, work until it conducts nuclear tests. With confidence in the U.S. nuclear arsenal—by the United States, its friends, and its foes alike—central to deterrence, in this view, the United States must conduct nuclear tests regardless of political concerns because only testing can maintain confidence. This section has discussed three views: RRW is less likely to require testing than LEP; LEP is less likely to require testing than RRW; and the United States can have confidence in neither RRW nor LEP without testing. One could argue a fourth view, that both RRW and LEP are unlikely to need testing. This view could lead to a mixed LEP-RRW force. As Henry O'Brien of Lawrence Livermore National Laboratory stated, "Our best approach for a small stockpile and complex would be to retain a couple of the better current weapon types (i.e., those with relatively higher margins, more advanced safety and security technologies, and more sustainable materials), and replace the rest with a small number of RRW types." CTBT opponents argue that the ability to maintain existing weapons without testing through LEP, even if it can be done, misses the point. Deterrence, as they see it, requires continuing to hold at risk assets that enemy leaders prize. However, they argue, current nuclear warheads have many limitations. Current warheads, which were designed during the Cold War, were given high yield to destroy hard targets like Soviet missile silos. But that yield, in this view, could cause the United States to refrain from using these weapons out of concern for inflicting massive civilian casualties in the target area and beyond. As a 2006 Defense Science Board study stated, " weapons that are not seen as useable and effective by potential adversaries cannot be an effective, reliable deterrent. " Current warheads, if exploded near the Earth's surface, would leave much residual radiation that would contaminate large areas and kill many people, barring the United States from using them, the treaty's opponents believe. The radiation output of current warheads, they argue, differs from that needed for such missions as destroying chemical or biological agents or generating electromagnetic pulse. Current warheads cannot destroy key targets that enemy leaders would value highly, such as hardened and deeply buried bunkers where weapons of mass destruction, key communications nodes, or the leaders themselves might hide. WR1 shares these limitations. For example, it would have about the same yield as the W76 it would replace, and would use a reentry body that cannot penetrate the ground. CTBT opponents see deterrence as dynamic, so that it continues to require new military capabilities that can only be embodied in new weapons that could only be developed with nuclear testing. The Threat Reduction Advisory Committee, an expert panel advising DOD, stated that one reason to test would be "[t]o support certification—prior to quantity production—of new nuclear weapons, should the decision be made that a new weapon design requiring testing is the only option to achieve a needed capability." It provided examples of weapons requiring "tailored physics package design for nuclear effects for new missions," including: Earth-penetrating warheads with reduced collateral effects to defeat hard, deeply buried targets; Warheads to defeat chemical or biological sites ... while simultaneously neutralizing released chem-bio agents; Reduced residual radiation warheads. The 9/11 attacks brought concerns about nuclear terrorism to the fore, and raised questions about the link between nuclear weapons and deterrence of rogue states and terrorists. According to the Nuclear Posture Review of December 2001, Greater flexibility is needed with respect to nuclear forces and planning than was the case during the Cold War. The assets most valued by the spectrum of potential adversaries in the new security environment may be diverse and, in some cases, US understanding of what an adversary values may evolve. Consequently, although the number of weapons needed to hold those assets at risk has declined, US nuclear forces still require the capability to hold at risk a wide range of target types. The treaty's opponents see another value in testing. According to Vice Admiral Robert Monroe (USN, Ret.), former Director of Defense Nuclear Agency, "an ongoing underground nuclear test program adds immensely to the credibility of the U.S. deterrent. Conversely, failure to test virtually destroys the credibility of our nuclear forces. A nation which lacks the strength to test nuclear weapons will almost surely lack the strength to use them." CTBT supporters hold that current nuclear weapons suffice for deterrence; no adversary leader would gamble that they would not work, or that the United States would not use them if severely provoked. At the same time, supporters see nuclear weapons as most unlikely to be used, regardless of their characteristics or yield, because of the norm that has built up since 1945 against their use. Current nuclear weapons deterred a Russian or Chinese nuclear attack during the Cold War, it is argued, and will continue to do so, especially as the probability of such attack must be judged as remote. U.S. conventional forces, the treaty's supporters claim, deter threats from other nations. Use of these forces is credible, they can be precisely targeted, and they would create very much less collateral damage than nuclear weapons. Further, it is argued, adversaries could readily counter new U.S. nuclear capabilities. Nuclear weapons to destroy chemical or biological weapons could be defeated by placing the weapons deep underground; even earth penetrator weapons could not destroy them because the heat and radiation of the blast would not reach down that far. More simply, the weapons could be moved to nondescript buildings in cities or to caves in rural areas; U.S. intelligence, in this view, could locate few if any sites. Earth penetrators could be defeated by deeper burial, greater hardening, tunneling under a mountain, or dispersing assets to secret aboveground locations. The treaty's proponents see several congressional actions as implying that Congress would not support testing to develop new weapons. In the last several years, Congress terminated the "bunker buster" Robust Nuclear Earth Penetrator (RNEP) and the Advanced Concepts Initiative, widely but erroneously thought to be developing a "mini-nuke." It specified in the FY2006 National Defense Authorization Act that an objective of the RRW program was to further reduce the likelihood of a return to testing. It eliminated FY2008 funding for RRW. While there are several definitions, surety is here taken to include safety, security, use control, and use denial. Safety involves protecting a warhead against accidental detonation; security is handled through a layered approach that includes everything from warhead features to physical security; use control permits authorized persons to use a warhead only at the direction of the national command authority; and use denial prevents any unauthorized use of a nuclear weapon. Surety has always been the most important characteristic in nuclear weapons design, and its technology has constantly improved, such as with several generations of permissive action links that require a user to enter a code in order to arm the weapon, and with various safety enhancements. During the Cold War, nuclear testing was routine, so the question of whether testing was essential for incorporating these features was moot. In 1999, CTBT opponents argued that new surety features could and should be added to U.S. warheads, and could only be added through nuclear testing. In 1997, Siegfried Hecker, then Director of Los Alamos, testified that "with a CTBT it will not be possible to make some of the potential safety improvements for greater intrinsic warhead safety that we considered during the 1990 time frame." Robert Barker, former Assistant to the Secretary of Defense for Atomic Energy, said in 1999, "Of the nine types of weapons that will remain in the inventory only three types have all three of the most modern safety features while three types have only one such feature. These safety deficiencies will remain as long as we cannot conduct the necessary nuclear tests." Secretary of Energy Richardson, in contrast, stated, "Seven years after our last underground test our stockpile of nuclear weapons is safe and reliable. Three times since 1996 the Secretary of Energy and the Secretary of Defense have certified this to the President.... Our nuclear deterrent will continue to be safe and reliable under the Comprehensive Test Ban Treaty." Also at issue was the need for new surety features. Sidney Drell, emeritus professor of physics at Stanford University, said in 1999, I did not support the CTBT then [in 1990]. I thought of some further safety improvements. I presented some arguments. First of all, the Department of Defense had zero interest. It wanted to spend no money on making them. Second, some of the problems have been retired. Others have been altered by handling procedures in the Navy, and they have satisfied themselves and the Department of Defense that the safety requirements are safe and sound now. Others took the opposite view. Bailey and Barker argued, "Given the increasing threat of terrorism, it would seem prudent to ensure that U.S. nuclear weapons are as safe, secure, and invulnerable to unauthorized use as possible." In the wake of 9/11, surety has become even more important. As Linton Brooks said in 2005, "We now must consider the distinct possibility of well-armed and competent terrorist suicide teams seeking to gain access to a warhead in order to detonate it in place." The prompt response, adding physical security, has been costly. Added use-denial features could reduce the burden on guard forces. Surety features, it is argued, would enhance deterrence, though in a different way than during the Cold War. One form of nuclear attack would be for suicide terrorists to seize a U.S. nuclear weapon and detonate it in place; another would be for terrorists to seize a U.S. nuclear weapon, dismantle it, and use its fissile material to build a weapon. It is difficult at best to deter terrorists by threatening to use nuclear weapons to destroy a city or training camp in response to a terrorist nuclear attack; they might view U.S. nuclear use as desirable if it turned many nations against the United States. Instead, it is hoped, enhanced surety features would deter attack by creating an unacceptable consequence, namely a high probability of failure. In addition, if such attacks were to occur, enhanced surety might defeat them. Weapon designers and NNSA argue that the WR1 design shows that surety features can be added without testing, and see RRW as essential to obtaining them. Livermore states that the relaxation of weight constraints for WR1, for example, has allowed a design that incorporates revolutionary advances in safety and security without nuclear testing. In contrast, according to NNSA testimony, "[m]ajor enhancements in security are not readily available through system retrofits via the LEP approach." CTBT supporters dismiss enhanced surety as an argument for testing. They see current weapons as safe enough, as shown by 12 assessments and the absence of accidental U.S. nuclear detonations. They see a goal of as much surety as possible as a recipe for unending generations of weapons to add new features. They also see scenarios involving terrorist seizure and detonation of U.S. warheads as far-fetched because of physical security measures, and feel that such measures could be enhanced to add surety if needed. They doubt that new surety features that can be added only by testing are so critical as to warrant testing. CTBT opponents favor the most surety possible in light of the terrorist threat, and hold that more surety features can be added with testing than without. While it is possible to add guns, gates, and guards, so doing would be very costly. They maintain that current warheads are not as safe and secure as possible, and argue that their surety can only be increased through testing. While RRW offers more advanced surety features than do current warheads, CTBT opponents hold that the United States can never know if these features will work without testing. They see testing as needed also to reveal if new surety features on existing warheads or RRWs would impact performance. Monitoring and verification have been central to the debate and negotiations on nuclear test bans for a half-century. While the terms are often used interchangeably, there is a difference. Monitoring involves looking for indicators that a nuclear test has taken place. It is a dynamic contest between hiders and seekers, with CTBT supporters showing that monitoring capability is improving and treaty opponents raising doubts about that capability and claiming that evasion capability is improving. Verification, literally "truth making," involves deciding whether a nation is in compliance with its treaty obligations. At issue is not perfect verification but effective verification. In 1988, Paul Nitze offered a widely-used definition: by effective verification, "[w]e mean that we want to be sure that, if the other side moves beyond the limits of the treaty in any militarily significant way, we would be able to detect such violation in time to respond effectively, and thereby deny the other side the benefit of the violation." Thus monitoring is a technical activity that provides data, while verification uses the data to form judgments on compliance. It is for this reason that the CTBT establishes an International Monitoring System and leaves it to individual nations to determine whether a nation has violated the treaty. Monitoring capability, the military value of clandestine tests, and effective verification are linked. If, as a hypothetical example, tests above 0.1 kiloton had significant military value and the threshold of detection was 10 kilotons, the CTBT could not be effectively verified, but it could be if the numbers were reversed. Thus CTBT opponents claim the threshold for detection is high and that for military value is low; supporters make the opposite claim. Accordingly, the following section examines what the treaty bans; describes several monitoring technologies and arguments about their capabilities and weaknesses; considers whether clandestine testing would confer military advantages; and discusses risks a nation might run if it is caught cheating. The public 1999 debate on ratification did not go into detail on the technical ability to monitor the CTBT. For example, no scientists with primary expertise in a monitoring technology testified in Senate hearings on the treaty. However, members and staff received extensive classified briefings from scientists from the national laboratories and from the intelligence community. Since 1999, scientists have made many advances in detection capability that have been widely published. The most important technical report on monitoring was prepared in 2002 by the National Academy of Sciences (NAS). It is generally favorable to the treaty. Two other overviews of technical progress prepared in 2007 also favor the treaty. Many journal articles discuss specific technical advances. In contrast, few if any unclassified technical reports rebut claims of progress in monitoring. Nevertheless, CTBT opponents have developed many arguments, so any future debate on monitoring is likely to be less lopsided than one might infer from the imbalance in writing. Article I of the CTBT sets out the treaty's basic obligation: "Each State Party undertakes not to carry out any nuclear weapon test explosion or any other nuclear explosion...." The treaty does not define "nuclear explosion." Yet it is physically possible to conduct tiny nuclear explosions that cannot be detected without cooperative measures. For example, the United States conducted several dozen "hydronuclear" tests, many releasing fission energy equivalent to less than a gram of high explosive, during the 1958-1961 nuclear test moratorium. As discussed later, some see the prospect of undetected tests of very low yield as a concern. As a result, a point of contention in the 1999 debate was whether the treaty barred very low yield tests. Some CTBT critics argued that Russian and U.S. definitions of zero differed. Senator Richard Shelby referenced "public statements from the Russian First Deputy Minister of Atomic Energy that Russia intends to continue to conduct low-yield hydronuclear tests and does not believe that these constitute nuclear tests prohibited by the treaty." In this view, then, Russia might conduct militarily useful low-yield nuclear tests and still consider itself as observing the CTBT. Administration officials responded that all parties understood the treaty was zero yield. Under Secretary of State John Holum said that the treaty "does ban any nuclear test explosion or any other nuclear explosion, and in the negotiating record it is very clear that that means there cannot be any critical yield from a nuclear event. You can do things that do not go critical; you cannot do things that do." Ambassador Stephen Ledogar, who retired from the Foreign Service in 1997 and was the chief negotiator for the CTBT under Presidents Reagan, Bush, and Clinton, elaborated: As the name suggests, the treaty imposes a comprehensive ban on all nuclear explosions, of any size, in any place. I have heard some critics of the treaty seek to cast doubt on whether Russia, in the negotiating and signing of the treaty, committed itself under treaty law to a truly comprehensive prohibition of any nuclear explosion, including an explosion or experiment or event of even the slightest nuclear yield. In other words, did Russia agree that hydronuclear experiments which do produce a nuclear yield, although usually very, very slight, would be banned and that hydrodynamic explosions, which have no yield because they do not reach criticality, would not be banned. The answer is a categoric "yes." The Russians as well as the rest of the P-5 [China, France, Russia, the United Kingdom, and the United States, the permanent five members of the U.N. Security Council] did commit themselves. That answer is substantiated by the record of the negotiations at almost any level of technicality and national security classification that is desired and permitted. More importantly, for the current debate, it is also substantiated by the public record of statements by high level Russian officials as their position on the question of thresholds evolved and fell into line with the consensus that emerged. The issue remains unresolved. In a 2007 letter, the State Department stated: the Department of State is not aware of any international agreement on what "zero" yield means. During the negotiation of the Treaty, the P-5 reached an understanding that subcritical nuclear experiments would not be prohibited under the Treaty. The United States also made clear that, in its view, supercritical nuclear explosive-driven device tests would be prohibited under the Treaty. However, there was no agreement among the P-5 that criticality would be the basis for determining which activities would be permitted under the CTBT and which activities would not be permitted. Therefore, it is left to the individual State Party to decide for itself whether a test that produced more than a zero yield would violate the Treaty. Because of concerns that states parties to the CTBT could cheat and thereby change the strategic balance, the ability to monitor the treaty has always been an integral part of the debate over the treaty. Monitoring has always been more difficult for underground nuclear tests than for tests in other environments. Radioactive particles in the atmosphere (fallout) are readily detectable in trace amounts. Sound waves in the oceans travel great distances. Tests in space can be detected by national technical means. It is for this reason that the LTBT banned tests only in the atmosphere, in space, and under water. Accordingly, much of this section focuses on detection, and evasion of detection, of underground tests. This section presents a technical background and contending views for several monitoring technologies. The treaty contains complex provisions in an effort to monitor compliance with its basic obligation of conducting no nuclear explosions. It establishes a Comprehensive Nuclear-Test-Ban Treaty Organization (CTBTO) that would begin operation upon the treaty's entry into force. Its elements are a Conference of States Parties; an Executive Council to promote implementation of, and compliance with, the treaty; and a Technical Secretariat for monitoring. The secretariat is deploying an International Monitoring System (IMS) to detect nuclear tests; an International Data Center (IDC) to analyze data and disseminate the results to member states; and a Global Communications Infrastructure to transmit data to, and reports from, the IDC. The treaty provides for on-site inspections (OSIs) if 30 of the 51 Executive Council members approve. In 1996, the signatory states established a Preparatory Commission for the CTBTO to implement the organization, the IMS, and the IDC, and to prepare for OSIs, so that the CTBTO would be fully operational upon the treaty's entry into force. The treaty calls for the IMS to have 321 stations worldwide to monitor signals that might indicate a nuclear explosion: 170 seismic stations to monitor seismic waves in the Earth; 11 hydroacoustic stations to monitor underwater sound waves; 60 arrays of infrasound detectors to monitor very low frequency sound waves in the atmosphere; and 80 radionuclide stations to detect radioactive particles that a nuclear explosion might produce; as well as 16 radionuclide laboratories to analyze radioactive samples. Of the seismic stations, 50 are to be primary stations to provide data to IDC continuously and in real time, while 120 are to be auxiliary stations to provide data when requested by the IDC. As of November 26, 2007, 37 primary seismic stations, 76 auxiliary seismic stations, 10 hydroacoustic stations, 37 infrasound arrays, 47 radionuclide stations, and 9 radionuclide laboratories had been certified. That is, they are completed and meet the technical requirements of the Preparatory Commission. They transmit data automatically and continuously to the IDC, excepting for the auxiliary stations and the radionuclide laboratories, which transmit data as requested by the IDC. The United States has operated its own system to detect nuclear tests since the 1940s. The present system, the U.S. Atomic Energy Detection System (USAEDS), is operated by the Air Force Technical Applications Center (AFTAC). AFTAC states that USAEDS is a "global network of nuclear event detection sensors" including underground, underwater, atmospheric, and space sensors. NNSA provides technical support for satellite- and ground-based nuclear explosion monitoring. Other organizations are conducting research on nuclear explosion monitoring as well. While 21 USAEDS seismic stations were part of IMS as of August 2007 (i.e., they provide data to IDC), USAEDS also has other capabilities, such as detectors on satellites, that are not part of IMS. USAEDS and IMS are to some extent complementary. USAEDS, as a national system, focuses on areas of concern to the United States; IMS, as an entity of an international treaty, maintains a worldwide detection network so no nation feels singled out for special monitoring attention. IMS makes available to all states signatories, including the United States, data from its network; some data are from sites that the United States could not access. Further, IMS data may be more credible to some of those nations than data from USAEDS. The former come from a transparent, internationally-controlled system, while USAEDS data might be less convincing to Executive Council members if they suspected that the United States was releasing information selectively or if the sensors and resulting data were unfamiliar and thus difficult for some council members to interpret. As the State Department said, "In the case of the DPRK [North Korean] test, several countries have noted that the combination of IMS and IDC data and analysis with U.S. national data and analysis provided them with greater confidence in assessing the event than would have been the case with the U.S. data and analysis alone." In addition to IMS and USAEDS, academic institutions and national governments operate thousands of other seismic stations worldwide. Some of these stations may feed information to IDC on an ad hoc basis. There is general agreement that IMS will be able to detect most nonevasive tests at 1 kiloton or less. C. Paul Robinson, then director of Sandia National Laboratories, said in 1999, "The detection threshold that was used informally by treaty negotiators as an unofficial target for the IMS was about 1 kiloton, non-evasively tested, in environments other than outer space. Although IMS coverage will not be uniform over the entire globe, it is expected to generally achieve that informal target." A National Academy of Sciences report places the threshold for nonevasive underground tests at "significantly better than 1 kt [kiloton]" and says, "For most of Europe, Asia, and Northern Africa, the detection threshold is down in the range from 30 to 60 tons [i.e., 0.03 to 0.06 kilotons] in hard rock." The detection of the 2006 North Korean nuclear test, with a yield the United States placed at less than a kiloton, by IMS and non-IMS stations supports the claim of a low detection threshold for nonevasive underground tests. Seismology has been used for decades to detect and differentiate between earthquakes and explosions, though it is very difficult for seismology to differentiate between conventional and low-yield nuclear explosions. Earthquakes and explosions generate many types of seismic waves that propagate through the Earth. Various techniques are used to obtain more information from these waves. For example, seismic arrays are typically groups of 5 to 30 seismometers spread out over several square kilometers linked to a central point. Because of the distance between seismometers, seismic waves from an event arrive at each seismometer at slightly different times. These differences can be used to calculate the direction from which the waves arrived. This technique has been in use for decades. Other techniques also help extract information. Some seismic waves are teleseismic, detected even at distances over 9,000 km. For example, an IMS station in South America detected seismic waves from the 2006 North Korean nuclear test. Some teleseismic waves travel along the Earth's surface, while others travel through the interior. Of the latter, some are shear waves; an earthquake generates them strongly as the two sides of a fault slide past each other. Others are pressure waves; an explosion generates them strongly as the pressure of an explosion radiates outward. The appearance of shear and pressure waves on a seismogram differs, giving a clue whether an event is an earthquake or explosion. Another difference is that the first waves from an explosion arrive suddenly, while those from an earthquake build up over a short time. More recently, regional seismic waves have come into use to differentiate between earthquakes and explosions. These waves are generally observed at distances of up to 2,000 km; they can often be detected even when teleseismic waves from an event cannot be. The direction from which seismic waves from an event arrive at multiple seismic stations around the world can be used to determine the approximate location of the event. The magnitude of seismic waves can also be used to calculate the yield of an explosion, though with considerable uncertainty. The CTBT limits the area of an OSI to 1000 sq. km, and the CTBTO Preparatory Commission stated that in the case of the North Korean nuclear test, "analysis of all available data allowed for the identification of a potential inspection area of considerably less than 1000 square kilometers" despite the low yield of the explosion. Contending views . CTBT critics point to "decoupling" as a method of evading seismic detection. It dates from the late 1950s. This technique involves setting off a blast in an underground cavity large enough to absorb the force of the blast elastically, thus muffling the resulting seismic signal. Critics point to a 1966 decoupling experiment conducted in a salt dome in Mississippi in which a 0.38 kiloton explosion generated a seismic signal that appeared to be from an explosion one-seventieth as large. Larry Turnbull of the Central Intelligence Agency said, In judging whether this evasion scenario is credible, both the feasibility of constructing a large cavity and of containing the debris from the nuclear explosions must be examined ... construction of large cavities in both hard rock and salt is feasible, with costs that would be relatively small compared to effort to produce the material for a nuclear device ... containing both particulate and gaseous debris is feasible in salt, and more difficult—though not impossible—in hard rock. Therefore, we judge that the cavity decoupling evasion scenario to be credible and should be factored into any underground CTB monitoring. CTBT supporters respond that while decoupling works for very low yield explosions, it is much harder for larger ones. The National Academy of Sciences (NAS) report raised ten difficulties in conducting a decoupled test, such as constructing a cavity clandestinely, predicting the signals from the test, ensuring that the yield of the device is not greater than planned, and containing radionuclides. It finds, "Accepting the possibility of a cavity decoupled test, we conclude that such an underground nuclear explosion cannot be reliably hidden if its yield is larger than 1 or 2 kilotons." CTBT critics believe that decoupling could be concealed. Kathleen Bailey, former Assistant Director for Nuclear and Weapons Control, Arms Control and Disarmament Agency, and Robert Barker, former Assistant to the Secretary of Defense for Atomic Energy, reject the claim that the earth and rock removed to create a cavity would be an indicator of decoupling: "In India, where the very test site used had been closely observed, no such activity was detected prior to a nuclear test." CTBT advocates respond that this example is not a valid indicator of U.S. capability to detect the excavation for decoupling because the test was not decoupled, and a decoupled test would require excavation of far more material. For example, a cavity 37 meters in radius would be needed to decouple a 3-kiloton device, with a volume of 212,175 cubic meters. In contrast, a shaft 10 feet in diameter and 600 feet deep, possible dimensions for a non-decoupled 3-kiloton test, has a volume of 1,327 cubic meters. CTBT opponents reply that excavated material may not be observed by satellites if someone wants to hide the fact that digging is occurring. Material could be removed when satellites are not overhead, or it could be moved underground in existing tunnels. Aqueous excavation could be used to create large cavities in salt domes. In particular, according to the State Department, "Iran presents particular challenges from a seismic detection perspective. Iran's vast numbers of salt domes offer an effective decoupling environment, making detection particularly difficult in the absence of close-in sensors." Supporters of the treaty point to numerous advances in seismological capability that would help monitor the CTBT. Foremost is the ongoing rollout of the IMS; many of its seismic (and other) stations around the globe provide data to IDC in real time. As the IMS is an international system, many of its stations are in areas that the United States could not access, such as in Iran. Further, it is important that the seismic stations will contribute regional as well as teleseismic data because regional data is of particular value in detecting low-yield tests and decoupling. One source states, "Regional waves enhance the ability to detect cavity decoupling because higher frequency waves are more observable at regional distances and decoupling is smaller at higher frequencies ... compared to teleseismic waves ..." Regional stations have proven more valuable than was expected; according to U.K. seismologists, When the IMS was negotiated, the rationale for auxiliary seismic stations [those that provide data only when interrogated, not on a continuous basis, to the International Data Center] was that these stations would improve the ability of the IMS to locate seismic events, and to more finely characterize the seismic source. With the ongoing deployment of the IMS, seismologists have discovered that the auxiliary stations are of particular value for identifying the source of a seismic signal as an earthquake or explosion because they pick up certain seismic waves that can be used in identification. In addition, it has turned out that having many seismic stations, such as those in individual national or university networks, complements the IMS stations and increases the availability of data. CTBT supporters note that other signatures in addition to characteristics of seismic waves help differentiate between earthquakes and explosions. Finding that the epicenter of an event is more than 10 km deep rules out an explosion, as does finding the epicenter at sea in the absence of hydroacoustic waves indicative of an explosion. Other characteristics specific to local geology aid determining whether an event is an earthquake or explosion. The CTBTO Preparatory Commission states that IMS stations around the world detected the North Korean nuclear test of 2006, and IMS was able to locate the test to well under 1000 square km. As another indicator, the seismic record shows a clear difference between that explosion and an earlier earthquake. According to seismologists Paul Richards and Won-Young Kim, The seismogram of 9 October [2006, the North Korean test] has three important features. First, it shows an impulsive onset of compressional waves ... characteristic of an explosion. Second, peaks indicative of shear waves in the [Earth's] crust, which would be typical of an earthquake, are very weak ... And third, short-period 'Rayleigh waves' are apparent. They ... are known to be excited only by sources at a depth not much more than about 3 or 4 km, which is much shallower than typical earthquakes. Critics point to evasive tactics and weaknesses in seismic monitoring that open prospects for clandestine testing. Yield can be calculated from the magnitude of seismic waves. Yet many factors affect the intensity of seismic signals in addition to the yield of a nuclear device. The NAS report states, "[regional] waves are dependent on local properties of the Earth's crust and uppermost mantle—which can vary strongly from one region to another." For example, a device detonated in soft rock can have ten or more times the yield as one detonated tamped (fully coupled) in hard rock, yet the seismic signals from each can indicate the same apparent yield because soft rock transmits seismic energy much less efficiently than does hard rock. An evader, knowing this from the unclassified literature, would consider this difference in selecting a test site. While CTBT supporters note that regional seismic signals can aid in detecting lower-yield nuclear detonations, opponents reply that Russia and China did not permit IMS stations to be located within hundreds of kilometers of their nuclear test sites, at Novaya Zemlya and Lop Nor, respectively. The closest IMS station is 1,112 km from Novaya Zemlya, and 783 km from Lop Nor. In contrast, the three IMS stations closest to the Nevada Test Site (NTS) are at distances of 249, 380, and 417 km. The State Department observes, There is no doubt that we would be better off if we had close-in seismographs around Lop Nor and Novaya Zemlya. If IMS were allowed to install three seismographs surrounding Lop Nor at the distances similar to those surrounding the NTS, it would be much easier not only to detect smaller events, but also to identify the nature of smaller events and to determine a better location as well as the origin time. Iran has numerous salt domes many hundred of miles from the IMS station near Teheran. Critics argue that Iran could easily create cavities for decoupling by using water to dissolve salt. It has extensive experience in drilling for oil, which is often found near salt deposits. As such, it is argued, it is well equipped to excavate cavities for decoupling. Further, much of Iran is seismically active, making it easier for Iran to conduct a test during an earthquake to mask the explosion's signals. Others respond that hiding a test in an earthquake requires holding the test in readiness, possibly for years, for the "right" earthquake to come along, and it may still be possible to distinguish signals from an earthquake from those of an explosion. Other techniques can also reduce seismic signals from underground nuclear tests. Don Linger, Senior Scientific Advisor, Advanced Systems Concepts Office, Defense Threat Reduction Agency, and former director of the Defense Nuclear Agency's nuclear effects testing program, provided the following information. One technique for reducing seismic signals is "geologic preconditioning." A nuclear test in hard rock will fracture or microfracture the surrounding rock to distances of several hundred meters, fragmenting it and changing the shock propagation and attenuation characteristics. As a result, a test conducted underground in a hard rock geology region in which a previous nuclear test was conducted will in effect be conducted in fragmented rock, which absorbs much more energy than undisturbed rock, weakening the seismic signal. This attenuation was observed in experiments using 100 tons of chemical explosive, conducted by the U.S. Departments of Defense/Defense Nuclear Agency (now the Defense Threat Reduction Agency) in a series of tests in Kazakhstan during the closing of the former Soviet Nuclear Test site in 1993 to 2002. Moreover, the Russian test site at Novaya Zemlya, which is comprised mainly of similar hard rock, has similar regions of preconditioned hard rock created by previous tests that could be used to muffle seismic signals of clandestine tests. This is a proven technology, clearly understood by the testing community. A second technique to reduce seismic signals, "radiation spectrum tuning," is to reduce the radiation coupling of the nuclear device to the ground. The amount of energy that a nuclear device deposits into the surrounding geology is very sensitive to specifics of its radiation output spectrum, and strongly affects the manner in which the blast is coupled to the ground, causing large changes in the ground shock and seismic signature. Radiation spectrum is entirely different than yield. For a given test cavity, a 10-kiloton weapon with energy concentrated in the thousand-electron-volt range will produce a significantly lower seismic signal than a 10-kiloton weapon with electromagnetic energy concentrated in the tens-of-million-electron-volt range. Nuclear explosives have been designed with different energy spectra. For example, the U.S. Plowshare program of nuclear explosives for peaceful purposes, and the parallel Soviet program, developed nuclear explosive devices with energies concentrated in a part of the electromagnetic spectrum different than that of typical nuclear weapons. CTBT proponents respond that geologic preconditioning may be of use to Russia or China, which have a "stockpile" of cavities left by nuclear test explosions, and possibly to India and Pakistan, which may have a few small cavities, but not to other nations. Opponents dismiss this argument because they view the prospect of Russian or Chinese covert testing as the greatest threat. Proponents, in turn, reply that the decoupling capability of geologic preconditioning would vary greatly depending on specifics of the surrounding rock and the extent of its fracturing, which would be extremely difficult to determine. Regarding radiation spectrum tuning, proponents ask if modifications to the test device that would be needed to reduce the seismic signature would interfere with the purpose of, and results from, the test so much as to diminish its value significantly. Seismic monitoring entails other arguments. Critics state that the ability to detect lower-yield tests increases many-fold the number of seismic events that must be analyzed as possible nuclear tests. Supporters reply that improved seismic detection and data analysis capability rule out most such events as possible explosions, and that low-yield tests are of little military significance. Critics respond that low-yield explosions have military significance, as discussed below, and that it would be easier for IDC to miss a low-yield explosion among thousands of low-magnitude earthquakes than to miss a higher-yield explosion. Supporters retort that the North Korean test of October 2006 was clearly detected even though it had a yield of less than a kiloton; critics counter that it was not conducted evasively. Nuclear explosions generate a great variety of radioactive atoms, or radionuclides, some of which are gases. Of special interest are radioactive isotopes of noble gases, such as argon-37, krypton-85, xenon-131, and xenon-133. The background level of these gases is extremely low. Because noble gases are chemically inert, they do not bond with the rocks and soil surrounding an underground nuclear explosion. As a result, they work their way to the surface and disperse into the atmosphere, where they may be detected thousands of miles away. For example, the Automated Radioxenon Sampler/Analyzer, in use by IMS, concentrates and measures minute quantities of the isotopes of radioactive xenon. Once a detection system has accumulated a data archive of background levels of radioactive noble gases, a spike above that level can indicate a release from a nuclear reactor or nuclear explosion. Computer models of global atmospheric conditions in the days before a spike can then be worked backwards to provide a general location of the source. At entry into force of the CTBT, the IMS is to have 80 radionuclide stations around the world; all are to monitor radioactive particles and upon the treaty's entry into force 40 of them would have capability to monitor radioactive noble gases. Sixteen laboratories would analyze samples from these stations. The CTBTO PrepCom states: "The relative abundance of different radionuclides in these [air] samples can distinguish between materials produced by a nuclear reactor and a nuclear explosion.... The presence of noble gases can indicate if an underground explosion has taken place." Contending views . The treaty's supporters claim that the 2006 North Korean nuclear test shows the value of noble gas monitoring and the capability of the IMS. An IMS radionuclide system at Yellowknife, Northwest Territories, Canada, collected samples two weeks after the test that, upon analysis, indicated a trace amount of xenon-133. By comparing this amount to data in its archive, analysts were able to determine that the level was elevated. By examining wind currents for the preceding two weeks, and data on releases from the Chalk River Laboratories, a Canadian nuclear research site several thousand kilometers southeast of Yellowknife, analysts were able to conclude that the xenon-133 was "consistent with a release from the location and time of the DPRK event." Opponents see numerous ways to evade detection of radioactive noble gases. They recognize that noble gases will reach the surface if there is no effort at containment, but believe containment can work. They point to a statement by Donald Barr, a retired Los Alamos radiochemist with over 50 years of nuclear testing and related experience: "Deep burial of a nuclear device, combined with gas blocking techniques, virtually eliminates the seepage of noble gases to the surface, though some such gases might occasionally be detected, but only at the surface above the detonation point." Burying a nuclear test device at greater depth than would be typically used for containment would also delay the time when these gases would reach the surface, providing more time for radioactive decay to reduce the amount reaching the surface. Certain geologies, such as salt domes, would more readily seal the cavity, blocking the escape of these gases. CTBT supporters point to experimental data to buttress their claim that it is very difficult to contain noble gases following an underground nuclear explosion because they rise to the surface through faults or fractures, especially during periods of low barometric pressure. Opponents would note that the experiment in question used surrogate gases (sulfur hexafluoride and helium-3), not argon and xenon. Further, the report stated that the decay of argon-37 to chlorine-37 "will limit the sampling 'window' during which surface detection is possible," and that "selecting the timing of a challenge inspection to include the arrival of weather fronts may be necessary to optimize the possibility of detection." An evader, knowing this, might try to delay inspections beyond the time such a front is due to arrive. Underground nuclear explosions may vent radioactive particles (fallout) into the atmosphere, where they may travel for thousands of miles, depending on wind, rain, particle size, and other factors. Fallout analysis has provided a clear indication of a nuclear test for many decades. For example, the United States learned of the first Soviet nuclear test (an atmospheric test) in 1949, and learned much about the design of the first Soviet thermonuclear device in 1953, through collection and analysis of these particles. The ease of detecting fallout particles was a main reason why the United States, Soviet Union, and United Kingdom were able to negotiate the LTBT in 1963, and worldwide protests against fallout were a main impetus for the treaty. Contending views . CTBT supporters assert that containment of radioactive debris from a nuclear test is difficult, and many techniques are learned through trial and error. Geologic features, such as faults, can provide a path through which debris can vent. Certain types of soil or rock are better for containment than others. Underground water, turned to steam by an explosion, generates a great deal of pressure. Depth of burial must be adequate. Elaborate methods must be used to prevent debris and gases from escaping through the shaft dug for the test. Despite extensive experience with contained underground tests beginning in the 1950s, many U.S. underground tests through 1970 released radioactive material. CTBT supporters therefore argue that it would be difficult for Russia or China, and much more so for first-time testers, to have high confidence that they could contain a clandestine test. CTBT opponents respond that Russia and China would have high confidence in their ability to contain a nuclear test because of their test experience. Opponents point to a U.S. example. Following the "Baneberry" test of 1970, which vented a large radioactive cloud, the United States took further steps to contain underground tests, and of the 386 post-Baneberry tests conducted at the Nevada Test Site through 1992, only 2 resulted in accidental release of radioactivity detected outside the test site. Even nations without nuclear test experience could learn much about containment from the open literature, and could make containment more likely by burying the test device more deeply, examining geologic characteristics in selecting a test site, and building a large margin of error into containment techniques. The treaty's supporters point to data on Soviet nuclear tests at Russia's only nuclear test site, Novaya Zemlya in the Arctic Ocean, to show the difficulty of containment. Using the period beginning in 1971 so as to be comparable to U.S. post-Baneberry tests, 30 underground tests were conducted from 1971 to 1990, with data unclear for two. Of the other 28, 10 vented radioactive gases offsite, another 7 vented such gases onsite only, 1 vented radioactive gases and debris offsite, and 10 were contained. The treaty's opponents counter that there was a sharp improvement in containment. Of the 28 tests, for the period 1971 through August 1978, 10 of 16 tests vented offsite, 1 vented onsite, and 5 were contained; for September 1978 through 1990, 6 vented onsite only, 1 vented offsite (both gases and particles), and 5 were contained. This technique was developed in the early 1990s to study ground deformation around earthquakes. In it, a satellite-borne radar sends out microwave radar beams to a swath of ground some 100 km wide, and records, pixel by pixel, what is in effect the distance between the satellite and each point on the ground. If another radar picture of the same terrain is taken later from nearly the same point in space, one image can be digitally subtracted from the other, with any difference shown as bands of color that reveal ground motion. According to the technical literature, InSAR can detect ground deformation of less than 1 cm and can take pictures through many types of clouds. Because it does not use visible light, it can take pictures night or day. This technique has also been used to detect ground deformation due to oil and gas reservoirs and to measure the stability of retaining walls around a reservoir in London. While IMS does not use satellite monitoring techniques, the CTBT (Article IV, section A, paragraph 5) permits the use of national technical means. According to David Hafemeister, professor emeritus of physics at California Polytechnic State University, "InSAR is now a widely adopted technology, available to all CTBT States Parties at reasonable prices from commercial vendors." The depression formed by an underground nuclear test—assuming the rock or ground above the test does not collapse into the cavity left by the test, leaving a clearly visible crater—may be 1 to 2 km across and one to several cm deep. Contending views . CTBT advocates hold that InSAR complements other monitoring techniques. It can monitor large areas for subsidence. It can localize a suspicious site, even with a test of yield less than 1 kiloton (depending also on other factors such as depth of burial and geology) to within 100 meters, thus helping to guide an OSI. It can discriminate between an earthquake and an explosion based on changes in ground deformation revealed by InSAR; an earthquake produces a more or less linear pattern caused by the two sides of a fault sliding past each other, while an explosion produces a roughly circular depression. It can help find construction of a decoupling cavity, as ground above the cavity may subside slightly. The wide availability of InSAR data would arguably make a request for an OSI based on this data more convincing to the CTBTO Executive Council. Critics respond that InSAR requires before-and-after pictures of the same piece of ground in order to detect slight subsidence. If only an "after" picture is available, the technique is thought to work only for nuclear tests of 20 kilotons of yield or so, a level that seismic techniques can easily locate, rendering InSAR superfluous. The State Department points to other limitations. NASA, [Lawrence Livermore National Laboratory], Canadian Space Agency, and European Space Agency all have InSAR systems and should have libraries of data covering much of the world, at least up to middle latitudes. However, in some areas where there is rugged terrain, terrain shadowing will likely cause large areas to be uncovered. Additionally, one would need to have "before" images that are fairly recent to do an accurate comparison. If significant changes have occurred in the terrain (other than those caused by the test) by wind, rain or other natural factors, the "before" image will not be useful in constructing an InSAR image. Furthermore, this is complicated by the fact that the subsidence may not occur until some time after the test, perhaps years. So, whereas libraries do exist, without specific tasking, they're unlikely to be good enough. Further, "It is particularly noteworthy that no evidence of subsidence was observed by the InSAR technique after the North Korean test." For these and other reasons, State concludes, "the potential of InSAR in assisting detection of a nuclear explosion is limited and cannot be considered a useful technique in many test scenarios." Critics assert that subsidence could occur too late to aid an OSI. They also argue that some very low yield tests, the kind an evader is most likely to attempt, conducted at Nevada Test Site did not form depressions, and that deep burial and certain geologies (e.g., deep inside a granite mountain) may preclude subsidence. Supporters reply that InSAR is of value if it helps deter evasion, and that it may reduce the value and increase the difficulty of clandestine tests by forcing a would-be evader to dig deeper and use smaller nuclear devices in order to avoid detection by InSAR. A nuclear test requires much preparation. The testing nation must survey the site to determine if the geology is suitable, bring drilling and diagnostic equipment to the site, drill the shaft, set up the diagnostic equipment with its many cables, emplace the device, seal the shaft, and so on. While IMS does not detect pre-test activities, national technical means of verification could. Satellite photography and communications intercepts, CTBT supporters argue, can detect such activities, and Article IV(D) of the treaty permits use of national technical data as well as IMS data as grounds for requesting an inspection. CTBT opponents recognize that satellites might detect preparations for a clandestine test, but argue that some activities may appear normal, such as mining in a mining area, other activities may be hidden, land lines can prevent access to communications, etc. The treaty and a protocol provide for OSIs, in which international inspectors would travel to the site of a suspected nuclear explosion to search for conclusive evidence of such explosion. For example, if the inspection team is able to drill into the cavity formed by a nuclear explosion, it would have conclusive proof that a test occurred, and radiochemical analysis (such as the ratio of different isotopes) could provide its approximate date. The treaty and protocol go into extensive detail on OSIs, specifying procedures by which the Executive Council would authorize the start and continuation of an inspection, the timeline for an inspection, the number of team members, and equipment they may and may not use. These procedures represent a compromise between those who wanted highly intrusive inspections that could be conducted quickly and those who feared that such inspections would reveal military secrets. Contending views . Much of the Senate debate on OSIs in 1999 involved the ease of securing Executive Council permission for an OSI. According to Article II of the treaty, once a state party has requested an OSI, 30 of 51 members of the Executive Council would have to approve to order the inspection. Ambassador Jeane Kirkpatrick questioned the competence of the council to make technical decisions related to the treaty. Each member of the council would have one vote. Since the council would be based on geographic representation, many nations on it would have little or no nuclear experience. Further, "there will be a technical support group ... chosen by the same executive council ... which is chosen by people the overwhelming majority of whom do not themselves have any experience or competence with nuclear questions, much less nuclear weapons." She also noted, "U.N. bodies are very highly political bodies." Senator Richard Shelby said that it would be hard to obtain the 30-vote supermajority needed for an OSI to go forward, while Senator Joseph Biden provided an analysis of likely council voting and concluded that "it seems to me pretty darned easy to get to 30 votes, not because 30 nations love us, but because it is in their naked self-interest." Another contentious topic is how the provisions of the treaty and its protocol specifying procedures for OSIs might affect the success of inspections. Opponents assert that many of these provisions impair the technical effectiveness of an inspection. Some such provisions are listed here, along with a few comments made in 2007 by the State Department: The protocol limits the inspection team to 40 members except when it is drilling, and limits an inspection to 130 days. The State Department observes, "the availability of acceptable, technically qualified and trained inspectors and inspection assistants, operating as a cohesive team, is a factor affecting the adequacy of the OSI timeline." The treaty requires the team to submit a progress report within 25 days of the council's approval of the OSI; the inspection will continue unless a majority of the council votes not to do so. But according to the State Department, "there is no guarantee that the Executive Council will consider 'progress' (not defined) to be sufficient to justify the OSI entering the continuation phase of the inspection." The protocol permits specified inspection techniques but does not provide for the adoption of new ones. This omission may become more significant as new technologies emerge. The protocol permits one overflight that may last at most 12 hours and may only use field glasses, passive location-finding equipment, video cameras, and hand-held still cameras, unless the state being inspected agrees to more overflights and the use of other equipment. The State Department observes, "a State Party that conducts a test will most likely employ all available means to evade initial detection and, following approval of an OSI, restrict to the maximum extent the use of technologies and techniques that might otherwise result in detection." The inspected state has "[t]he right to make the final decision regarding any access of the inspection team ...," apparently referring to areas within the area to be inspected that the inspected state deems sensitive. To protect them, the inspected state may shroud sensitive equipment and restrict radionuclide measurements and the taking of samples to those relevant to the inspection. The inspection team may gain access to sensitive facilities if "the inspection team demonstrates credibly to the inspected State Party that access to buildings and other structures is necessary to fulfil the inspection mandate." Opponents doubt that the inspected state would agree that any such demonstration was credible. The treaty's supporters recognize that the inspection provisions represent a compromise between the ability to find evidence of a clandestine test and the ability of inspected states to protect sensitive facilities and guard against espionage. Supporters observe that these provisions protect the United States as well as other nations. They note that many provisions of the Protocol facilitate inspections. Inspectors may inspect an area of 1,000 square kilometers; supporters argue that this is large enough given the ability of monitoring technologies to limit the area to be inspected. Inspectors shall be chosen "on the basis of their expertise and experience"; supporters note that other possible criteria, such as representing regional groupings of states, were not used. The protocol permits many technologies to be used, including visual observation, video and still photography, multi-spectral imaging, measurement of radioactivity, environmental sampling, passive seismological monitoring for aftershocks. Unless the Executive Council disapproves by a majority vote a request to continue the inspection, it may also use active seismic surveys and magnetic and gravitational field mapping. If the council approves, inspectors may drill for samples. Subject to certain limitations, the inspection team has the right to collect, remove, and analyze samples. Supporters note that a nuclear explosion would create many forms of evidence, and that techniques for analysis of samples are highly sensitive. While the Executive Council may terminate an inspection after 25 days, supporters of the treaty see that outcome as unlikely given that 30 of 51 members of the council had to approve the inspection, and argue that the evidence needed to gain approval by a supermajority would necessarily have been compelling. While the 1999 debate considered procedural aspects of OSIs, it made little reference to their technical aspects. Yet that issue has been raised for a half-century. For example, in 1960 testimony, a witness pointed to clues of value for an OSI. A nuclear explosion may produce very different surface phenomena than an earthquake. If there are no signs of human activity in the area, an explosion can be ruled out. There are dozens of signatures of a nuclear test, such as disrupted vegetation, radioactivity, melted snow, pebbles in bushes, and road and fence displacement. The witness pointed out difficulties as well. The most conclusive evidence of a nuclear test is radioactive debris obtained by drilling into the radioactive zone left by a nuclear explosion. Yet, he calculated, the radius of the radioactive zone of a 1.7-kiloton explosion is about 60 feet, and it would be necessary to drill 63 holes to have a 100 percent chance of finding this zone in an area 500 feet in radius. Contending views . Technical capability to support OSIs has improved over the years. Satellite imagery could reveal human activity. Seismologists have developed techniques to extract more information from seismic data, helping to distinguish earthquakes from explosions and more precisely locating the epicenter of an explosion. Radioactive isotopes of noble gases might be discovered at the test site even if they were in such low concentration that they could not be detected at a distance. InSAR could greatly narrow the search area. It may, however, be difficult for an OSI to find the most conclusive proof of a clandestine test, drilling into the cavity created by an underground explosion and retrieving radioactive debris. A 10-kiloton test would produce a cavity some 60 meters in diameter; depending on geology and depth of burial; a lower-yield device would produce a smaller cavity. The test might or might not result in a crater on the Earth's surface. Such craters are caused when a cavity collapses and the overburden above it collapses into the resulting void all the way up to the surface. Deeper burial and careful attention to the geology of the test area would reduce but not eliminate the risk of crater formation or of some signs of a test appearing at the surface. OSIs could encounter practical problems. According to a prediction based on an experiment, xenon-133 and argon-37 "would be detectable, respectively, about 50 and 80 days after the detonation" for a 1-kiloton explosion. By that time, an OSI might be completed. Livermore presents another problem with detecting argon-37: There is another "smoking gun" in lieu of drilling. That is argon-37. This is a noble gas isotope produced by bombardment of calcium with neutrons. It gets formed during an underground explosion, has a fairly long half life and is unique to an underground test (i.e. the background is low to nonexistent). The only problem is that it is difficult to detect and measure because you have to shield the sample from ambient background to a high degree (i.e. put the sample in a lead-lined chamber of some kind to do the measurements). The procedure discussed in OSI circles has been to take extensive air samples from surface cracks at the suspected site, separate the noble gases from the air, remove the radon, and then measure for argon-37. This would be difficult to do in the field. CTBT advocates claim that OSIs, by offering proof of a clandestine nuclear test, would act as a deterrent. If a nation fears that it would get caught, the reasoning goes, it would be less likely to conduct a nuclear test. Further, supporters argue, the deterrent effect would be magnified because evaders would not know the thresholds at which various U.S. and international monitoring capabilities could detect various test signatures, so they would have to compensate by deeper burial, great efforts at containment, lower yield, and the like. Moreover, it is argued, evaders with little or no test experience would have little confidence in their ability to predict yield or to contain nuclear explosions, forcing them to take still more conservative measures to evade detection. Such measures, it is argued, could make testing so difficult, costly, and risky as to be not worthwhile. CTBT critics respond that careful attention to evasion would defeat OSIs and would deter other nations from requesting them. If a nation were not sure that it could locate a test with an OSI, or even that a test had taken place, it would be reluctant to risk its credibility by requesting an OSI. Further, in this view, while the U.S. monitoring system, USAEDS, may be able to detect faint signatures that IMS cannot, the United States may be unwilling to use this evidence to make the case for an OSI to avoid revealing capabilities. Thus an evader would not need to worry about the maximum capability of USAEDS. At the same time, a prospective evader could learn the capabilities of IMS because states parties to the CTBT receive IMS data. It could, for example, conduct a large mining explosion and see how it registers with IMS. As a result, the treaty's opponents maintain, the prospect of OSIs would merely force an evader to pay close attention to evasion techniques, something it would do anyway. Perversely, then, the CTBT's provision for OSIs would allow evaders to use the absence of a request for an OSI, or the conduct of an unsuccessful OSI, as evidence that it was not evading. CTBT critics challenge the validity of debating technical issues of monitoring, verification, and evasion on an unclassified basis. Robert Monroe, former Director of Defense Nuclear Agency, said: Verification cannot be usefully addressed in unclassified documents. Verification is a two-sided game. On the one hand, many of those around the world who are working to improve verification are operating in an unclassified environment, and the arms control community trumpets every advance in sensor locations, sensitivity, networks, etc. On the other hand, our adversaries or potential adversaries who wish to develop or improve their nuclear weapons while maintaining test deniability, are working with highest priority to improve their evasion techniques. They are working in absolute secrecy, taking every precaution against being detected. The only organization the U.S. has to counter them is the intelligence community, and every scrap of its information collected on evasion improvements is highly classified. Therefore an unclassified study will acquire a great deal of information on verification improvements and almost nothing on evasion improvements. This could lead the unwary to conclude that we are now able to verify a CTBT. My own impressions, based upon many decades of close involvement with nuclear weapons, are exactly the opposite. I believe the evaders have an easier problem to solve, that they are now in a comfort zone for undetected testing, and that they expect their advantage to improve in the future. On the other hand, as Senator J. William Fulbright once said, "the mere fact that information has been classified does not make it necessarily true." Similarly, the treaty's supporters would note, the fact that information is unclassified does not make it invalid. Supporters argue that advances in monitoring capability, many of which are unclassified, are likely to reveal clandestine testing or preparations for it. Having unclassified information, such as from thousands of seismometers around the world, publicly and promptly available increases the number of people who may find evidence of testing. While technical monitoring cannot provide information that human intelligence can on motivations, plans, and budgets, human intelligence can be misleading because of disinformation, misinterpretation, reliance on unreliable sources, and incomplete information. Basing conclusions on the absence of evidence it is argued, may be hazardous. Former Secretary of Defense Donald Rumsfeld reportedly said, "the absence of evidence is not evidence of absence." However, the absence of evidence cannot be construed as evidence. Clearly, the Senate would consider classified information in any future debate on the treaty, but classified details of evasion techniques would have to be balanced against classified monitoring capabilities, and both would be only two of many elements of a net assessment. For decades, supporters of nuclear testing treaties have argued that monitoring capability is good enough to permit effective verification, while critics have responded in part by setting forth scenarios that, they maintained, would defeat verification. This report discussed one scenario, decoupling, earlier and now turns to two others. One scenario envisions conducting one or more tests that would be detected but could not be attributed. Robert Barker, former Assistant to the Secretary of Defense for Atomic Energy, postulates a scenario that involves conducting a test in a remote ocean area long after identifiable national vessels had left the scene. The testing nation would expect the international monitoring system to detect the test and announce the yield, and by virtue of its participation in the monitoring community the testing nation would have access to any debris collected, for its own analysis of performance. It would be impossible to positively attribute the test to a nation if the testing nation took care to ensure that materials were not used in the test such that debris could be uniquely traced back to the testing nation. Indeed, a clever cheater would place materials that are unique to different nations in close proximity to the bomb so that the debris might look Israeli or Indian or even U.S. The National Academy of Sciences study stated, Attribution is likely to be more problematic for an underwater or atmospheric test, since a nation with a nuclear explosive could detonate it on a ship or a plane and the effects on the surrounding media would be more ephemeral. Though such a test would likely be detected and located, it might be attributed only with difficulty to the nation responsible. ... To confidently evade attribution, a tester would need to believe that the United States, working with other nations, did not have the capability to track ships and planes in the vicinity of the test location, and would not intercept communications relating to the test. Arguments on this scenario can be played out at length. Donald Barr, a retired Los Alamos radiochemist, states, It is virtually impossible to disguise (spoof) the signatures of a nuclear explosive detonation. This is because of the broad range of fission product and actinide radionuclides which are produced instantaneously and then evolve with time according to well-known radioactive decay laws. Any attempt to tamper with either or both of these distributions would produce a discordance of the radiochemical data suite. The likely nature of such an attempted spoof would become apparent through comparison of the radiochemical data with the extensive data base of U.S. tests coupled with ever-improving model calculations of nuclear explosives. Critics state that attribution depends on matching a sample of radioactive material with a sample from an archive of such materials. If the sample does not match any in the archive, this method provides no basis for attribution. Supporters counter that detection of debris from a nuclear test would trigger an immediate, all-out effort by the United States, other nations, and the CTBTO to attribute the test. The list of potential testers would be quite small, easing the task, and debris could reveal information about weapon design, providing further clues as to the testing nation. Supporters argue that a nation would probably need a test series to have confidence in a warhead design, increasing the odds of attribution; opponents reply that one successful test might suffice to confirm a simple implosion design, and an unsuccessful test might not be detected. While many signatures could reveal a test, it might be possible to conceal them all by conducting a nuclear test in a large cavity excavated in a mining complex deep underground. A large cavity would permit decoupling. Excavating the cavity deep underground, especially in rock, would guard against a depression in the Earth's surface that could be detected by standard or InSAR satellite photography. Deep burial would arguably trap noble gases and particles; the open literature has much information on how to contain underground explosions. Use of a mine would provide a cover story for human activity and would hide much of that activity. Material removed during excavation could be placed, unseen by satellites, in unused tunnels. Access to IMS data, a right of all states signatory to the treaty, would help a would-be evader improve evasion techniques and gather data on some types of evasive tests. CTBT supporters see evasion as difficult. Containment, while harder for a nation with no test experience, can fail nonetheless because of unknown aspects of test site geology, as the U.S. "Baneberry" test showed. Satellite photography might reveal suspicious human activity. An evader would not know capabilities of U.S. monitoring systems. Technical progress in monitoring and a growing archive of background noise, it is argued, reduce the threshold below which an evader could feel confident of success. An evader with little nuclear test experience would not have a precise estimate of weapon yield, forcing it to lower the yield, and value, of a test. Human intelligence might reveal a test. Supporters assert that the treaty would make evasion harder. Secretary Albright argued that, while the United States cannot be absolutely certain to detect very low yield tests with or without the treaty, "by improving our capacity to monitor, we are much more likely under the treaty to detect such tests and consequently to deter them." A concern that arose in the 1999 CTBT debate was that clandestine testing could increase the threat to the United States. As Senator John Warner said, I am also concerned that the treaty's zero yield test ban is not verifiable. It is difficult, if not impossible, to detect tests below a certain level. If a nation is determined to conceal their non-compliance with this treaty, there are certain levels below which we simply cannot detect. The equipment is not there. Testing at yields below detection levels may allow certain countries, such as Russia, to develop a new class of nuclear weapons. Some argued then that undetected testing, even at low yield levels, would confer military advantages. Six former Secretaries of Defense said, "it is impossible to verify a ban that extends to very low yields.... Tests with yields below 1 kiloton can both go undetected and be militarily useful to the testing state." C. Paul Robinson, Director of Sandia National Laboratories, said, "I believe that nuclear testing in the subkiloton range could have utility for certain types of nuclear designs." A 1995 report by the JASON defense advisory group noted the value of half-kiloton tests: "For the U.S. stockpile, testing under a 500 ton yield limit would allow studies of boost gas ignition and initial burn, which is a critical step in achieving full primary design yield." Bruce Tarter, then Director of Lawrence Livermore National Laboratory, stated in 1997, "If additional tests were to be allowed, then 500 tons would be the minimum nuclear test yield that would be of value for validating experimental and computational tools used to assess weapon performance. For purposes of helping to validate models for assessing weapon safety, nuclear test yields of a few pounds would be of value." CTBT opponents hold that low-yield weapons can have much more value for new or current nuclear powers now than was the case decades ago, even within the 1 to 2 kilotons that the NAS report uses as the upper limit on effective decoupling. Kathleen Bailey and Robert Barker write, "One to two kilotons can be militarily and politically significant to any proliferator; with today's commercially available guidance technology one to two kilotons accurately delivered against a major city or a major military installation will create massive damage. Today, proliferators don't need high-yield, thermonuclear weapons to threaten their neighbors." John Foster writes, Low yield underground tests of devices with yields of tons to hundreds of tons can provide high confidence that such devices can be scaled up to strategic yields. Right now we have little confidence that we could detect such low yield tests with high confidence if evasive techniques were used. Such tests, if conducted by potential adversaries and not by the United States, could adversely affect our overall security posture. For example, the US has provided a nuclear umbrella to a number of its allies, such as South Korea, Japan, and Turkey, to deter attacks by hostile nations and to reduce their need to develop their own nuclear capabilities. However, recently a number of Russian sources have stated that Russia has developed and is deploying low yield "clean" (that is, with reduced fission to reduce residual radiation) nuclear weapons, including some "clean" earth penetrator weapons. Russian development of clean weapons draws on the past Soviet development and demonstration of clean nuclear devices for peaceful uses, similar to the U.S. "Plowshare" program of the 1960s and 1970s. China may also be developing new low-yield weapons. In contrast, current U.S. nuclear weapons, which date from the Cold War, are largely high yield, high fission, dirty weapons. If a crisis were to develop between Russia and a U.S. ally, a Russian inventory of low yield tactical nuclear weapons, and the asymmetry with U.S. weapons, could call into question the credibility of the U.S. nuclear umbrella. Even without explicit threats, the asymmetry could lead to nuclear nonproliferation by pressuring U.S. allies to develop their own nuclear weapons. The treaty's supporters reject the idea that low-yield weapons would make much difference to the strategic balance, given the many nuclear weapons, of various yields, that this nation has. They point to an article reporting on an interview with General James Cartwright, USMC, then Commander of U.S. Strategic Command: Theoretically, if a "grave" threat to the United States emerged that could be deterred only by a low-yield nuclear weapon, the general might be persuaded to support its development, [Cartwright] said. However, to date, "I haven't seen anything that approaches that," Cartwright said. ... "My priority is not reduced yield," Cartwright told a reporter in April 2005. "It's to take the accuracy to the point where conventional can substitute for nuclear. That's my first priority." Various evasion scenarios, opponents argue, might be linked into a weapons development program, with each step providing data and experience for the next step. Extremely low yield tests could provide data on nuclear physics, nuclear testing, test containment, instrumentation, and data retrieval; the data could be used to develop and validate computer models for weapons design. Decoupled tests could provide data for design of an unboosted fission weapon, or perhaps a boosted fission weapon. One or a few atmospheric tests conducted in a remote ocean area might suffice to develop a higher-yield weapon while arguably avoiding attribution. Alternatively, the NAS report states, if a nation were given the design of a weapon, "A single full-yield test would validate both the legitimacy of a blueprint and success in reproducing the object, but that test might be of yield too high to be concealed." Supporters argue that nations could not develop thermonuclear weapons under a CTBT, and see very low yield tests as of little value for weapons development. According to Richard Garwin, hydronuclear tests "will provide little useful knowledge," and tests of 0.1 kiloton "would have little value in the development of nuclear weapons." According to the NAS report, tests up to 1 to 2 kilotons are concealable in some circumstances, and could be used to improve unboosted fission weapons or, with difficulty, for proof tests of weapons of 1 to 2 kilotons Tests up to 20 kilotons are unlikely to be concealable; they could be used to proof-test 20-kiloton fission weapons, or for "eventual development & full testing of some primaries & low-yield thermonuclear weapons." Finally, tests above 20 kilotons could not be concealed; they could be used to develop and test boosted fission weapons and thermonuclear weapons. Thus both the value of tests and the risk of being caught are thought to increase with yield. At the same time, there is general agreement that a nation could develop a simple gun-type or implosion weapon, with a yield of perhaps 10 to 20 kilotons, without testing, thereby avoiding the need for evasion. The NAS report observes that nations with more test experience could make more progress in a weapons program through covert testing, but that "the threats these countries can pose to U.S. interests with the types of nuclear weapons they already have tested are large. What they could achieve with the very limited nuclear testing they could plausibly conceal would not add significantly to this." CTBT supporters hold that the United States has lived with the prospect that Russia or China could gain an advantage through clandestine testing since the U.S. moratorium began in 1992. Russia, at least, has apparently taken a different approach to its nuclear weapons program than has the United States, so that the programs are not strictly comparable. For example, the NAS report states, "Russian nuclear weapons are remanufactured on a 10-year cycle," which contrasts with the current U.S. policy of extending the service lives of existing warheads for many years. Nonetheless, CTBT supporters argue that the United States has advanced in its nuclear capability significantly through SSP. In their view, it would be instructive to ask the current directors of the three U.S. nuclear weapons laboratories if they would rather be in the position of the Russian or Chinese nuclear weapons programs, even including the possibility of testing at very low yields, or the U.S. enterprise with the scientific tools made available by SSP but without testing. The NAS report summarizes the value of clandestine testing as follows: Very little of the benefit of a scrupulously observed CTBT regime would be lost in the case of clandestine testing within the considerable constraints imposed by the available monitoring capabilities.... The worst-case scenario under a no-CTBT regime poses far bigger threats to U.S. security interests—sophisticated nuclear weapons in the hands of many more adversaries—than the worst-case scenario of clandestine testing in a CTBT regime, within the constraints posed by the monitoring system. Any nation that ratified the CTBT, and then sought to cheat, would have to evaluate the risks and benefits of clandestine testing. In the 1999 debate, attention focused on the feasibility of successful cheating and the military gains that such tests might or might not confer, but virtually no attention was paid to the risks of being caught. Nonetheless, the question merits consideration because the answer could be crucial to a would-be evader's calculus. Possible alternative cases are sketched here; further research would be of use. It could be argued that there would be few consequences. In this view, the Conference of States Parties to the CTBT, pursuant to Article V of the treaty, "may recommend to States Parties collective measures which are in conformity with international law." Further, "[t]he Conference, or alternatively, if the case is urgent, the Executive Council, may bring the issue, including relevant information and conclusions, to the attention of the United Nations." The U.N. might take little action, or it might delay. In particular, if evidence of clandestine testing were not conclusive, there might be few or no penalties. Another possibility is that the U.N., fearful that an unpunished violation could lead to the unraveling not only of the CTBT, but also of U.S. willingness to take further steps toward nuclear disarmament, could impose meaningful sanctions. Yet another possibility is that some nations could take actions outside the U.N. framework. Instead of attempting to conduct clandestine tests, a nation wishing to conduct one or more nuclear tests might simply withdraw from the treaty. The case for so doing is that it might want to conduct a test with a yield that could not be hidden; it might believe that even a low-yield test could be detected, especially if it had little or no experience with nuclear testing and test containment; and it might want to announce its nuclear capabilities to the world. But clandestine testing offers advantages: an open weapons development program could spur rivals to launch their own program, so a nation wanting to develop nuclear weapons might prefer to keep its intent unknown; a nation that withdrew from the treaty would lose access to IMS data, which could help it evade detection; a nation that withdrew from the treaty to conduct nuclear tests might face the same penalties as one that conducted clandestine tests and was caught cheating; and a nation might prefer to stay in good standing with the international community for as long as possible in order to delay any sanctions. There is widespread agreement among experts within and outside the government that nuclear proliferation, especially if it leads to terrorists obtaining nuclear weapons, is one of the greatest security threats facing the United States. The nuclear nonproliferation regime is a decades-long attempt to hold nuclear proliferation in check. This regime is an array of treaties, agreements, nuclear weapon free zones, restrictions on exports of nuclear-related equipment, controls of nuclear materials, and national laws, with the Nuclear Nonproliferation Treaty (NPT) at its core. The NPT entered into force in 1970. It represents a bargain in which nuclear weapon states could have nuclear weapons, non-nuclear weapon states agreed not to acquire them, and both agreed, in Article VI, "to pursue negotiations in good faith on effective measures relating to cessation of the nuclear arms race at an early date and to nuclear disarmament, and on a Treaty on general and complete disarmament under strict and effective international control." Many see this regime as being in danger. North Korea conducted a nuclear test in 2006. Iran is embarked on a nuclear program that many fear is, or will become, a nuclear weapons program. Many nations are expected to begin nuclear power programs, which would make fissile materials and nuclear expertise more widely available. There are concerns about unsecured nuclear weapons in Pakistan and elsewhere, and about whether another proliferation network such as that operated by A.Q. Khan will emerge, or if another one still exists undiscovered. Another concern is the threat of terrorists armed with nuclear weapons. Some fear a cascade of nuclear proliferation. For example, if Iran develops nuclear weapons, that could put pressure on Egypt and Saudi Arabia to do likewise, and a continued North Korean nuclear weapons program could lead Japan and South Korea to follow suit. At issue is how to protect this regime and thwart nuclear proliferation. A major argument by supporters on behalf of the CTBT is that the treaty would promote nonproliferation. Some CTBT supporters favor the treaty by itself as a means to slow proliferation, while other supporters see the treaty as a step toward nuclear disarmament. Opponents argue that the treaty would weaken deterrence and that nonproliferation and disarmament are not linked. Some opponents would resume testing promptly to restore confidence in existing weapons, develop new ones, and train weapons designers, while other opponents would resume testing only under more limited circumstances, such as if a problem developed with an existing warhead that could only be fixed through testing. Greg Mello, executive director of the Los Alamos Study Group, offers the following view: The nonproliferation value of U.S. CTBT ratification depends on other U.S. policies, some connected to the treaty and some not. If those other policies build on and implement the CTBT as a disarmament treaty, as the text of the treaty proclaims it to be, it could have significant nonproliferation value. On the other hand, a CTBT that aims to "ban the bang, but not the bomb," and that the United States ratifies and implements on that basis, may have little if any nonproliferation value. In that case it would be widely and correctly seen as furthering a world order based on a nuclear double standard. For example, ratifying the CTBT while making long-term investments to maintain and improve a leaner U.S. nuclear arsenal would make a mockery of this treaty in the eyes of most of the world. Merely having a CTBT is not enough of a goal to provide real improvement in the foreign relations of the United States. Freedom from the threat of nuclear attack, i.e. freedom from nuclear deterrence, would be such a goal, with the CTBT one means to it. In contrast, should a situation arise in which a world led by nuclear-armed, rich states enforced a future CTBT regime by threat of military force or by economic sanctions that cause widespread suffering, that situation would not be much different than the one we have today prior to ratification and entry into force. Another possible position is that the CTBT would make little difference one way or the other. In this view, the extent of proliferation is about what it would be had the United States ratified the CTBT; this nation has made progress on nuclear nonproliferation despite not having ratified the treaty; the weapons labs have supported 12 annual assessments that nuclear weapons remain safe and reliable despite the lack of testing; and the strategic balance favors this nation whether or not Russia or China has tested clandestinely. Thus, neither the worst fears of those who opposed the treaty on grounds that deterrence would collapse without testing, nor of those who supported it on grounds that U.S. failure to ratify would accelerate nuclear proliferation, have been realized. This position has received little if any support. CTBT supporters hold that the treaty would make specific technical contributions to nuclear nonproliferation. Richard Garwin, IBM Fellow Emeritus, testified, It is possible to build simple nuclear weapons without nuclear explosion tests. But there will always be a nagging doubt whether or how well they perform. The Hiroshima and Nagasaki bombs each weighed about 9,000 pounds, with a yield of 15 to 20 kilotons.... these must be compared with a two-stage thermonuclear bomb, tested in 1957, 12 years later, that weighed some 400 pounds, with a yield of 74 kilotons. Its diameter was a mere 12 inches, with a length of some 42 inches. That is what you can do by testing. That is what other people cannot do without testing. General John Shalikashvili (USA, Ret.), former Chairman of the Joint Chiefs of Staff, in a 2001 report on the CTBT, noted the importance of such limitations imposed by the treaty: A ban on nuclear explosions would also place technical constraints on countries that already have nuclear weapon capabilities. Test Ban Treaty signature by India or Pakistan would not close off their nuclear options, but it would rule out certain developments and help prevent a destabilizing nuclear arms race in South Asia. China would not be free to test explosively a post-production sample of a more advanced warhead than is in its current arsenal. This would, for example, impede China from placing multiple warheads on a mobile missile. Treaty supporters argue that the treaty would reduce the risk of nuclear proliferation in other ways. They state that IMS, which would complement U.S. monitoring systems by placing seismic stations in areas that would be closed to a U.S. national system, and OSIs, which could be conducted only if the treaty were to enter into force, would help detect and deter nuclear tests. Garwin argued that China would have to test to develop certain new weapons: "if secret information regarding thermonuclear weapons has been acquired by others or may be so acquired in the future, as has been alleged in regard to China, this information cannot be turned into a deployable weapon without tests forbidden by the CTBT." CTBT opponents see a strong and robust nuclear force as essential to nonproliferation. In this view, the U.S. "nuclear umbrella," that is, a U.S. willingness to use nuclear weapons to defend friends and allies from attack, contributes to nonproliferation by reassuring them so they do not need nuclear weapons of their own. Opponents stress the importance that many nations attach to the nuclear umbrella. One report finds, "The United States has extended security assurances to 31 countries—the 26 nations of NATO, Australia, Japan, South Korea, Taiwan, and Israel." While the North Atlantic Treaty does not reference nuclear weapons, the United States kept many nuclear weapons in Western Europe during the Cold War, and a 1999 NATO document states, "The supreme guarantee of the security of the Allies is provided by the strategic nuclear forces of the Alliance, particularly those of the United States...." Regarding Japan, after a meeting between Secretary of State Condoleezza Rice and Japanese Foreign Minister Taro Aso shortly after the 2006 North Korean nuclear test, Secretary Rice said, "I reaffirmed the President's statement of October 9 th that the United States has the will and the capability to meet the full range—and I underscore full range—of its deterrent and security commitments to Japan." Minister Aso said, "There is no need to arm ourselves with nuclear weapons either. For Japan's own defense we have this Mutual Defense Treaty with [the] United States ... and that commitment has been reconfirmed by Secretary Rice." And regarding a U.S.-South Korean Mutual Defense Treaty that entered into force in 1954, Secretary of Defense Donald Rumsfeld said, "The United States reaffirms its firm commitment to the Republic of Korea, including continuation of the extended deterrence offered by the U.S. nuclear umbrella, consistent with the Nuclear [sic] Defense Treaty." CTBT opponents maintain that the nuclear umbrella must be kept credible, which requires ongoing effort. As Robert Barker said, "The credibility of our nuclear deterrent can only be sustained if we, ourselves, are confident it will work.... We, especially in our open society, cannot sustain the credibility of deterrence for long if we lose confidence in the actual performance of the weapons." To maintain credibility, opponents believe, the U.S. nuclear deterrent must respond to changing conditions. Threats change over time, and U.S. forces must change as well to continue to hold at risk assets that adversaries value highly. But, opponents fear, the deterrent cannot remain credible under current conditions. As noted earlier, John Foster raised concerns about SSP. And Robert Monroe, former Director of Defense Nuclear Agency, said, We've let every aspect of our nuclear weapons program deteriorate for the past sixteen years. We have not transformed our nuclear strategy from one of massive retaliation against the Soviets to the surgical needs of today's distributed threats. Our stockpile of high-yield, dirty nuclear weapons, designed for the Cold War, is aged and becoming more irrelevant by the day. The nation's nuclear infrastructure has seriously deteriorated. Our advanced nuclear technology R&D effort is practically nonexistent. We've designed no new nuclear weapons, tested no weapons, and produced no new weapons. Our Defense Department has virtually "denuclearized" itself.... In sum, states under our nuclear umbrella may be worried over both our capability and our will to protect them. In this view, since the main risk to the nonproliferation regime flows from a lack of confidence in the U.S. nuclear deterrent, the only way to restore that confidence is to test. Testing would permit development of new weapons, training of nuclear designers and other personnel, and exercising of the nuclear weapons complex, all of which would, in this view, make the nuclear umbrella more credible and reduce the risk of proliferation. According to Robert Monroe, Our arsenal is still composed of aging Cold War "massive retaliation" weapons, with moderate accuracy, very high yields, and "dirty" radiation outputs. They are virtually irrelevant today for deterring our proliferating adversaries. These rogue states have buried their nuclear weapons facilities deep underground, frequently locating them near deliberately exposed civilian populations. Any U.S. nuclear weapons that do not have high accuracy, very low yields, reduced collateral damage, and reduced residual radiation will not be credible of use, and our attempted deterrence will fail. To be effective deterrents, these new weapons also need tailored outputs (earth penetration, neutralization of chem-bio agents, etc.). All these new capabilities will require nuclear testing. CTBT supporters reject the emphasis on new weapons as creating major problems for nuclear nonproliferation. Former Senator Sam Nunn testified, On the RRW [reliable replacement warhead] itself, if Congress gives a green light to this program in our current world environment—and I stress in our current world environment—I believe that this will be misunderstood by our allies, exploited by our adversaries, complicate our work to prevent the spread and use of nuclear weapons ..., and make resolution of the Iran and North Korea challenges all the more difficult. Former Secretary of Defense Harold Brown, though not a supporter of the CTBT in its current form, wrote about the ill-advised push by elements in the current administration to field new, low-yield nuclear weapons and new nuclear designs of penetrating "bunker busters." They would provide further excuses for aspiring nuclear-weapon states and alienate those whose cooperation is sought while providing no significant and perhaps negative security gains. Shaking the U.S. nuclear stick at adversaries probably encourages proliferators. While some CTBT supporters favor the treaty on its own merits as restricting nuclear weapons programs of nuclear weapon states (NWS), other supporters take a broader view of the treaty's contribution to nonproliferation. They assert that the United States agreed, in Article VI of the NPT, to a "grand bargain" in which the NWS would move toward nuclear disarmament while the non-nuclear weapon states (NNWS) would forgo nuclear weapons and support nuclear nonproliferation measures. They see a world without nuclear weapons as the best defense against proliferation, and progress in this direction as needed to enlist the world's support on behalf of this goal. As a result, it is argued, steps toward disarmament are essential for nonproliferation. CTBT opponents, however, see no logical linkage between nonproliferation and disarmament. They believe that by claiming Article VI of the NPT makes this link, supporters are trying to shape it to say something it does not. According to Stephen Rademaker, former Assistant Secretary of State, "It is impossible to discern from this language [Article VI] a binding legal obligation on the U.S. and the other four nuclear-weapon states to give up nuclear weapons. The operative legal requirement is to 'pursue negotiations in good faith on effective measures relating ... to nuclear disarmament....'" Further, the NPT "does not assume that nuclear disarmament must be a prerequisite to general and complete disarmament. To the contrary, one of the treaty's introductory paragraphs spells out the expectation of the parties that actual 'elimination from national arsenals of nuclear weapons' would take place not prior to, but 'pursuant to a Treaty on general and complete disarmament.'" Supporters reply that Article VI is only part of the picture, and that the CTBT is a necessary first step toward nonproliferation and disarmament. They note that the United States, along with other NWS, committed to the CTBT in 1995 and 2000. The NPT provides for review conferences every five years. Article X provides that the 25-year conference, held in 1995, would "decide whether the Treaty shall continue in force indefinitely, or shall be extended for an additional fixed period or periods. This decision shall be taken by a majority of the Parties to the Treaty." The 1995 conference decided to extend the treaty indefinitely through a package of decisions that, because it was so controversial, was adopted without a vote. The package included Principles and Objectives for Nuclear Non-Proliferation and Disarmament that stressed the importance of completing "negotiations on a universal and internationally and effectively verifiable Comprehensive Nuclear-Test-Ban Treaty no later than 1996." In a joint statement to the 2000 NPT review conference, the NWS said, "No effort should be spared to make sure that the CTBT is a universal and internationally and effectively verifiable treaty and to secure its earliest entry into force." The conference's final document, adopted by consensus, included 13 steps to implement Article VI; the first was "The importance and urgency of signatures and ratifications, without delay and without conditions and in accordance with constitutional processes, to achieve the early entry into force of the Comprehensive Nuclear-Test-Ban Treaty." Supporters argue that these commitments were instrumental in securing indefinite extension of the NPT and a successful outcome of the 2000 review conference. They conclude that this nation should honor its commitments. Supporters note that the international community overwhelmingly favors the CTBT. As of March 2008, 178 nations had signed the treaty, and 144 of them had ratified. On December 5, 2007, by a vote of 176 for, 1 against (United States), and 4 abstentions, the U.N. General Assembly adopted resolution A/RES/62/59 stressing the importance of achieving the earliest entry into force of the CTBT. Further, the international community overwhelmingly links the treaty to nuclear nonproliferation and disarmament. For example, Japan's representative at the 2007 conference on the treaty's entry into force stated, "Japan supports the CTBT, which underpins the international nuclear non-proliferation regime founded on the NPT, as a practical and concrete measure for realizing a nuclear-free world." Nigeria's representative said, "We believe that the universal adherence to the Treaty, including by the five nuclear weapon States, would contribute towards the process of nuclear disarmament and nuclear non-proliferation and, therefore, towards the enhancement of international peace and security." The final declaration of the conference stated: "We reiterate that the cessation of all nuclear weapon test explosions and all other nuclear explosions ... constitutes an effective measure of nuclear disarmament and non-proliferation in all its aspects." Gen. John Shalikashvili, former Chairman of the Joint Chiefs of Staff, argued that the CTBT and nuclear nonproliferation were closely linked: Non-ratification [of the CTBT] has also complicated U.S. efforts to strengthen the International Atomic Energy Agency safeguards that non-nuclear weapon state parties to the NPT must have on their civilian nuclear programs. Many countries are reluctant to accept new obligations while the United States is unwilling to approve the Test Ban Treaty.... Once we ratify the Test Ban Treaty, which the rest of the world views as vital for non-proliferation, we will be better able to enlist cooperation on export controls, economic sanctions, and other coordinated responses to specific problems. Former Secretary of State George Shultz, former Secretary of Defense William Perry, former Secretary of State Henry Kissinger, and former Senator Sam Nunn argued the need to link the goal of disarmament and specific steps to achieve it: Reassertion of the vision of a world free of nuclear weapons and practical measures toward achieving that goal would be, and would be perceived as, a bold initiative consistent with America's moral heritage.... Without the bold vision, the actions will not be perceived as fair or urgent. Without the actions, the vision will not be perceived as realistic or possible. One of the eight steps they recommend is "Initiating a bipartisan process with the Senate, including understandings to increase confidence and provide for periodic review, to achieve ratification of the Comprehensive Test Ban Treaty, taking advantage of recent technical advances, and working to secure ratification by other key states." By the same token, some CTBT supporters contend that U.S. failure to observe the disarmament end of the bargain will inevitably undermine the willingness of other nations to cooperate on nonproliferation. Margaret Beckett, former U.K. Secretary of State for Foreign and Commonwealth Affairs, said, our efforts on non-proliferation will be dangerously undermined if others believe, however unfairly, that the terms of the grand bargain have changed, that the nuclear weapon states have abandoned any commitment to disarmament. The point of doing more on disarmament, then, is not to convince the Iranians or the North Koreans. I don't believe for a second that further reductions in our nuclear weapons would have a material effect on their nuclear ambitions. Rather the point of doing more is this: because the moderate majority of states, our natural and vital allies on non-proliferation, want us to do more. And if we do not, we risk helping Iran and North Korea in their efforts to muddy the water, to turn the blame for their own nuclear intransigence back onto us. They can undermine our arguments for strong international action in support of the NPT by painting us as doing too little too late to fulfill our own obligations. CTBT opponents dismiss this seeming international support. According to a 2007 study by the International Security Advisory Board, a federal advisory committee for the State Department, the NPT is too important to be left to the NPT "professionals." These "professionals," perhaps more aptly termed "groupies," are an association of government representatives, NGOs, and anti-war, anti-nuclear activists. They often carry agendas far beyond the views of their senior government leaders and are quite disconnected from world realities and from the original intention of the NPT. It is generally believed that the success in the 2000 review was the result of diplomatic approaches by the Clinton Administration directly to internationally influential government leaders. CTBT opponents state that many nations do not need their own nuclear weapons because they rely on the U.S. nuclear umbrella. They hold that supporters misread the relationship between nuclear weapons and nonproliferation because the NNWS are the main beneficiaries of the NPT. As Robert Monroe said, "the real winners from this inequality [between NWS and NNWS] are the NNWS. They're overwhelmingly better off by not having to fear nuclear-armed neighbors and by being relieved of the staggering expense of maintaining a nuclear arsenal." As the International Security Advisory Board states, There is clear evidence in diplomatic channels that U.S. assurances to include the nuclear umbrella have been, and continue to be, the single most important reason many allies have foresworn nuclear weapons.... The ISAB is convinced that a lessening of the U.S. nuclear umbrella could very well trigger a cascade [of nuclear proliferation] in East Asia and the Middle East. Opponents, seeing U.S. nuclear forces as contributing strongly to nuclear nonproliferation, reject the claim that the CTBT is essential for it. They note that the United States has taken a great many steps to counter proliferation, many since 1999. These include the Proliferation Security Initiative, a multinational partnership to interdict WMD shipments; U.N. Security Council Resolution 1540, under which all nations are to "adopt and enforce appropriate effective laws which prohibit any non-State actor" from acquiring WMD; continued efforts to secure nuclear weapons in Russia and fissile materials in former Soviet republics and elsewhere; the Global Initiative to Combat Nuclear Terrorism; the Six-Party Talks with North Korea to roll back its nuclear program; the successful rollback of Libya's nuclear weapons program; and breaking the A.Q. Khan nuclear smuggling ring. Opponents therefore argue that Senate rejection of the CTBT has not hindered U.S. nonproliferation efforts. CTBT opponents also note that the United States has taken many steps toward disarmament. The State Department states, "U.S. actions over the past 20 years have established an enviable record of Article VI compliance." Accomplishments include dismantlement of over 13,000 nuclear weapons since 1988, elimination of 350 heavy bombers and 28 ballistic missile submarines, conversion of about 60 tons of fissile material irreversibly for fuel in civil reactors, cooperative threat reduction assistance to the former Soviet Union resulting in elimination of 1,000 Soviet/Russian ballistic missiles and 27 ballistic missile submarines, and continuing the nuclear test moratorium. A U.S. official said, "One wonders how such progress can be overlooked." CTBT opponents conclude that these efforts can continue without U.S. ratification of the CTBT because they are in the interests of almost every nation. Beyond these specific steps, opponents see the concept of nuclear abolition as unrealistic. There are many thousands of these weapons in the world, and they cannot be "disinvented." Former Secretary of Defense Harold Brown and former Director of Central Intelligence John Deutch wrote, the goal, even the aspirational goal, of eliminating all nuclear weapons is counterproductive. It will not advance substantive progress on nonproliferation; and it risks compromising the value that nuclear weapons continue to contribute, through deterrence, to U.S. security and international stability.... at present, there is no realistic path to a world free of nuclear weapons. The CTBT's opponents see the treaty as not enforceable. They argue that the "international community" is long on talk but short on action, and point to Bosnia, Rwanda, and Darfur as examples, as well as difficulties in imposing meaningful sanctions on Iran for its nuclear activities. They would be unwilling to rely on the U.N. to enforce the CTBT. Further, disarmament would require some means of knowing, as a baseline, how many warheads China and Russia possessed at some point in time. Since there is no technical means of gaining this data, it is argued, the United States would not know their remaining stocks even if they were to destroy a substantial number. Supporters see this concern over lack of enforceability as misplaced. Norms and sanctions, they argue, have an effect. South Africa, Argentina, and Brazil gave up nuclear weapon programs; Ukraine, Kazakhstan, and Belarus gave up nuclear weapons on their soil when they became independent states; and North Korea seems to be in the process of giving up its nuclear weapons program. Supporters see nuclear disarmament as a very long term goal, not one that can be implemented any time soon. For example, the United Kingdom, which ratified the CTBT, plans to continue its submarine-based nuclear deterrent. As Prime Minister Tony Blair explained, "the risk of giving up something that has been one of the mainstays of our security since the War ... is not a risk I feel we can responsibly take. Our independent nuclear deterrent is the ultimate insurance." Nonetheless, they believe it is important to set disarmament as a goal and to take steps toward it, notably the CTBT. Beyond that, supporters believe a resumption of U.S. nuclear testing would be disastrous to the nonproliferation regime, setting off a proliferation cascade. In this scenario, Russia would feel compelled to test, if only to demonstrate that it would keep up with the United States. China would seize the opportunity to test to perfect lighter warheads that, it is argued, might be designed using U.S. weapons information allegedly gained through espionage. With the testing option open, Iran could conduct nuclear and ballistic-missile tests; the potential threat to Israel could lead that nation to expand its alleged nuclear weapons program and conduct tests. Saudi Arabia and Egypt might feel the need for nuclear programs, whether to deter Iran or Israel. In this environment, North Korea might test again, leading Japan and South Korea to begin nuclear weapon programs. India and Pakistan might conduct tests. The risk of nuclear war would grow exponentially, with many nations threatened from multiple directions and none of the new nuclear powers having the strict command and control of the United States and Russia. With nuclear weapons, fissile material, and expertise in so many hands, in this scenario, the risk of nuclear terrorism would rise sharply. Supporters question the link between the nuclear umbrella and testing. They note that Japan, South Korea, all members of the European Union, and all members of NATO except the United States have ratified the CTBT. Their ratification, it is argued, calls into question whether they would exit the treaty to develop nuclear weapons of their own should there be some doubt about the reliability of U.S. nuclear forces. Instead, supporters claim, nonproliferation and the CTBT are tightly linked. A Carnegie International Nonproliferation Conference document stated: Nearly every speaker emphasized that the CTBT is the most salient indicator of whether the core nuclear nonproliferation bargain can be sustained. ... The CTBT indicates whether states are willing to uphold their commitments to reduce the role of nuclear weapons. Its implementation would stop the steep plunge in international confidence in the nonproliferation regime. U.S. ratification of the treaty would pressure other states that also have not ratified to clarify their nuclear policies to the rest of the world—including China, India, Egypt, Israel, and Iran. Opponents respond that the U.S. moratorium on nuclear testing is an example of compliance with Article VI of the NPT, especially as this moratorium has been in effect since 1992, and so should be seen as supporting nonproliferation. They prefer the moratorium to the treaty, believing that, in the event of a problem with a nuclear weapon that could only be fixed through testing, it would be politically more difficult to exit the moratorium than the treaty. Supporters reply that the moratorium is insufficient. The WMD Commission, an independent organization funded by the Swedish government that seeks proposals to reduce the dangers of WMD, stated in a report of 2006: The Commission believes that a US decision to ratify the CTBT would strongly influence other countries to follow suit. It would decisively improve the chances for entry into force of the treaty and would have more positive ramifications for arms control and disarmament than any other single measure. While no nuclear-weapon tests have been carried out for many years, leaving the treaty in limbo is a risk to the whole international community. The United States should reconsider its position and proceed to ratify the treaty. Only the CTBT offers the prospect of a permanent and legally binding commitment to end nuclear testing. Similarly, the final declaration of the 2007 Conference on Facilitating the Entry into Force of the Comprehensive Nuclear-Test-Ban Treaty stated, "Continuing and sustained voluntary adherence to a moratorium is of the highest importance, but does not have the same effect as the entry into force of the Treaty, which offers the global community the prospect of a permanent and legally binding commitment to end nuclear weapon test explosions or any other nuclear explosions." Supporters note that the treaty's entry into force would bring into operation the treaty's on-site inspection provisions, as inspections can only occur pursuant to the treaty, not the moratorium. They believe that the CTBT would provide a visible barrier between nuclear power and nuclear weapons programs that some would be unwilling to cross, and this barrier, by reducing confidence in a weapons program, might dissuade some nations from undertaking such a program. Opponents note that even if the United States were to ratify the CTBT, it would still not enter into force, so they see the attempt to gain Senate advice and consent as an exercise in futility, especially given that the Senate rejected the treaty in 1999 by a vote of 48 for, 51 against, and one present—far short of a two-thirds majority. Of the 44 "Annex 2" states, those that must, pursuant to Annex 2 of the treaty, ratify the treaty for it to enter into force, six have signed but not ratified (China, Egypt, Iran, Israel, Indonesia, and the United States), and three (India, North Korea, and Pakistan) have not signed. While Colombia and Indonesia might be induced to ratify the treaty, opponents question whether the others would do so. David Hafemeister, professor emeritus of physics at California Polytechnic State University, sees a path to entry into force. It is generally assumed that the process begins with the United States. If the US ratifies, it is generally assumed that China will follow. With China and the US acting together, it is generally assumed that North Korea will ratify. ... Indonesia, a significant CTBT player, will probably ratify. The next step would be the most difficult, as it necessitates a Middle-East Grand Bargain, which would obtain ratifications from Israel first and then Egypt and Iran. With China committed to a test ban, India could follow China. Pakistan has stated that it would ratify if India did. Opponents reply that this scenario hinges on many assumptions, the failure of any one of which could prevent entry into force. Would China ratify the treaty? What basis is there to assume that North Korea would ratify? Why would India agree to the treaty simply because China did? India's main rival is Pakistan, and India might be unwilling to foreclose the option to improve its nuclear weapons through testing given the prospect of instability in Pakistan. India's stated unwillingness to block entry into force could be taken to mean that Pakistan must ratify the treaty before India, which seems unlikely. A Middle East bargain between Egypt, Iran, and Israel would be difficult to achieve, especially if, as has been the case since 1970, Israel is unwilling to ratify the NPT as a non-nuclear weapon state. Given the many other outstanding Middle East issues, CTBT ratification would seem low on the agenda of these three nations. Even if not all 44 Annex 2 states do not ratify the treaty, supporters see value in U.S. ratification. It would give the United States leverage to press others to join the treaty. Senator Carl Levin said, "If we are not willing to ratify the Comprehensive Test Ban Treaty, what standing do we have to urge India, Pakistan, or any country to stop testing?" Some supporters hold that U.S. ratification would help secure international cooperation with the United States by symbolizing a U.S. turn toward multilateralism. Randy Rydell of the U.N. Office for Disarmament Affairs said, "I believe the CTBT does have enormous symbolic importance, regardless of the limits of its ability—alone—to 'stop' proliferation or 'prevent' the improvement of existing arsenals. It stands for the rule of law in disarmament, for the need for binding commitments, for multilateralism, for verification, and for transparency." Even if a few of the 44 Annex 2 states do not ratify the treaty, the international community could press non-members of CTBT not to test, and could impose sanctions if they test. According to Richard Garwin, "U.S. ratification of the treaty would legitimize and mobilize support for U.S. and international action against nations that test, whether or not they are party to the treaty; indeed, the prospect of such support might deter nations from testing." It might be possible to find a way to bring the treaty into force without all 44 Annex 2 states, but not, in the view of the treaty's supporters, without the United States. In 1982, President Reagan set forth a series of conditions under which the United States could proceed with the CTBT. U.S. policy continues to endorse a Comprehensive Test Ban as a long-term objective. This is to be achieved in the context of broad, deep, and verifiable arms reductions, expanded confidence building measures, improved verification capabilities that would justify confidence in Soviet compliance with a Comprehensive Test Ban; and at a time when a nuclear deterrent is no longer as essential an element, as currently, for international security and stability. CTBT supporters assert that these conditions have been met, so it is time for the United States to ratify the treaty. If not now, they ask, when? The treaty's opponents take a different view. While there have been verifiable reductions in missile silos, bombers, and submarines, the Moscow Treaty (Strategic Offensive Reduction Treaty) does not provide for verification, and there has been no verifiable reduction in numbers of nuclear warheads. While many programs since 1982 have built confidence with Russia, as has the disappearance of the Soviet Union, Russia continues to modernize its nuclear forces, and concerns remain about China, Iran, and others. Opponents argue that there are ample opportunities for Russia to conduct clandestine tests that would give it a military advantage, given limitations on monitoring capability and extensive data on testing and evasion gained from Soviet tests. While deterrence of a Russian attack may be less salient now than was deterrence of a Soviet attack in 1982, opponents point to many potential threats, to the importance of the nuclear umbrella for deterrence and nuclear nonproliferation, and to new sources of international instability, such as rogue states, nuclear smuggling rings, and the prospect of nuclear terrorism, that have arisen since the collapse of the Soviet Union. Instead of building confidence, it is argued, these developments reduce it. In this environment, they argue, the United States must maintain a robust nuclear deterrent that evolves to meet actual or anticipated threats. This deterrent, they conclude, is the best guarantee against nuclear proliferation, and maintaining it requires nuclear testing. Some have suggested modifying the CTBT in order to gain acceptance by the U.S. Senate. One possibility is a treaty that would permit withdrawal after 10 years with no reason required, but no nation other than the United States supported this position in negotiations for the treaty. Another is a ban permitting very low yield tests, but the nuclear weapon states could find no threshold to which all could agree other than zero and the nonnuclear weapon states pressed for zero. A third possibility would be to conduct some tests before ratifying a zero-yield, indefinite-duration CTBT. Indeed, the Hatfield-Exon-Mitchell amendment to the FY1993 Energy and Water Development Appropriations Act ( P.L. 102-377 , Section 507) provided for some tests from July 1993 to September 1996 under certain conditions, though the tests were not conducted. For the United States, this approach would accomplish many things that the treaty's critics favor. Testing would: indicate whether LEPs had maintained existing weapons sufficiently and, if not, would validate fixes; indicate whether RRW designs were effective; provide experimental data to validate computer models and data drawn from nonnuclear experiments; provide nuclear test experience for a new generation of weapons designers and others; and benefit from advances made by SSP, which would guide the tests to gather key pieces of data, and from technical advances made in the broader economy since the last test in 1992. On the other hand, U.S. testing could lead to testing by Russia and China, which would enable them to maintain and improve their weapons and develop new ones, undermining U.S. security, and could lead other nations to test as well, in a proliferation cascade. Nonnuclear weapon states might grudgingly have accepted some U.S. testing in 1993-1996; indeed, China and France conducted several tests in this period, though accompanied by international protests. At present, however, critics of this approach believe that with the U.S. moratorium in effect for over 15 years and the treaty ratified by over 140 nations, resumed U.S. testing—even if limited in number and duration and presented as a way to secure U.S. ratification—could well lead to the demise of the CTBT. In any future debate on the treaty, the Senate may wish to examine whether any of these three alternatives merits consideration. Even if these alternatives are rejected, others might be considered that are not inconsistent with the treaty. CTBT supporters might offer new safeguards in addition to those set forth by President Clinton in 1995, but the 45-year history of safeguards indicates that they are all but certain to be a part of any future resolution of ratification of the CTBT and so may offer little leverage on behalf of the treaty. As another alternative, CTBT supporters might offer an RRW-CTBT package to secure Senate advice and consent to ratification. Yet RRW appears an insufficient inducement. Some CTBT opponents hold that the United States could not have confidence in RRW without nuclear testing, and RRW has only modest political support as evidenced by the fact that Congress eliminated FY2008 funds for it. Therefore, if the treaty were to come up again for Senate consideration, it might have to be considered on its own merits. In every arms control treaty, each state party gives up something in the expectation that the risks of so doing are outweighed by gains from what it can give up (such as expensive weapons or programs), what the other parties give up, and what threats it averts. This argues for a net assessment rather than accepting or rejecting a treaty based on one criterion in isolation. There are many criteria to consider in this assessment: Can the United States maintain the safety and reliability of its nuclear weapons, and the health of the nuclear weapons enterprise, well enough over the long term without nuclear testing? And what constitutes "well enough"? Are new nuclear weapons needed for deterrence, or do existing weapons, coupled with conventional forces, suffice? Will new weapons require testing? What is the current balance between monitoring and evasion? Given that monitoring technology will continue to improve, and that evasion capability may improve, but in ways that are generally classified and may well be unknown, how is the monitoring-evasion balance likely to shift over time? How confident can an evader be in its ability to succeed, given the many and improving monitoring techniques and the difficulties that could cause an evasion attempt to fail? How confident can monitors be in their ability to detect and identify a clandestine or an unattributable test in light of the many scenarios that have been set forth and the vast information on monitoring capabilities available in the open literature and available through the IMS to states parties to the treaty? How likely are Russia and China to cheat, and to gain a strategic advantage thereby? How likely are other nations to cheat, and how would that affect deterrence, regional stability, and nuclear proliferation? Would the international community impose severe consequences on a CTBT member that conducted clandestine tests? Would it impose such consequences on a state not party to the CTBT that conducted tests, whether clandestine or not? Would U.S. ratification of the treaty make nuclear proliferation more or less likely? What specific steps would entry into force of the CTBT lead nonnuclear weapon states to take in order to rein in nuclear proliferation? Would these states take these steps only if the treaty enters into force? Is U.S. movement toward nuclear disarmament, as exemplified by the CTBT, essential for nuclear nonproliferation, as some suggest, or do the many U.S. steps toward disarmament and nonproliferation taken to date provide a firm basis for further nonproliferation efforts? Is the U.S. moratorium on nuclear testing a reasonable long-term balance between those who demand that the United States ratify the CTBT and those who urge a return to testing? Is the United States likely to exit the moratorium if a problem arises that calls for a test? Is this nation less likely to exit the CTBT under that circumstance? How likely is the CTBT to enter into force if the United States ratifies it and works to secure ratification by all Annex 2 states? Could the treaty be brought into force if the United States and China ratified it but a few Annex 2 states did not? Do technical and geopolitical developments since 1999 warrant a reconsideration of the treaty? One's net assessment depends on the importance one attaches to these and other criteria, and the degree and probability of adverse consequences resulting from an incorrect judgment. The assessment is complicated by the accretion of criteria over the course of test ban debates over the past half-century. While arguments over each criterion necessarily shift over time, it also appears that new criteria are added but old ones never leave the debate. Beyond that, perceptions on broader issues influence judgment: the likelihood of malevolent actions by China, Russia, Iran, and North Korea; the value of treaties and regimes for restraining or halting nuclear proliferation; the balance between obtaining security through military capability or diplomacy, and how the two are linked; and the value of U.S. nuclear weapons for influencing the behavior of other nations. In the case of the CTBT, there is no more agreement on the direction of these assessments than there is on judgments on individual criteria. As a result, Members of Congress, Secretaries of Defense and State, and Chairmen of the Joint Chiefs of Staff have often arrived at opposed assessments. Appendix A. History of Nuclear Testing, Test Bans, and Nonproliferation Efforts toward a CTBT date from the dawn of the nuclear age. In 1946, Representative Louis Ludlow introduced H.Con.Res. 146, declaring the sense of Congress that an atomic bomb test be canceled, "that the manufacture of atomic bombs shall cease," and that U.S. officials should seek "a definite postwar agreement by the United Nations to ban the atomic bomb forever as an instrument of war." A scholarly study, analyzing a 1952 report, stated, "Perhaps convinced by the failure to control the A-bomb that there was no possibility for international control once a weapon had been tested, the Oppenheimer Panel recommended approaching the Soviets on control before testing the H-bomb." In 1954, Prime Minister Jawaharlal Nehru of India proposed "Some sort of what may be called 'standstill agreement' in respect, at least, of these actual [nuclear] explosions." President Dwight Eisenhower and Soviet Chairman Nikolai Bulganin began a correspondence in 1957 on a nuclear test ban, and discussions and negotiations continued in various fora toward a CTBT for several years. The two nations were often deadlocked over on-site inspections, which the United States claimed were needed to assure that the Soviets were not cheating and which the Soviets claimed were a means to introduce spies into the country. The Cuban Missile Crisis of October 1962 added impetus to these negotiations. On July 15, 1963, in the wake of this crisis, negotiations between the Soviet Union, United Kingdom, and United States began in Moscow. The United States initially sought a CTBT, but Soviet negotiators ruled this out. Instead, the negotiators quickly worked out a ban on nuclear testing in the atmosphere, in space, and under water. The result was the Limited Test Ban Treaty (LTBT), which was signed on August 5 and which President Kennedy submitted to the Senate on August 8. While the treaty did not limit underground tests because of the difficulty of monitoring them, the Preamble noted that the U.S., U.K., and Soviet governments were "Seeking to achieve the discontinuance of all test explosions of nuclear weapons for all time, determined to continue negotiations to this end, and desiring to put an end to the contamination of man's environment by radioactive substances." In Senate hearings on the LTBT, the Joint Chiefs of Staff recognized gains from the treaty, but expressed concern that the treaty could lead the United States to let down its guard on nuclear matters. Accordingly, they conditioned their support for the treaty on four "safeguards," or measures the United States could take unilaterally within the treaty to maintain U.S. nuclear capabilities: Safeguard A, an aggressive underground nuclear test program; Safeguard B, technology facilities and programs to attract and retain scientists; Safeguard C, maintenance of the ability to resume atmospheric testing promptly; and Safeguard D, improvement of monitoring capability. Owing to concerns about the balance of risks and benefits of the treaty, Senate Majority Leader Mike Mansfield and Senate Minority Leader Everett McKinley Dirksen met with President Kennedy to discuss the matter. The President sent them a letter on September 10 providing "unqualified and unequivocal assurances" on the treaty. These assurances included the safeguards set forth by the Joint Chiefs (though differently worded), and provisions regarding Cuba, East Germany, and peaceful nuclear explosives. These assurances were instrumental in securing Senator Dirksen's support, and that of the Senate. The Senate gave its advice and consent to ratification on September 24, and it entered into force on October 10, 1963. The Nuclear Nonproliferation Treaty (NPT) involved a bargain between the nuclear weapon states (NWS—China, France, Soviet Union, United Kingdom, and United States) and the nonnuclear weapon states (NNWS). In 1959, the U.N. General Assembly adopted a resolution calling for barring states not having nuclear weapons from acquiring them, and in 1961 another General Assembly resolution supporting such a treaty passed unanimously. The treaty was signed in July 1968. The Senate gave its advice and consent to ratification in March 1969. The United States ratified it in November 1969, and it entered into force in March 1970. The central bargain was that NWS would retain nuclear weapons but would not aid NNWS in acquiring nuclear weapons, and NNWS would not acquire nuclear weapons. NNWS were concerned that these provisions would permit the NWS to have nuclear weapons indefinitely, so they insisted on a provision, Article VI, making clear that the intent was the opposite: "Each of the Parties to the Treaty undertakes to pursue negotiations in good faith on effective measures relating to cessation of the nuclear arms race at an early date and to nuclear disarmament, and on a Treaty on general and complete disarmament under strict and effective international control." This provision has been at the heart of disputes over nuclear disarmament between NNWS and NWS, especially the United States, ever since. Other provisions include "safeguards" to verify compliance with the treaty (Article III), "the inalienable right of all the Parties to the Treaty to develop research, production and use of nuclear energy for peaceful purposes," aided by exchange of equipment, materials, and information for that purpose (Article IV), the benefits of peaceful nuclear explosions would be made available to all parties to the treaty (Article V, which has become a dead letter as such explosions have been not been conducted for decades and would be barred by the CTBT), a conference to review the treaty every five years (Article VIII), and a conference 25 years after entry into force "to decide whether the Treaty shall continue in force indefinitely, or shall be extended for an additional fixed period or periods" (Article X). These conferences, and especially the 25-year conference, provided further leverage for the NNWS to press the NWS for nuclear disarmament. While the treaty did not ban nuclear testing, its Preamble recalled "the determination expressed by the Parties to the 1963 Treaty banning nuclear weapon tests in the atmosphere, in outer space and under water in its Preamble to seek to achieve the discontinuance of all test explosions of nuclear weapons for all time and to continue negotiations to this end." The Threshold Test Ban Treaty (TTBT) was signed in 1974, and the Peaceful Nuclear Explosions Treaty (PNET) was signed in 1976. (These treaties did not enter into force until 1990, as discussed below.) Both were between the United States and Soviet Union, and both contained verification protocols. The TTBT banned underground nuclear weapon tests having a yield greater than 150 kilotons; the PNET extended this limit to peaceful nuclear explosions to preclude weapon tests under the guise of explosions for peaceful purposes. The Preamble of the TTBT recalled Article VI of the NPT and the determination expressed in the Preamble of the LTBT "to seek to achieve the discontinuance of all test explosions of nuclear weapons for all time, and to continue negotiations to this end." Article I provided that both sides would undertake to observe the 150-kiloton threshold beginning March 31, 1976. When the LTBT was negotiated in 1963, the United States had limited experience with underground tests. The first contained underground test was conducted in 1957, and the extent to which underground testing would prove adequate for weapons development was unclear. As a result, Safeguard C as set forth by the Joint Chiefs of Staff called for "The maintenance of the facilities and resources necessary to institute promptly nuclear tests in the atmosphere should they be deemed essential to our national security or should the treaty or any of its terms be abrogated by the Soviet Union." After eight years of experience with testing conducted solely underground, the value of such testing had become clear. In 1971, Carl Walske, Assistant to the Secretary of Defense for Atomic Energy, stated, the test program since 1963 has made the difference between having fairly reliable knowledge about vulnerability [of warheads], both during the launch and reentry phases, and not having it; between having the Poseidon and Minuteman III [missile] systems, and having systems which at best could be a fraction as effective in terms of effects on defended targets; and between the possibility of an effective ABM [antiballistic missile], and most likely, no such possibility. With the need for atmospheric testing having diminished, President Ford decided in January 1976 to redefine Safeguard C as "The maintenance of the basic capability to resume nuclear testing in the atmosphere should that be deemed essential to national security." It was understood that "atmosphere" included all prohibited environments. The other safeguards were retained. President Carter pursued a CTBT rather than seeking Senate advice and consent to ratification of the TTBT and PNET. According to a Senate report, "In mid-1978, the Administration concluded that a push to gain Senate consent to ratification of the TTBT and PNET could stir up a fight which would jeopardize the prospects for a complete ban." Instead, the United States, United Kingdom, and Soviet Union conducted negotiations on a CTBT. By 1979, almost all issues were resolved or seemed resolvable. However, strong opposition within the Administration to a CTBT led to a U.S. position that the treaty should expire after three years unless renegotiated. Further, in 1979 and 1980, the SALT II ratification debate overshadowed the CTBT negotiations, which continued at a low level until the end of the Carter Administration. President Reagan declined to reopen negotiations for a CTBT, and cited concerns about U.S. ability to monitor the TTBT and PNET. Meanwhile, in 1986, the House and Senate included provisions limiting nuclear testing in their FY1988 defense authorization bills. The House included a one-year moratorium on nuclear tests over 1 kiloton, while the Senate version contained a non-binding provision that called for ratification of the two treaties and resumption of CTBT talks. A conference committee considered these provisions as President Reagan left for a summit meeting with President Gorbachev in October 1986. Again according to the Senate Foreign Relations Committee report, To break the impasse on the Defense bill and to leave the President free to deal with General Secretary Gorbachev, a compromise was reached. The Congress accepted the Senate provision in exchange for Presidential assurances which were contained in an October 10 letter from President Reagan to Chairmen [Senator Barry] Goldwater and [Representative Les] Aspin. The President agreed as follows: To take two important steps toward limiting nuclear testing. First, I intend to inform General Secretary Gorbachev in Reykjavik that as a first order of business for the 100 th Congress, if the Soviet Union will, prior to the initiation of ratification proceedings in the Senate next year, agree to essential TTBT/PNET verification procedures which could be submitted to the Senate for its consideration in the form of a protocol or other appropriate codicil, I will request the advice and consent of the Senate to ratification of the TTB and PNE treaties. However, if the Soviet Union fails to agree to the required package of essential procedures prior to the convening of the 100 th Congress, I will still make ratification of these treaties a first order of business for the Congress, with an appropriate reservation to the treaties that would ensure they would not take effect until they are effectively verifiable. I will work with the Senate in drafting this reservation. Second, I intend to inform the General Secretary in Reykjavik that, once our verification concerns have been satisfied and the treaties have been ratified, I will propose that the United States and the Soviet Union immediately engage in negotiations on ways to implement a step-by-step parallel program—in association with a program to reduce and ultimately eliminate all nuclear weapons—of limiting and ultimately ending nuclear testing. Negotiations began on the verification protocols for the TTBT and PNET in November 1987; as noted, these treaties had been signed in 1974 and 1976, respectively. On June 1, 1990, the United States and Soviet Union signed these protocols, which replaced protocols initially submitted with the treaties. The Senate gave its advice and consent to ratification of both treaties by a vote of 98-0 on September 25, 1990, and they entered into force December 11, 1990. The Senate's resolutions of ratification were "subject to—The declaration that to ensure the preservation of a viable deterrent there should be safeguards ..." These safeguards were (a) the conduct of a continuing nuclear test program, (b) the maintenance of modern laboratory facilities and nuclear technology programs to attract and retain nuclear scientists, (c) "maintenance of the basic capability to resume nuclear test activities prohibited by treaties ...," (d) improved treaty monitoring capabilities, and (e) improved intelligence capabilities. The resolutions of ratification were also subject to a second declaration: mindful of the commitment of the United States, the Soviet Union and Great Britain in the Limited Test Ban Treaty of 1963 and in the Non-Proliferation Treaty of 1968 to seek the discontinuance of all test explosions of nuclear weapons for all time and of the commitment which shall be legally binding on the Parties upon ratification of the Treaty on the Limitation of Underground Nuclear Weapons Tests [the TTBT] to `continue their negotiations with a view toward achieving a solution to the problem of the cessation of all underground nuclear weapon tests,' the United States shares a special responsibility with the Soviet Union to continue the bilateral Nuclear Testing Talks to achieve further limitations on nuclear testing, including the achievement of a verifiable comprehensive test ban. In 1992, following the end of the Cold War and the dissolution of the Soviet Union, Congress attached an amendment by Senators Mark Hatfield, James Exon, and George Mitchell to the FY1993 Energy and Water Development Appropriations Act, which President George H.W. Bush signed into law ( P.L. 102-377 ) in October 1992. The amendment, Section 507, barred underground nuclear tests between September 30, 1992, and July 1, 1993; permitted fewer than 20 tests between July 1993 and September 1996 under certain conditions, including an absence of congressional disapproval of such tests; and halted U.S. nuclear tests after September 1996 unless another nation conducted a test after that date. It called for the President to submit "[a] plan for achieving a multilateral comprehensive ban on the testing of nuclear weapons on or before September 30, 1996." The last U.S. test was held September 23, 1992; none have been held since. The following year, in the FY1994 National Defense Authorization Act ( P.L. 103-160 , Section 3138), Congress established the Stockpile Stewardship Program (SSP) "to ensure the preservation of the core intellectual and technical competencies of the United States in nuclear weapons." SSP elements included enhanced computing capabilities to better simulate nuclear weapon detonation, experiments not involving nuclear explosions, and new experimental facilities. The legislation required the President to submit an annual report to Congress noting "any concerns with respect to the safety, security, effectiveness or reliability of existing United States nuclear weapons ...," and actions taken or to be taken to address such concerns. Also in P.L. 103-160 , Congress modified Safeguard C, barring in Section 3137 the use of any funds "to maintain the capability of the United States to conduct atmospheric testing of a nuclear weapon." According to the conference report, "The conferees agree that the United States no longer needs to maintain the capability to resume the atmospheric testing of nuclear weapons." In November 1993, the United Nations General Assembly unanimously approved a resolution calling for negotiation of a CTBT. The Conference on Disarmament (CD), a U.N.-affiliated organization that is "the single multilateral disarmament negotiating forum of the international community," conducted the negotiation. The CD's 1994 session began in January, with negotiation of a CTBT its top priority. This priority resulted at least in part from the NPT Review and Extension Conference scheduled for April and May of 1995, at which time the states parties to the NPT would decide whether to extend the treaty indefinitely, as the United States wanted, or for one or more fixed periods. The decision would be binding on the states parties to the treaty. The 1995 NPT conference was contentious. NNWS parties to the NPT saw attainment of a CTBT as the touchstone of good faith on matters of disarmament. They argued that the NWS failed to meet their NPT obligations by not concluding a CTBT. They saw progress on winding down the arms race as inadequate. They assailed the NPT as discriminatory because it divided the world into nuclear and nonnuclear states, and argued for a nondiscriminatory NPT regime in which no nation would have nuclear weapons. The CTBT, in their view, was the symbol of this regime because, unlike the NPT, the NWS would give up something tangible, the ability to develop sophisticated new warheads. Some NNWS saw NPT extension as their last source of leverage for a CTBT: once they agreed to a permanent extension of the NPT, they could not pressure the NWS to achieve a CTBT. Other NNWS saw the NPT as in the interests of all but would-be proliferators and felt that anything less than indefinite extension would undermine the security of most nations. This position saw the NPT as too important to put at risk as a means of pressuring the NWS for a CTBT. The Review and Extension Conference extended the NPT indefinitely. Extension was accomplished by a package of decisions that, because it was so controversial, was adopted without a vote. The package included decisions on indefinite extension of the NPT, strengthening the treaty's review process, a resolution on the Middle East, and Principles and Objectives for Nuclear Non-Proliferation and Disarmament. The latter set forth goals on universality of the NPT, nuclear weapon free zones, etc., and stressed the importance of completing "the negotiations on a universal and internationally and effectively verifiable Comprehensive Nuclear-Test-Ban Treaty no later than 1996." This explicit CTBT-NPT linkage lent urgency to CTBT negotiations. Meanwhile, President Clinton extended the Hatfield-Exon-Mitchell nuclear test moratorium several times, beginning in 1993, and his administration debated whether to pursue a CTBT or another type of test ban, such as one permitting very low yield nuclear tests. In August 1995, the President announced his "decision to negotiate a true zero yield comprehensive test ban" (i.e., a CTBT that permitted no nuclear yield). A White House fact sheet accompanying the President's statement conditioned a CTBT on six safeguards, including the SSP, modern laboratory facilities and nuclear technology programs to attract and retain scientists, the "basic capability to resume nuclear test activities," continued R&D to improve the ability to monitor compliance with the treaty, continued improvement of intelligence capabilities to provide information on nuclear weapons programs worldwide, and the understanding that if a key nuclear weapon type could no longer be certified as safe or reliable, "the President, in consultation with Congress, would be prepared to withdraw from the CTBT under the standard 'supreme national interests' clause in order to conduct whatever testing might be required." The CD completed work on a draft CTBT in August 1996, though objections by India prevented the CD, which operates by consensus, from submitting the treaty to the U.N. General Assembly as a CD document. The General Assembly adopted the treaty in September 1996, and it was opened for signature on September 24, 1996. President Clinton and others signed it on that date. President Clinton submitted it to the Senate in September 1997. On October 13, 1999, the Senate declined to give its advice and consent to ratification by a vote of 48 for, 51 against, and 1 present; a two-thirds majority was required. The international community has continued to press for the CTBT and has linked it to nuclear nonproliferation and the NPT. In a joint statement to the 2000 NPT review conference, the NWS said, "No effort should be spared to make sure that the CTBT is a universal and internationally and effectively verifiable treaty and to secure its earliest entry into force." The final document of the conference, which was adopted by consensus, reaffirmed that "the cessation of all nuclear weapon test explosions or any other nuclear explosions will contribute to the non-proliferation of nuclear weapons"; called on all States, especially those that must ratify the CTBT for it to enter into force, "to continue their efforts to ensure the early entry into force of the Treaty"; and agreed, as a practical step toward disarmament, "An unequivocal undertaking by the nuclear-weapon States to accomplish the total elimination of their nuclear arsenals leading to nuclear disarmament to which all States parties are committed under Article VI" of the NPT. In 2002, a DOD official spelled out the position of the Bush Administration: "We are continuing the current administration policy, as I said, which is we continue to oppose ratification of the CTBT; we continue to adhere to a test moratorium." Secretary of State Condoleezza Rice reiterated this position in 2007: "the Administration does not support the Comprehensive Test Ban Treaty and does not intend to seek Senate advice and consent to its ratification. There has been no change in the Administration's policy on this matter." The 2005 NPT review conference was widely seen as ending in failure. The United States focused on Iranian and North Korean nuclear issues, and on steps to counter proliferation, while, according to one report, "nonnuclear states insisted that the United States and other nuclear powers focus on radically reducing their nuclear armaments," and some wanted agreement on the CTBT. In keeping with the Bush Administration's policy, the United States has resisted international pressure to ratify the CTBT. Five conferences have been held pursuant to Article XIV of the CTBT to facilitate the treaty's entry into force. The most recent conference was held in September 2007. One hundred and six nations participated; the United States did not send a delegation. In September 2006, to mark the tenth anniversary of the CTBT's opening for signature, 59 foreign ministers issued a statement on the treaty that reaffirms that the CTBT "would contribute to systematic and progressive reduction of nuclear weapons and the prevention of nuclear proliferation," and "[calls] upon all States that have not yet done so to sign and ratify the Treaty without delay, in particular those whose ratification is needed for its entry into force." By wide margins, the U.N. General Assembly passed several resolutions supporting the CTBT that the United States opposed. For example, one such resolution, in 2007, passed by a vote of 176 for, 1 against (United States), and 4 abstentions. As of March 2008, the treaty had been signed by 178 nations and ratified by 144, including 35 of the 44 whose ratification is required for the treaty to enter into force. Among the nuclear weapon states, France, Russia, and the United Kingdom have ratified; China and the United States have signed but not ratified. Appendix B. Abbreviations | The Comprehensive Nuclear-Test-Ban Treaty would ban all nuclear explosions. It was opened for signature in 1996. As of March 2008, 178 nations had signed it and 144 had ratified. To enter into force, 44 specified nations must ratify it; 35 have done so. The Senate rejected the treaty in 1999; the Bush Administration opposes it. The United States has observed a nuclear test moratorium since 1992. There have been many calls worldwide for the United States and others to ratify the treaty. Many claim that it would promote nuclear nonproliferation; some see it as a step toward nuclear disarmament. Several measures have been introduced in Congress regarding the treaty; it might become an issue in the presidential election. The U.S. debate involves arguments on many issues. To reach a judgment on the treaty, should it come up for a ratification vote in the future, Senators may wish to balance answers to several questions in a net assessment of risks and benefits. Can the United States maintain deterrence without testing? The treaty's supporters hold that U.S. programs can maintain existing, tested weapons without further testing, pointing to 12 annual assessments that these weapons remain safe and reliable, and claim that these weapons meet any deterrent needs. Opponents maintain that there can be no confidence in existing warheads because many minor modifications will change them from tested versions, so testing is needed to restore and maintain confidence. They see deterrence as dynamic, requiring new weapons to counter new threats, and assert that these weapons must be tested. Are monitoring and verification capability sufficient? "Monitoring" refers to technical capability; "verification" to its adequacy to maintain security. Supporters hold that advances in monitoring make it hard for an evader to conduct undetected tests. They claim that any such tests would be too small to affect the strategic balance. Opponents see many opportunities for evasion, and believe that clandestine tests by others could put the United States at a serious disadvantage. How might the treaty affect nuclear nonproliferation and disarmament? Supporters claim that the treaty makes technical contributions to nonproliferation, such as limiting weapons programs; some supporters believe that nonproliferation requires progress toward nuclear disarmament, with the treaty a key step. Opponents believe that a strong nuclear deterrent is essential for nonproliferation, that nonproliferation and disarmament are unrelated, and that this nation has taken many nonproliferation and disarmament actions that the international community ignores. This report presents a detailed, comprehensive discussion of the treaty's pros and cons from a U.S. perspective. It contains an appendix outlining relevant history. It will be updated periodically with views from protagonists. CRS Report RL33548, Comprehensive Nuclear-Test-Ban Treaty: Background and Current Developments, by Jonathan Medalia, tracks current developments. |
This report provides background data on U.S. arms sales agreements with and deliveries to its major purchasers during calendar years 2002-2009. It provides the total dollar values of U.S. arms agreements with its top five purchasers in five specific regions of the world for the periods 2002-2005, 2006-2009, and for 2009, and the total dollar values of U.S. arms deliveries to its top five purchasers in five specific regions for those same years. In addition, the report provides a listing of the total dollar values of U.S. arms agreements with and deliveries to its top 10 purchasers for the periods 2002-2005, 2006-2009, and for 2009. The data are official, unclassified, United States Defense Department figures compiled by the Defense Security Cooperation Agency (DSCA), unless otherwise indicated. The data have been restructured for this report by DSCA from a fiscal year format to a calendar year format. Thus a year in this report covers the period from January 1 to December 31, and not the fiscal year period from October 1 to September 30. The following regional tables ( Tables 1-5 ) provide the total dollar values of all U.S. defense articles and defense services sold to the top five purchasers in each region indicated for the calendar year(s) noted. These values represent the total value of all government-to-government agreements actually concluded between the United States and the foreign purchaser under the Foreign Military Sales (FMS) program during the calendar year(s) indicated. In Table 6 , the total dollar values of all U.S. defense articles and defense services sold to the top 10 purchasers worldwide are provided for calendar year period noted. All totals are expressed as current U.S. dollars. The following regional tables ( Tables 7-11 ) provide the total dollar values of all U.S. defense articles and defense services delivered to the top five purchasers in each region indicated for the calendar year(s) noted for all deliveries under the U.S. Foreign Military Sales (FMS) program. These values represent the total value of all government-to-government deliveries actually concluded between the United States and the foreign purchaser under the FMS program during the calendar year(s) indicated. Commercial licensed deliveries totals are excluded, due to concerns regarding the accuracy of existing data. In Table 12 , the total dollar values of all U.S. defense articles and defense services actually delivered to the top 10 purchasers worldwide is provided. The delivery totals are for FMS deliveries concluded for the calendar year(s) noted. | This report provides background data on U.S. arms sales agreements with and deliveries to its major purchasers during calendar years 2002-2009, made through the U.S. Foreign Military Sales (FMS) program. In a series of data tables, it lists the total dollar values of U.S. government-to-government arms sales agreements with its top five purchasers, and the total dollar values of U.S. arms deliveries to those purchasers, in five specific regions of the world for three specific periods: 2002-2005, 2006-2009, and 2009 alone. In addition, the report provides data tables listing the total dollar values of U.S. government-to-government arms agreements with and deliveries to its top 10 purchasers worldwide for the periods 2002-2005, 2006-2009, and for 2009 alone. This report is prepared in conjunction with CRS Report R41403, Conventional Arms Transfers to Developing Nations, 2002-2009, by [author name scrubbed]. That annual report details both U.S. and foreign arms transfer activities globally and provides analysis of arms trade trends. The intent here is to complement that elaborate worldwide treatment of the international arms trade by providing only the dollar values of U.S. arms sales agreements with and delivery values to its leading customers, by geographic region, for the calendar years 2002-2005, 2006-2009, and 2009. Unlike CRS Report R41403, this annual report focuses exclusively on U.S. arms sales and provides the specific names of the major U.S. arms customers, by region, together with the total dollar values of their arms purchases or deliveries. This report will not be updated. |
On October 24, 2018, President Trump signed into law the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act; P.L. 115-271 ). The conference report on the bill was approved by the House 393-8 on September 28, 2018, and it cleared the Senate 98-1 on October 3, 2018. The law was enacted in response to growing concerns among the U.S. public and lawmakers about increasing numbers of drug overdose deaths. Opioid overdose deaths, in particular, have increased significantly since 2002. In 2015, an estimated 33,091 Americans died of opioid-related overdoses, almost three times as many as in 2002, around the beginning of the opioid epidemic in the United States. In 2016, that number had increased to 42,249. In October 2017, President Trump declared the opioid epidemic a national public health emergency. The SUPPORT Act is a sweeping measure designed to address widespread overprescribing and abuse of opioids in the United States. The act includes provisions to bolster law enforcement, public health, and health care financing and coverage, including under Medicare and Medicaid. The legislation imposes tighter oversight of opioid production and distribution; requires additional reporting and safeguards to address fraud; and limits coverage of prescription opioids. It also expands coverage of and access to opioid addiction treatment services. In addition, the act authorizes programs that seek to expand consumer and provider education on opioid use and train additional providers to treat individuals with opioid use disorders (OUDs). The SUPPORT Act includes numerous legislative changes that affect direct spending and revenues. This report describes specific programmatic changes in the Medicare program in the SUPPORT Act. As such, this report does not discuss the budgetary impact of individual provisions, with the exception of Section 4002, which is related to Medicare (see " Title IV: Offsets "). Overall, the Congressional Budget Office (CBO) estimated the SUPPORT Act would increase the on-budget deficit by $1,001 million over 5 years (FY2019-2023) but reduce the on-budget deficit by $52 million over 10 years (FY2019-FY2028). Generally, pay-as-you-go (PAYGO) scorecards record the effects of legislative changes on direct spending and revenues; however, Section 8231 of the SUPPORT ACT excludes such budgetary effects from PAYGO scorecards, thus precluding any possible sequestration as a result of the legislation's enactment. The SUPPORT Act builds on several prior laws that aimed to address the opioid epidemic. During the 114 th Congress, the Comprehensive Addiction and Recovery Act of 2016 (CARA; P.L. 114-198 ) was enacted. CARA addressed substance use issues broadly, targeting the opioid crisis predominantly through public health and law enforcement strategies. CARA included new authority for Part D sponsors to implement drug management programs for beneficiaries deemed at risk of misusing or abusing frequently abused drugs, including by limiting the number of prescribers and pharmacies used by such enrollees. T he 21 st Century Cures Act (Cures Act; P.L. 114-255 ), also enacted in 2016, largely addressed cures and treatment research by authorizing new funding for medical research, amending the Food and Drug Administration (FDA) drug approval process, and authorizing additional funding to combat opioid addiction, among other things. Specifically, Title B of the Cures Act, the Helping Families in Mental Health Crisis Reform Act, made numerous changes to authorities and programs of the Substance Abuse and Mental Health Services Administration, the primary agency within the Department of Health and Human Services (HHS) tasked with increasing access to community-based services to prevent and treat mental disorders and substance use disorders (SUDs). The SUPPORT Act consists of eight titles Title I: Medicaid Provisions to Address the Opioid Crisis Title II: Medicare Provisions to Address the Opioid Crisis Title III: FDA and Controlled Substance Provisions Title IV: Offsets Title V: Other Medicaid Provisions Title VI: Other Medicare Provisions Title VII: Public Health Provisions Title VIII: Miscellaneous The Congressional Research Service is publishing a series of reports on this law, organized by title. This report covers Medicare provisions in Title II and Title VI and one Medicare budget offset in Title IV. (See Table A-1 for a list of abbreviations used in this report and Table A-2 for a table that includes implementation and reporting deadlines for specific provisions.) Medicare is a federal program that provides health coverage for qualified individuals aged 65 and older and certain individuals under the age of 65 who have permanent disabilities. The program served an estimated 60 million elderly and disabled individuals in 2018. Medicare benefits are provided through Part A, which covers hospital (inpatient) services and skilled nursing care; Part B, which covers physician services, other outpatient services, and physician-administered prescription drugs; Part C Medicare Advantage (MA), a managed care option that covers Part A and B benefits (except hospice care); and Part D, a voluntary program that provides coverage of outpatient prescription drugs through private health plans. Medicare may provide coverage for opioids prescribed by approved providers in a variety of settings including outpatient care, a hospital, a skilled nursing facility, or a hospice. Medicare currently does not have a distinct benefit category for SUD treatment, although the program pays for certain services, such as psychiatric care and prescription drugs, deemed reasonable and necessary for treatment of alcoholism and opioid abuse when provided in settings certified by HHS. OUD is a type of SUD, defined by diagnostic criteria in the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders . Diagnostic criteria for OUD describe a problematic pattern of opioid use leading to clinically significant impairment or distress. Opioid overutilization is a significant issue in Medicare. A July 2018 report by the HHS Office of Inspector General (HHS OIG) found that in 2017, about one in three Part D enrollees, or 14.1 million of the 45.2 million enrollees that year, received at least one prescription opioid. Of that group, 458,935 Part D beneficiaries received what the HHS OIG identified as high amounts of opioids (a 120 morphine milligram equivalent [MME] average dose for at least three months). That figure excludes beneficiaries with cancer or who are in hospice care. An MME measures the cumulative use of opioids over a 24-hour period. HHS has taken a number of steps to reduce opioid prescribing and bolster treatment for enrollees who are overusing opioids. Since 2013, the HHS Centers for Medicare & Medicaid Services (CMS) has operated a voluntary opioid overutilization monitoring system (OMS) in Medicare Part D, under which CMS and Part D plan sponsors track enrollees' opioid use and may provide case management, or individual review and monitoring, for those deemed to be at risk of opioid abuse. As noted, CARA includes provisions allowing Part D plans to limit the number of prescribers and pharmacies used by at-risk enrollees, to better control drug use. CARA may implement these "lock-in" programs for enrollees identified as at risk through the OMS, starting in 2019. HHS, Congress, and outside experts have suggested additional actions to address Medicare opioid overutilization in a more comprehensive way. One area of focus is preventing opioid abuse by improving Medicare provider and enrollee education, limiting access to opioids, and researching and providing evidence-based opioid alternatives where possible. Another area of suggested action is improving Medicare coverage of medication-assisted treatment (MAT), which combines medications with counseling and behavioral therapies to provide a holistic approach to addressing OUD. MAT is considered one of the most effective treatments for the condition. Medicare covers discrete MAT treatments, such as counseling, outpatient prescription drugs, and prescription drugs administered by a physician or other practitioner in a certified setting. However, Medicare does not cover MAT services in federally registered opioid treatment programs (OTPs, or methadone clinics). Even when Medicare covers MAT drugs and counseling, enrollees can face interruptions if they move between care settings and cost sharing can vary. The SUPPORT Act includes provisions to expand Medicare coverage for MAT and strengthen Medicare Part D lock-in programs. It also contains provisions to institute new controls to prevent Medicare prescription opioid fraud and abuse by enrollees, practitioners, or dispensers. The law also includes requirements for beneficiary education regarding opioids, assuring access to evidence-based alternatives, and addressing fraud. Among major changes to Medicare, the SUPPORT Act Creates a new Medicare bundled payment for MAT, effective in 2022. The payment covers MAT services provided in federally registered OTPs, including dispensing of methadone. Requires Part D plans to administer lock-in programs for enrollees identified as at risk of opioid abuse, beginning in 2022. Requires electronic prescribing of controlled substances in Medicare Part D to reduce errors and fraud, effective in 2021. Allows Part D plans to suspend payments to pharmacies in cases where there are credible allegations of fraud, beginning in 2020. Table 1 , below, lists Medicare provisions of the SUPPORT Act by topic. Some SUPPORT Act provisions fit into more than one category. A section-by-section analysis of the SUPPORT Act follows Table 1 . The section-by-section descriptions generally are organized sequentially by title and section number. In several instances where more than one provision amends the same section of law, however, the provisions are grouped together for easier reference. In general, telehealth services can be provided to Medicare beneficiaries under Parts A and B, although a separate payment for telehealth services may apply in certain situations. Under Part A, telehealth services may be used to treat hospital inpatients, but there is no statutory authority for a separate payment under the Medicare hospital Inpatient Prospective Payment System (IPPS). Although no payment is involved, CMS guidance for Part A explicitly identifies telehealth as an alternative to face-to-face encounters when a physician writes an order for home health services. Under Part B, payments for telehealth services must follow Social Security Act (SSA) Section 1834(m), which places restrictions on the location, provider, telehealth technology, and certain other parameters. The facility where the beneficiary is located is referred to as the originating site , and the site where the practitioner is located is referred to as the distant site . Medicare makes a payment to the physician or practitioner at the distant site for rendering the telehealth service, and a separate facility fee to the originating site. SSA Section 1834(m) requires that the originating site meet one of three conditions (two of which are geographic, one programmatic): telehealth service originating sites must be located in a rural health professional shortage area or a county not included in a Metropolitan Statistical Area (MSA), or from an entity that participates in a federal telemedicine demonstration project. Qualifying originating sites include an office of a physician or practitioner, a critical access hospital (CAH), a rural health clinic, a federally qualified health center, a hospital, a hospital- or CAH-based renal dialysis center, a skilled nursing facility, or a community mental health center. Under Part C, MA plans must provide telehealth services to the extent that they are a covered service under Medicare Part B. The Bipartisan Budget Act of 2018 (BBA 18; P.L. 115-123 ) expands telehealth under Medicare in four ways: (1) by increasing the opportunities for certain accountable care organization (ACO) and Medicare shared savings plans models to receive telehealth payments, beginning January 1, 2020 (BBA 18 §50324); (2) by eliminating the originating site restrictions for telehealth services for acute stroke evaluation, beginning January 1, 2019 (BBA 18 §50325); (3) by allowing MA plans to provide additional telehealth benefits (minus capital and infrastructure costs), which are treated as if they are benefits required under original Medicare (Parts A and B) for payment purposes starting in plan year 2020 (BBA 18 §50323); and (4) by permitting Medicare patients with end-stage renal disease on home dialysis to receive monthly clinical assessments at home or at freestanding dialysis facilities via telehealth, beginning January 1, 2019 (BBA 18 §50302). Section 2001 amends SSA Section 1834(m) to eliminate the geographic originating site requirements listed above for telehealth services furnished for treating SUD and co-occurring mental health disorders. In order to receive a facility fee for SUD telehealth services, the originating site must be one of the qualifying originating sites listed above (excluding freestanding dialysis facilities). The provision also adds the home of an individual as a permissible originating site for SUD telehealth services; however, facility fees would not apply to originating sites from homes. Although the provision states that the amendments in this section are to take effect beginning July l, 2019, the HHS Secretary (Secretary) is given the authority to implement the modifications immediately by interim final rule. No later than five years after enactment, the Secretary is to report to Congress on the impact of this modification on health care utilization and health outcomes related to substance use disorders, including emergency department visits. To support this effort, $3 million is to be transferred from the Medicare Part B Trust Fund to remain available until expended. Medicare beneficiaries are entitled to annual "well" visits. The first such visit, furnished in the first year of enrollment, is the Initial Preventive Physical Examination (IPPE), often called the "welcome to Medicare" visit (SSA §1861(ww)). Annually thereafter, beneficiaries are entitled to an annual wellness visit (AWV) and personalized prevention plan services (SSA §1861(hhh)). Regulations at 42 C.F.R. Part 410, Subpart B, specify, for each visit, the provision of a health assessment; a suite of physical measurements (e.g., blood pressure); and education, counseling, and referral for additional preventive services that are covered separately. Consultative services that must be furnished include, among others, end-of-life planning (upon agreement with the patient) and screenings for depression and alcohol misuse. Section 2002 amends the IPPE authority in SSA Section 1861(ww) to include a review of the beneficiary's current opioid prescriptions, defined as (1) a review of potential risk factors for OUD; (2) an evaluation of pain severity and the treatment plan; (3) the provision of information on non-opioid treatment options; and (4) referral to a specialist, as appropriate. In addition, it adds to the required elements of the IPPE "screening for potential substance use disorders." It also amends the AWV authority in SSA Section 1861(hhh) to include the same review of the beneficiary's current opioid prescriptions as for the IPPE, as well as "screening for potential substance use disorders and referral for treatment as appropriate." These additional requirements apply to visits furnished on or after January 1, 2020. The provision shall not be construed to prohibit separate payments for additional services for substance abuse that are furnished on the same day as an IPPE or AWV. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173 ) established a voluntary, outpatient prescription drug benefit under Medicare Part D, effective January 1, 2006. Under Part D, private insurers and other sponsors enter into annual contracts with CMS to provide a defined package of outpatient drug benefits. Part D prescription drug coverage is provided through drug-only plans (PDPs) or Part C managed care plans that include a Part D benefit (MA-PDs). (This report generally will refer to Part D plans, unless the legislative language specifies only one type of plan.) As part of contract requirements, Part D plans must support an electronic prescription (e-prescribing) program, defined by CMS as the use of electronic media to transmit prescription-related information between a prescriber, dispenser, pharmacy benefit manager, and/or health plan, either directly or through an intermediary, including an e-prescribing network. Part D plans' e-prescribing systems are to allow the exchange of specific information, including Part D enrollee eligibility; plan benefits; the drug being prescribed or dispensed; other drugs listed in a medication history; and the availability of lower-cost, therapeutically appropriate alternatives (if any) for the drug prescribed. Technical transmission requirements for e-prescribing networks are based on standards set by the National Council for Prescription Drug Programs (NCPDP) and other outside organizations. E-prescribing is optional for physicians and pharmacies. However, physicians and pharmacies that transmit e-prescriptions and related communications with Part D plans must use CMS standards. Section 2003 amends SSA Section 1860D-4(e) to require that a prescription for a covered Part D Schedule II, III, IV, or V controlled substance be transmitted by a health care practitioner electronically in accordance with an approved electronic prescription drug program. The change will apply to drugs prescribed on or after January 1, 2021. The Secretary is to define circumstances in which the e-prescribing requirement may be waived, including cases where the prescriber and dispenser are the same entity; prescriptions that cannot be transmitted electronically due to the constraints of the most recently implemented version of NCPDP standards known as NCPDP SCRIPT; a prescription issued by a practitioner who has received a maximum one-year waiver (or renewal of a waiver) of the e-prescribing requirement due to demonstrated economic hardship, technological limitations not reasonably within the control of the practitioner, or other exceptional circumstances; a situation where a practitioner reasonably determines that it would be impractical for the individual involved to obtain substances prescribed by electronic prescription in a timely manner, and such delay would adversely impact the individual's medical condition; a prescription under a research protocol; a prescription the FDA requires to contain certain elements that cannot be accomplished with electronic prescribing, such as a drug with risk evaluation and mitigation strategies; and a prescription for an individual who receives hospice care that is not covered under the title or is a resident of a nursing facility who is dually eligible for Medicare and Medicaid. Part D sponsors and pharmacists are not required to verify that prescribers have a waiver from e-prescribing rules. The requirements are not to be construed as affecting a Part D plan's ability to cover, or a pharmacists' ability to continue to dispense, Part D drugs from otherwise valid written, oral, or fax prescriptions consistent with applicable laws and regulations. No later than one year after enactment, the U.S. attorney general is to update requirements for the biometric component of multifactor authentication with respect to electronic prescriptions of controlled substances. Section 6062 amends SSA Section 1860D-4(e) to require that Part D e-prescribing systems allow for processing of formulary prior authorization requirements. Prior authorization refers to a requirement that a network pharmacy receive approval from a Part D plan before filling a prescription for a covered drug. Beginning no later than January 1, 2021, the Medicare Part D e-prescribing system is to provide for secure electronic transmittal of (1) a prior authorization request from a prescribing health care professional to the plan sponsor for a covered drug for a Part D enrollee and (2) a response from the plan to the prescribing professional. To be treated as an electronic transmission, a transmission must comply with technical standards adopted by the Secretary in consultation with the NCDCP; other standard-setting organizations deemed appropriate by the Secretary; and stakeholders including plan sponsors, health care professionals, and health information technology software vendors. For purposes of the provision, a facsimile, a proprietary payer portal that does not meet standards specified by the Secretary, or an electronic form is not treated as an electronic transmission. Since 2013, CMS has operated a two-part system to combat inappropriate use of opioids in Part D. First, CMS has encouraged Part D sponsors to identify potential opioid overutilizers, conduct retrospective reviews of prescribing data, and perform case management with beneficiaries' prescribers to coordinate care. Plan sponsors implementing this review system may reject opioid claims that exceed medical necessity. Second, CMS has operated the system-wide OMS, which separately reviews Part D prescription data to identify enrollees who may be at significant risk of overutilizing opioids based on (1) opioid dosage and (2) the number of prescribers or pharmacies used by an enrollee. Part D plans that operate drug management programs must review the opioid use of enrollees who are identified by CMS through the OMS. CARA allows Part D plans to limit ( lock in ) the number of prescribers and pharmacies used by enrollees at risk of opioid overutilization, starting in 2019. In April 2018, CMS issued rules to implement CARA that integrated the lock-in provisions with the OMS and Part D plan review system. Under the rules, plans that operate a drug management program can limit a beneficiary's access to coverage to frequently abused drugs through a beneficiary-specific pharmacy control and/or a lock-in requirement. The rules require Part D plans to perform case management for enrollees identified through OMS criteria as potentially at risk for opioid abuse. After reviewing OMS information and consulting with prescribers, Part D plans are to determine whether to give a potentially at-risk enrollee the more stringent designation of an at-risk enrollee. Plans may enroll at-risk enrollees in lock-in programs. Part D sponsors must follow specific procedures when implementing CARA lock-in programs. Plans must provide enrollees identified as potentially at risk with an initial notice of their status. The initial notice informs the enrollee that he or she has 30 days to submit relevant information and to provide any pharmacy and prescriber preferences. Enrollees determined to be at risk after plan review receive a second notice (within 60 day of the initial notice) telling them of their designation, their pharmacy and prescriber choices, and their right to a redetermination. Enrollees are exempted from lock-in programs if they are in long-term or hospice care or if they are being actively treated for cancer pain, and the Secretary is allowed to set additional exemptions. Individual lock-in limitations expire (1) when a beneficiary demonstrates she or he is no longer at risk; (2) at the end of a one-year period, unless the limitation is extended for an additional year; or (3) at the end of a two-year period, if the limitation was extended. If a lock-in limitation is continued beyond an initial 12-month period, the enrollee receives an additional second notice. Section 2004 amends SSA Section 1860D-4(c) to require Part D plans to implement lock-in provisions for at-risk beneficiaries for plan years beginning on or after January 1, 2022. Section 2006 amends SSA Section 1860D-4(c)(5)(C) to require that, for plan years beginning no later than January 1, 2021, a Part D-eligible individual who is identified as having a history of opioid-related overdoses (as defined by the Secretary), and who is not exempted from lock-in requirements, shall be included as a potentially at-risk beneficiary under a drug management program. The Secretary shall identify Part D-eligible individuals with a history of opioid-related overdoses and notify the Part D sponsor of the plan in which the individual is enrolled of the identification. Section 2007 amends SSA Section 1860D-4(c)(5) to expedite the appeal process of Part D enrollees determined to be at risk of opioid abuse. If an enrollee appeals his or her at-risk designation and a plan sponsor denies the appeal in whole or in part, the case is to be automatically forwarded to an independent, outside entity contracted with the Secretary. The change applies no later than January 1, 2021. OUD often is treated through medication-assisted treatment (MAT), which combines medication with other services, such as behavioral and cognitive therapies. The FDA has approved three drugs for use in MAT: methadone, buprenorphine, and naltrexone. Due to the potential for abuse, methadone and buprenorphine are scheduled drugs under the Controlled Substances Act. Naltrexone is not a controlled substance, because it carries no known risk of abuse; as a result, most health care providers who are licensed to prescribe drugs may prescribe naltrexone. Methadone is a Schedule II controlled substance, with high abuse potential. Buprenorphine is a Schedule III controlled substance, with some abuse potential but less than methadone. Practitioners must have specific training and approval to treat OUD with buprenorphine. Under federal law, methadone for OUD treatment is available only through opioid treatment programs (OTPs). The OTPs, often called methadone clinics, provide services to treat individuals diagnosed with OUD, including dispensing buprenorphine and naltrexone and administering methadone on a daily basis, with staff observing patients, who usually take the drug orally as a liquid. Under federal law, OTP treatment for OUD must include behavioral therapy as well as methadone maintenance treatment or other MAT drug treatments. Medicare covers items and services included in broad Medicare benefit categories, such as hospital care, physician services, prescription drugs, and many other areas, but Medicare law generally does not explicitly list all reasonable and necessary items and services that might be required to treat a beneficiary. Medicare does not explicitly offer an OUD benefit, although many of the services considered reasonable and necessary for OUD treatment are covered under broad Medicare benefit categories, such as prescription drugs, qualified psychologist services, physician services, and hospitalization. Medicare statutes do not recognize OTP clinics for reimbursement. Because methadone for MAT may be provided only in OTPs, it is not covered by Medicare. In addition, Medicare law often does not group necessary treatments to treat specific conditions, diseases, or diagnoses as a payment package or bundle, including OTP services. Section 2005 amends SSA Section 1861(s)(2) to add Medicare coverage for items and services provided by OTPs for OUD treatment. Under the provision, Medicare-covered OTP services are to include the dispensing and administration of various forms of FDA-approved MAT drugs; SUD counseling as authorized under state law; individual and group therapy; toxicology testing; and other items and services as determined appropriate by the Secretary, except for meals and transportation. Beginning on or after January 1, 2020, Medicare will pay OTPs 100% (less any beneficiary co-payments) of a bundled payment for OUD treatment provided to Medicare beneficiaries during an episode of care (as defined by the Secretary). The Secretary may implement one or more OTP payment bundles based on the medication dispensed, the scope of furnished services, beneficiary characteristics, and other factors the Secretary determines appropriate. In developing payment bundles, the Secretary may consider OTP payment rates for comparable services paid by Medicaid or TRICARE. OTP payment bundles are to be updated annually. The Secretary may suspend payments to Medicare providers and suppliers pending an investigation of credible fraud allegations, unless there is good reason not to suspend payments. The Secretary is required to consult with the HHS OIG or, as appropriate, the Department of Justice to determine whether the fraud allegations are credible. Section 2008 amends SSA Section 1860D-12(b) by adding a new paragraph authorizing Medicare Part D plan sponsors to suspend payments to pharmacies in the plans' networks, pending investigation of a credible fraud allegation. Plan sponsors are required to notify the Secretary of any payment suspension and may do so using a secure website portal, such as the program integrity portal established under Section 6063. When a Part D plan sponsor suspends payments pending a credible fraud allegation investigation, the plans may conduct post-payment review of the suspect pharmacy's Part D claims. Section 2008 also clarifies that a fraud hotline call, without further evidence, is not considered a credible fraud allegation for payment suspension purposes. The section applies to Part D plan years beginning January 1, 2020. Medicare generally is the primary payer for medical services, meaning it pays health claims first. If a beneficiary has other health insurance, that insurance is billed after Medicare has made payments to fill all, or some, of any gaps in Medicare coverage. In certain situations, however, the Medicare Secondary Payer Act (MSP) prohibits Medicare from making payments for an item or service when payment has been made, or can reasonably be expected to be made, by another insurer, such as an employer-sponsored group health plan. Congress initiated the MSP in 1980 to ensure that certain insurers met their contractual obligations to beneficiaries and to reduce Medicare expenditures. Congress requires group health plans to submit information to the Secretary regarding active, covered individuals in their plans. Active, covered individuals are people who may be Medicare eligible and who are currently employed or who are spouses or dependents of workers who are covered by a group health plan and may be Medicare eligible. The Medicare program, after receiving the data on these individuals, provides insurers with information about primary and secondary coverage for individuals that are identified as Medicare beneficiaries. Section 4002 amends SSA Section 1862(b)(7)(A) to add a requirement that group health plan sponsors identify situations in which the plans are to be the primary payer with respect to benefits relating to Medicare Part D prescription drug coverage. The change aims to help ensure that Medicare is billed properly. The provision is effective starting January 1, 2020. The Health Information Technology for Economic and Clinical Health Act ( P.L. 111-5 ) established Medicare and Medicaid electronic health record (EHR) incentive programs to encourage widespread adoption of EHR technology. (The programs are now called the Medicaid and Medicare Promoting Interoperability Programs.) The programs, launched in 2011, established incentive payments to acute-care hospitals and nonhospital-based physicians that demonstrate "meaningful use" of certified EHR technology (i.e., by using electronic health systems to perform specified functions associated with the delivery of health care). As required in statute, the incentive payments are to be phased out over time (for Medicare, the payments have been phased out). Many behavioral health providers are not eligible to participate in these programs. The Center for Medicare and Medicaid Innovation (CMMI), established by SSA Section 1115A, was given the task of testing innovative health care payment and delivery models with the potential to preserve or improve quality of care and reduce Medicare, Medicaid, and State Children's Health Insurance Program (CHIP) expenditures. In selecting models, the Secretary is required to give preference to those that improve the coordination, quality, and efficiency of health care services. The Patient Protection and Affordable Care Act ( P.L. 111-148 , as amended) appropriated $10 billion to support CMMI activities from FY2011 through FY2019 and $10 billion for each subsequent 10-year period. CMMI innovation models include Episode-based Payment Initiatives; Accountable Care Organization Initiatives (e.g., Next Generation ACO Model); Primary Care Transformation Initiatives (e.g., Comprehensive Primary Care Plus); and Initiatives to Speed the Adoption of Best Practices (e.g., Partnership for Patients), among others. Section 6001 amends SSA Section 1115A(b)(2)(B) to expand the list of models that CMMI may test to include a model that provides incentive payments to behavioral health providers, as specified, in exchange for the providers' adopting and using certified EHR technology to improve care coordination and quality. The MMA bars the Secretary from setting a Part D central formulary, or list of covered drugs. However, individual Part D plans must comply with requirements designed to ensure provision of adequate formularies. Part D plans must cover at least two drugs in each category or class used to treat the same medical condition (unless only one drug is available in the category or class, or two drugs are available but one drug is clinically superior). Part D plans also must cover substantially all available drugs in six categories: immunosuppressant, antidepressant, antipsychotic, anticonvulsant, antiretroviral, and antineoplastic. Part D plans are allowed to institute formulary utilization restrictions, including imposing higher cost sharing for more expensive drugs; requiring enrollees to receive prior approval before filling certain prescriptions; or instituting step therapy, meaning enrollees must first try a plan's preferred alternative to a prescribed drug. CMS reviews Part D formularies annually to ensure they include the required range of drugs and are not designed in such a way as to discriminate against individuals with certain health conditions. Section 6012 requires that, no later than one year after enactment, the Secretary send a study to Congress determining whether Part D enrollees with chronic pain have adequate access to abuse-deterrent opioids. The provision defines an abuse-deterrent opioid as an opioid with physical or chemical barriers, agonist or antagonist combinations, aversion properties, delivery system mechanisms, or other features designed to prevent abuse of such opioid. The study is to consider any barriers to use of abuse-deterrent opioids, such as cost-sharing tiers, step therapy requirements, drug price, and prior authorization requirements. In addition, the study is to assess the effectiveness of abuse-deterrent opioid formulations in preventing opioid abuse or misuse; the impact of the use of abuse-deterrent opioid formulations on the use or abuse of other prescription or illicit opioids (including changes in deaths from such opioids); and other possible public health consequences of abuse-deterrent opioids, such as an increase in rates of human immunodeficiency virus. The Secretary is required to prepare and distribute a public notice each year explaining Medicare benefits. This benefit-related overview must explain the scope of medical services that are—and are not—covered by Medicare. It also must contain information regarding specified Medicare beneficiary rights, responsibilities, and educational resources (SSA §1804). The Secretary is required to consult with health insurers and groups representing seniors during preparation of the notice. The completed notice must be delivered to all individuals entitled to benefits under Medicare Parts A or B. To meet the notice requirement, the CMS produces a handbook entitled Medicare & You (CMS Product No. 10050). CMS mails the handbook to Medicare beneficiaries in late September, prior to the Part C and Part D open enrollment period. Medicare & You also is available publicly on the CMS website, where beneficiaries may opt out of receiving a physical copy of the handbook and instead choose electronic delivery of future releases. In addition to setting forth statutory requirements, the handbook includes Medicare information, such as answers to frequently asked questions and lists of available health and drug plans. Section 6021 amends SSA Section 1804 to require the Secretary to compile and provide educational resources in the annual notice, beginning in 2019, covering the topics of opioid use, pain management, and alternative pain management treatments. Section 6021 also requires the annual notice to include a suggestion that Medicare beneficiaries consult with a physician on opioid use and pain management. The Secretary declared the opioid crisis a public health emergency in October 2017, due to increasing rates of opioid-related deaths and OUD. The Secretary extended the initial public health emergency in January, April, July, and October 2018. According to experts, a number of factors may have contributed to the opioid crisis, including changes in medical practice, overprescribing of opioid drugs, poor social and economic conditions, improvements in manufacturing that make concentrated forms of opioid drugs readily available, and inadequate oversight. Some reports have attributed prescription opioid overutilization to aggressive treatment of chronic and acute pain. Section 101 of CARA required the Secretary to establish a Pain Management Best Practices Inter-Agency Task Force (Pain Task Force). In cooperation with the Department of Veterans Affairs and the Secretary of Defense, the Pain Task Force was to identify, review, and determine whether there were gaps or inconsistencies in pain management best practices developed or adopted by federal agencies. The Pain Task Force also was to make recommendations to address best practice gaps, obtain public comment, and develop a strategy for disseminating pain management best practices. In addition to the Pain Task Force, the Secretary identified a five-part strategy to combat the health emergency presented by the opioid abuse crisis Improve access to treatment and recovery services. Promote use of overdose-reversing drugs. Strengthen understanding of the epidemic through better public health surveillance. Support cutting edge research on pain and addiction. Advance better practices for pain management. Section 6032 directs the Secretary to collaborate with the Pain Task Force to develop an action plan and recommendations on changes to Medicare and Medicaid to prevent opioid addiction and enhance access to MAT. MAT is defined to include OTPs, behavioral therapy, and medications to treat SUD. In developing the action plan, the Secretary must review Medicare and Medicaid payment and coverage policies that may pose obstacles to effectively responding to the opioid crisis and make recommendations as the Secretary determines appropriate on specified areas related to OUD treatment. Beginning within three months of enactment, Section 6032 requires the Secretary to convene a public stakeholder meeting and request public feedback on ways CMS can address the opioid crisis through development and application of the action plan. The Secretary is to include federal agency, industry, researcher, provider, and patient representatives in the stakeholder meeting. Section 6032 requires the Secretary, before June 1, 2020, to submit to Congress and make public a report that summarizes the results of the Secretary's action plan review and any recommendations; identifies the Secretary's planned next steps for the action plan; and evaluates price trends for drugs used to reverse opioid overdoses, such as naloxone, including recommendations to lower consumer costs. During the current opioid crisis, policymakers have identified potential OUD treatment barriers that may have contributed to the increasing prevalence of opioid addictions. Such barriers include a limited number of approved addiction treatment providers, particularly in rural areas; limited insurance coverage; and health insurance prior authorization and step therapy (or fail-first) requirements. Medicare and Medicaid payment for OUD treatment, as well as the legal status and restrictions on some MAT drugs, also may have limited OUD treatment access. Some addiction specialists argue that MAT drugs are the most important OUD treatment component. These specialists contend that if MAT drugs were more accessible through primary care providers, more individuals could readily receive treatment and fewer patients would relapse. Other policymakers note that MAT might not be right for all individuals with OUD and that treatment approaches might need to be tailored to an individual. Some individuals might benefit most from counseling and related support services, and some might benefit from one drug regimen over another. Section 6042 amends SSA Title XVIII by adding new Section 1866F, which requires the Secretary to conduct a four-year demonstration project on ways to increase Medicare beneficiary access to OUD treatment services, improve beneficiary physical and mental health outcomes, and reduce Medicare expenditures, beginning no later than January 1, 2020. Section 6042 requires the Secretary to design the demonstration so it can be evaluated to determine the extent to which it achieved specified purposes. Within three months of enactment, the Secretary is to consult with addiction specialists, primary care clinicians, and beneficiary groups on the demonstration design. Entities interested in participating in the demonstration must meet specified requirements, although the Secretary may give preference to entities in areas with OUD prevalence that exceeds the national average. Demonstration participants must establish OUD care teams that include specified practitioners, including at least one physician who furnishes primary care or addiction treatment services. Care teams may include other state-licensed practitioners who can provide psychological counseling, social support, and other services. To receive payment under the demonstration, participants must furnish OUD treatment services to beneficiaries through OUD care teams; meet minimum criteria established by the Secretary; and submit data on each beneficiary, as specified by the Secretary. The data must be appropriate to monitor and evaluate the demonstration, determine if minimum criteria are met, and determine specified incentive payments. To be eligible to participate in the demonstration, physicians and other practitioners must be enrolled in Medicare; be authorized to prescribe or dispense narcotic drugs; and have a current Drug Addiction and Treatment Act of 2000 (DATA 2000; P.L. 106-310 ) waiver, which allows them to prescribe Schedule III, IV, and V controlled substances. For beneficiaries to voluntarily enroll in the demonstration (or terminate at will), they must be entitled to or enrolled in Medicare Parts A and B but not Medicare Part C, have a current OUD diagnosis, and meet other criteria the Secretary deems appropriate. Individuals eligible for both Medicare and Medicaid ( dual eligibles ) also are eligible for the demonstration. Up to 20,000 individuals may enroll in the demonstration. All applicable beneficiaries must agree to receive OUD treatment services from participating providers. Section 6042 prohibits providers from limiting applicable beneficiaries' access to Medicare services, and beneficiaries are not required to relinquish access to Medicare services as a condition of receiving demonstration services. The Secretary is required to establish a monthly per-applicable-beneficiary care management fee. The monthly fee will be paid to participating providers in addition to Medicare payments for other services to beneficiaries. Participating providers may use the monthly care management fee to deliver additional services to applicable beneficiaries, including services not covered by Medicare. Section 6042 requires the Secretary to establish a performance-based incentive payment to encourage other payers to provide similar provider payments and authorizes the Secretary to enter into agreements with other payers to align OUD treatment payments. In addition, it requires the Secretary to conduct an intermediate and final evaluation to determine the extent to which demonstration purposes were accomplished. The Secretary must submit to Congress (1) an intermediate evaluation within three years of the demonstration implementation date and (2) a final evaluation within six years of the demonstration implementation date. Section 6042 makes available $5 million from the Medicare Part B Trust Fund to implement, administer, and carry out the demonstration program. In addition, it makes available $10 million from the Medicare Part B Trust Fund to pay OUD care management fees and incentive payments to participants for each of FY2021 through FY2024. Implementation and care management funding are to be available until expended. Medicare Part D plan sponsors process prescription claims submitted by network pharmacies at the point of sale and send summary extracts of those claims, known as Prescription Drug Event (PDE) records, to CMS. The PDE records contain multiple data fields, which CMS uses for plan payment, research, quality monitoring, and the identification of potential fraud. In response to concerns about invalid provider identification on Part D claims, Congress, in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10 ), required Part D claims to include National Provider Identifiers (NPIs) determined to be valid by the Secretary, beginning in 2016. An NPI is a unique identification number for covered health care providers. The HHS OIG monitored implementation of the MACRA requirements. Section 6065 amends SSA Section 1860D-4(c)(4) to require the Secretary, in consultation with stakeholders, to establish technical thresholds for identifying Part D opioid prescribers who are outliers compared to other prescribers in a specific practice specialty and geographic area. The analysis is to be based on opioid claims issued under valid NPIs but is to exclude claims for Part D enrollees who are receiving hospice care or are under treatment for cancer, as well as claims from prescribers who are the subject of an investigation by CMS or the HHS OIG. No later than January 1, 2021, the Secretary is to begin providing annual notification to prescribers identified as opioid outliers. The notification is to describe how the prescriber compares to other prescribers in the same specialty and area, and it is to include information on appropriate opioid prescribing guidelines, which may be based on input from the Centers for Disease Control and Prevention and physician organizations. Starting five years after enactment, the Secretary may change the frequency of required notifications. The Secretary also may expand notifications to cover drugs prescribed concurrently with opioids. Prescribers persistently identified as opioid outliers may be required to enroll in a program of enhanced oversight and monitoring. Such enrollment would be required only after other remedies had been attempted, including education on best practices for opioid prescribing. The Secretary is to communicate information on persistent outliers to Part D plan sponsors and to make publicly available aggregate information about such prescribers. Section 6052 authorizes CMS to award grants, contracts, or cooperative agreements (1) to educate and provide outreach to outlier prescribers about best practices for prescribing opioids, (2) to educate and provide outreach to outlier prescribers about non-opioid pain management therapies, and (3) to reduce the amount of opioids prescribed by outlier prescribers. Entities eligible to apply for the grants include organizations with demonstrated experience providing technical assistance to health care professionals on a state or regional basis that have at least one consumer representative and one health care provider representative on their governing bodies. Eligible entities also include contracted quality improvement organizations. To fund this provision, $75 million is to be made available from the Part B Trust Fund. Medicare Part C MA plans and Part D drug-only plans (PDPs) are required to establish compliance programs to prevent, detect, and correct fraud, waste, and abuse. The Secretary is required to establish contracts with Medicare Drug Integrity Contractors (MEDICs) to support Parts C and D program integrity activities. CMS, the Secretary, and the MEDICs audit MA plans and PDPs to ensure their compliance programs meet Medicare requirements and investigate MA and PDP reports of provider and supplier fraud, waste, and abuse. MA plans and PDPs may, but are not required to, report fraud, waste, or abuse activities to the Secretary or MEDICs provider or supplier. The Secretary may share provider and supplier fraud, waste, or abuse information among other MA and PDPs but is not required to disseminate that information. The Secretary is authorized to impose civil monetary penalties on individuals, organizations, agencies, or other entities that engage in improper conduct. In some situations, the Secretary may be required to exclude those individuals, organizations, or other entities from federal health program participation. In other situations, pending an investigation of credible fraud allegations, the Secretary may suspend Medicare provider or supplier payments. Section 6063 amends SSA Section 1859 by adding a new subsection. It amends SSA Section 1857(e) by adding a new paragraph, and it amends SSA Section 1860D-4 by adding a new subsection. Within two years of the enactment date, Section 6063 requires the Secretary to establish a secure internet website portal. The website is to be used to communicate and facilitate data sharing with MA plans and Part D PDPs and MEDICs. The website also is to enable MA plans and PDPs to refer substantiated or suspicious provider or supplier fraud, waste, and abuse activities to MEDICs to initiate or assist in investigations. The Secretary is required to use the website to disseminate information to MA plans and PDPs on providers and suppliers that were recently referred for fraud, waste, and abuse; were excluded or had a payment suspension; had their Medicare participation revoked; or had administrative actions imposed for similar activities. Using guidance, such as in the Medicare Program Integrity Manual (4.8), the Secretary specifies what constitutes substantiated or suspicious fraud, waste, and abuse activities. Within two years of enactment, Section 6063 requires the Secretary to disseminate quarterly reports to MA plans and PDPs on fraud, waste, and abuse schemes and suspicious activity trends reported through the website. The Secretary's reports are to maintain the anonymity of information submitted by plans and to include administrative actions, opioid overprescribing information, and other data the Secretary, in consultation with stakeholders, determines important. Section 6063 does not prohibit referrals to the HHS OIG or other law enforcement entities. Beginning with plan year 2021, Section 6063 requires MA organizations and PDP sponsors to submit to the Secretary information on credible evidence of suspected fraud and other actions related to inappropriate opioid prescribing. Before January 1, 2021, in consultation with stakeholders, the Secretary is required to establish a process for MA plans and PDPs to submit required information on inappropriate opioid prescribing. To implement the suspected fraud information reporting process, the Secretary is required to issue regulations that define the term inappropriate prescribing of opioids , identify a method to determine if providers prescribed a high volume of opioid drugs, and identify the information plans are required to submit. Medicare Part D plans (with some exceptions) must offer Medication Therapy Management (MTM) programs that provide coordinated pharmacy care for patients with multiple medical conditions who may be seeing multiple practitioners and using more than one covered drug. An MTM program includes medication reviews, patient consultation and education, and other services. CMS must review and approve each Part D plan's MTM program annually, and the program is one of several required elements considered when CMS evaluates a sponsor's bid to participate in the Part D program for an upcoming contract year. Part D sponsors have some latitude in designing MTM programs but must enroll certain targeted beneficiaries. Targeted beneficiaries are defined by CMS as those who (1) have multiple chronic diseases, with three being the maximum that can be required; (2) are taking at least two to eight Part D drugs; and (3) are likely to have annual covered drug costs that exceed $4,044 in 2019. Section 6064 amends SSA 1860D-4(c)(2)(A)(ii) to add Part D enrollees identified as at risk for prescription drug abuse to the list of targeted MTM program enrollees. The provision takes effect on January 1, 2021. No applicable provision of current law. Section 6072 requires the Medicare Payment Advisory Commission (MedPAC), no later than March 15, 2019, to submit a report to Congress that describes how the Medicare program pays for pain management treatments (both opioid and non-opioid pain management alternatives) in both inpatient and outpatient hospital settings, identifies incentives for prescribing opioids and non-opioid treatments under the hospital inpatient prospective payment system (IPPS) and the hospital outpatient prospective payment system (OPPS) and recommends appropriate congressional actions for addressing any adverse incentives, and describes how opioid use is tracked and monitored through Medicare claims data and other mechanisms and identifies any areas in which further data and methods are needed to improve data and understanding regarding the use of opioids. No applicable provision of current law. Section 6082 amends SSA Section 1833(t) to require the Secretary to review Medicare payments made through the hospital OPPS and payments to ambulatory surgery centers (ASCs) to ensure there are no financial incentives to use opioids instead of evidence-based non-opioid alternatives. If the Secretary identifies financial incentives to use opioids instead of evidence-based non-opioid alternatives, Section 6082 requires the Secretary to revise OPPS and ASC payments through rulemaking. The Secretary also may review payments through a demonstration. Section 6082 requires the Secretary to review payments for services covered under the OPPS and ASC systems as soon as practicable and subsequently as appropriate, to ensure there are no financial incentives to use opioids instead of evidence-based non-opioid alternatives for pain management (including drugs and devices, nerve blocks, surgical injections, and neuromodulation). The review could include a request for information and would consider how modifications to payment for these services (such as the creation of additional groups of covered outpatient department services to classify procedures that use opioids for pain management separately from procedures that use non-opioid alternatives for the same purpose) might reduce payment incentives to use opioids instead of non-opioid alternatives. Should the Secretary identify revisions to payments for services that satisfy this condition, the Secretary would make such revisions for services furnished on or after January 1, 2020. The provision would allow the Secretary to conduct a demonstration prior to making the revisions. In conducting the review, the Secretary is to focus on covered outpatient department services (or groups of services) assigned to a comprehensive ambulatory payment classification, ambulatory payment classifications that primarily include surgical services, and other services determined by the Secretary that generally involve treatment for pain management. The federal Health Center Program, administered by the Health Resources and Services Administration, awards grants to support outpatient primary care facilities serving low-income individuals. Health Center Program sites, as well as other types of health centers, may receive Medicare designation as Federally Qualified Health Centers (FQHCs) if they meet certain requirements, including enrollment as Medicare and/or Medicaid providers. Health centers designated as FQHCs are paid on a cost-based prospective payment system that generally provides higher payment rates than other providers receive from Medicare and Medicaid for comparable services provided in physician offices. In October 2018, there were approximately 8,500 FQHCs. Medicare may designate outpatient primary care facilities located in rural and medically underserved areas that meet certain conditions as Rural Health Clinics (RHCs). RHCs were established to address an inadequate supply of physicians serving Medicare patients in rural areas and to increase the use of nonphysician practitioners. These facilities are paid an annually updated, all-inclusive rate for services to Medicare and Medicaid beneficiaries. Similar to the FQHC prospective payment system, the all-inclusive rate payment generally is greater than what other providers would receive for providing the same services to Medicare and Medicaid beneficiaries. In January 2018, there were approximately 4,100 RHCs. A DATA 2000 waiver is required to prescribe Schedule III, IV, and V controlled substances. To obtain a DATA waiver, physicians, nurse practitioners, and physician assistants must apply and complete eight hours of required training. Physicians and other practitioners who complete the training and are approved by U.S. Drug Enforcement Administration (DEA) receive a special identification number, in addition to the regular DEA registration number, that must be included on all buprenorphine prescriptions. Section 6083 amends SSA Sections 1834(o) and 1833. Beginning January 1, 2019, subject to available funds, Section 6083 authorizes the Secretary to pay training costs of qualified FQHC and RHC physicians and practitioners who want to obtain DATA 2000 waivers to furnish OUD treatment services. To receive payment, FQHCs and RHCs must submit a formal application to the Secretary. The Secretary is to determine the timing and manner of data waiver payments and may base payments on an estimate of average costs of obtaining the DATA 2000 waiver. The Secretary may make one DATA 2000 waiver payment for each qualified FQHC or RHC physician or practitioner. To qualify for DATA 2000 waiver payments, physicians or practitioners must be employed by or working under contract with the FQHC or RHC that applies for payment, and the practitioner or physician must have first received a DATA 2000 waiver on or after January 1, 2019. An appropriation of $6 million is available until expended from the U.S. Treasury to compensate FQHCs for the cost of obtaining DATA 2000 waivers. In addition, a $2 million appropriation from the Treasury is available until expended to compensate RHCs. Medicare Part C (MA) is an alternative way for Medicare beneficiaries to receive covered benefits. MA plans also may offer supplemental benefits not covered under original Medicare (such as hearing, dental, or vision benefits), reduced cost sharing, or reduced Part B or Part D premiums. Certain MA plans are available to any Medicare beneficiary living in the plan's service area who is eligible for Part A and enrolled in Part B. However, a Special Needs Plan (SNP) is a type of MA plan that may restrict enrollment to beneficiaries with certain characteristics, such as eligibility for both Medicare and Medicaid (i.e., d ual -e ligible SNPs , or D-SNPs ). Under MA, the Secretary pays private health plans a per-person monthly amount to provide Medicare-covered benefits to beneficiaries who enroll in their plans. A plan's payment is determined by comparing its annual bid to a program benchmark. A bid is a plan's estimated cost of providing Medicare-covered services (excluding hospice but including the cost of medical services, administration, and profit) during a plan year. A benchmark is the maximum amount the federal government will pay for those services in a plan's service area. If a plan's bid is less than the benchmark, the plan's payment equals its bid, plus a rebate. The rebate must be returned to enrollees in the form of additional benefits, reduced cost sharing, or reduced Part B or Part D premiums, as mentioned above. The actual dollar amount of the rebate depends on a plan's quality, as measured by a Medicare 5-star quality rating; rebates range from 50% to 70% of the difference between a bid and a benchmark. If a plan's bid is equal to or above the benchmark, its payment equals the benchmark amount; each enrollee in that plan will pay an additional premium that is equal to the amount by which the bid exceeds the benchmark, and no rebate is available to those plan enrollees. Finally, payments to plans are risk-adjusted to take into account the demographic and health history of those who enroll in the plan. Section 6084 requires the Secretary to submit a report to Congress, no later than two years after enactment, that addresses the availability of supplemental benefits designed to treat and prevent SUDs under MA plans and any differences in the availability of such supplemental benefits between D-SNPs and plans that are not D-SNPs. Development of the report requires consultation with specified stakeholders, including Medicare beneficiaries, beneficiary advocates, organizations that offer MA plans, pharmacy benefit managers, and health care providers and suppliers. The report must include the following: the extent to which MA plans offer coverage of MATs for opioid use, SUD counseling, peer recovery support services, or other forms of SUD treatments, as well as non-opioid alternative treatments for pain; challenges associated with offering those supplemental benefits; the impact, if any, on the availability of such benefits, if rebates for plans that offer such coverage increase; and potential ways to improve coverage of these supplemental benefits. Medicare Part B covers outpatient mental health services and visits (counseling therapy) with several types of health professionals, including psychiatrists or other doctors, clinical psychologists, and other health professionals (e.g., clinical social workers, clinical nurse specialists, nurse practitioners, and physician assistants). Part B-covered outpatient mental health services include treatment for inappropriate alcohol and drug use. Section 6085 amends SSA Section 1115A(b)(2)(B) to require the Secretary to educate and inform ("familiarize") Medicare beneficiaries about Part B coverage of clinical psychologist services. It also requires the Secretary to explore ways to avoid unnecessary hospitalizations or emergency department visits for mental and behavioral health services (such as for treating depression) through use of a 24-hour, 7-day-a-week help line that may inform beneficiaries about the availability of treatment options, including clinical psychologist services. No later than 18 months after enactment, the comptroller general is to submit a report to Congress on mental and behavioral health services under Medicare, including an examination of information about (1) services furnished by psychiatrists, clinical psychologists, and other professionals and (2) ways that Medicare beneficiaries familiarize themselves with the availability of Medicare payment for clinical psychologist services. The report is to include ways in which the provision of such information could be improved. No applicable provision in current law. Section 6086 directs the Secretary to conduct a study, no later than one year after enactment, addressing best practices, payment, and coverage of pain management services under Medicare Parts A and B. It also requires the Secretary to submit to the House Ways and Means and Energy and Commerce Committees and to the Senate Finance Committee a report on options for revising Parts A and B payments to providers and suppliers, as well as Medicare coverage related to multidisciplinary, evidence-based, non-opioid treatments for acute and chronic pain management. The report must be publicly available. Specifically, the report must include the following: An analysis of payment and coverage for evidence-based treatments and technologies for chronic and acute pain management, for monitoring substance use withdrawal and overdose prevention, and for addressing SUD; pain management items and services provided through multidisciplinary treatment models, such as primary care medical homes; and items and services for beneficiaries with psychiatric or substance use disorders, who are at risk of suicide, or who have comorbidities and require consultation or management by specialists in pain management, mental health, or addiction treatment. An evaluation of barriers inhibiting access to the treatments and technologies discussed above; the costs and benefits of potentially expanding Medicare coverage; and relevant pain management guidance for purposes of rendering Medicare coverage determinations. An assessment of HHS guidance published on or after January 1, 2016, related to opioid prescribing. The Secretary must consider incorporating relevant elements of the Veterans Affairs (VA)/Department of Defense (D O D) Clinical Practice Guideline for Opioid Therapy for Chronic Pain , including parts of the VA and DOD pain rating scale. Legislative and administrative options for improving coverage of and payment for non-opioid pain management therapies and for FDA-approved medical devices and non-opioid pharmacological and non-pharmacological therapies for treatment of pain as alternatives to or to augment opioid therapy; improving and disseminating treatment strategies for beneficiaries with psychiatric or substance use disorders, who are at risk of suicide, or who have comorbidities and require consultation or management by specialists in pain management, mental health, or addiction treatment, and to address health disparities related to opioid use and opioid abuse treatment; educating providers about the risks of co-administration of opioids and other drugs; ensuring appropriate management of transitions between inpatient and outpatient care or between opioid and non-opioid therapy; expanding outreach for and education of providers on alternative and non-opioid therapies for acute and chronic pain management; and creating a beneficiary education tool on opioid alternatives for chronic pain management. An analysis of the effect of these legislative and administrative options on Medicare expenditures and on prevention and reduction of opioid addiction. In developing the report, the Secretary must consult with relevant department agencies and other stakeholders. Stakeholders should include health care practitioners, providers, and professionals; Medicare providers and suppliers; substance abuse and mental health services professional organizations; pain management professional and advocacy organizations; medical professional and specialty societies; licensed providers of alternative pain management services; experts in the development of innovative medical technologies for pain management; beneficiary advocacy groups; and other organizations as the Secretary determines appropriate. No applicable provision in current law. Section 6092 requires the Secretary, no later than January 1, 2019, to develop and publish guidance for hospitals receiving payment under Medicare Part A regarding pain management and OUD prevention strategies for Medicare beneficiaries. The guidance is to be published on the CMS website, and it is to be developed in consultation with relevant stakeholders (e.g., medical professional organizations) and to include particular components (e.g., best practices for practitioner education, for tracking opioid prescribing trends, and for informing individuals of the risks associated with opioid use). As part of the guidance, the Secretary is to develop a notification template for individuals prescribed opioids that addresses the risks and side effects of opioid use; how to store an opioid safely; and evidence-based non-opioid alternatives for pain management, among other things. Medicare's transition to value-based purchasing relies on quality measures that span diseases and conditions, care settings, provider types, and measure types. Generating measures for use in Medicare quality programs involves measure development, National Quality Forum (NQF) measure endorsement, and measure selection for use in specific quality programs. Congress enacted two statutory provisions—SSA Sections 1890 and 1890A—to support these activities with respect to the Medicare program. Under SSA Section 1890, the Secretary is required to have a contract with a consensus-based entity (currently NQF) to carry out specified duties related to performance improvement and measurement. These duties include, among others, priority setting, measure endorsement, measure maintenance, the convening of multi-stakeholder groups, and annual reporting to Congress and the Secretary. Under SSA Section 1890A, the Secretary is required to establish a pre-rulemaking process to select Medicare quality measures. Each December, the Secretary publishes a list of all measures under consideration for Medicare quality programs, and the NQF's Measure Applications Partnership (MAP) convenes multi-stakeholder groups to review the measures. In February, after completing the reviews, the MAP provides to the Secretary a published report with recommendations for measure selection. (The first such report was published in February 2012.) The Secretary must consider this input when deciding which quality measures to include in the Medicare program. The Secretary also periodically reviews all measures under use in Medicare with respect to maintaining or retiring the measures. Section 6093 amends SSA Section 1890A to require the Secretary, no later than 180 days after enactment, to establish a technical expert panel to review quality measures related to opioids and OUD (this may be carried out by NQF as part of its contract under SSA Section 1890). No later than one year after the date the panel is established, and periodically thereafter, Section 6093 requires the panel to review existing opioid-related quality measures and those under development; identify gaps and measure development priorities in this area; and recommend quality measures for use under specified Medicare quality programs (e.g., the Hospital Value-Based Purchasing Program, the Merit-Based Incentive Payment System, the Medicare Shared Savings Program), among other things. Section 6093 also requires the Secretary to consider using opioid and OUD measures, including as recommended by the panel, in Medicare quality programs, as specified; to prioritize measure development where the technical panel identifies measure gaps; and to prioritize endorsement of measures relating to opioids and OUD by NQF (through its contract under SSA Section 1890) through December 31, 2023. After that date, the Secretary may prioritize the endorsement of such measures by NQF. No applicable provision in current law. Section 6094 requires the Secretary, no later than six months after enactment, to convene a technical expert panel to provide recommendations on reducing opioid use in inpatient and outpatient settings and best practices for pain management. No later than one year after enactment, Section 6094 requires the Secretary to submit to Congress and make public a report containing this panel's recommendations and an action plan for implementing pain management protocols that limit opioid use in the perioperative setting and at discharge. This section also requires the Secretary, no later than one year after enactment, to submit a report to Congress on perioperative opioid use. The report is to include Medicare diagnosis-related group codes identified by the Secretary as having the highest volume of surgeries and, for each code, information on available and reported data on opioid use following such surgeries, as specified, and recommendations for improving data collection, including reducing barriers to collecting, reporting, and analyzing data on perioperative opioid use. CMS and the Social Security Administration share Medicare beneficiary education and outreach duties. CMS makes available additional educational materials and responses to frequently asked questions on a CMS-maintained website. The website includes information on enrollment, costs, coverage, appeals, and related resources. Numerous Medicare publications on various topics, including the annual handbook Medicare & You , also are available on the public website. Section 6095 requires the Secretary, within 180 days of enactment, to post all HHS guidance published on or after January 1, 2016, relating to opioid prescribing and applicable opioid prescriptions for Medicare beneficiaries. The guidance is to be posted to the CMS public website, and the Secretary is to periodically update and revise the postings as the Secretary deems appropriate. Such updates are to be made in consultation with medical professional organizations, providers and suppliers of services, consumers or consumer advocates, and other entities the Secretary determines appropriate. Medicare Part D plans under SSA Section 1860D-4(a) must provide certain information to beneficiaries at the time of enrollment and at least annually thereafter. Among the information that must be provided in a clear, accurate, and standardized form are descriptions of the plan formulary, access to specific Part D-covered drugs, beneficiary cost-sharing requirements, and information about the plan's MTM and drug management programs for individuals at risk of prescription drug abuse. Section 6102 amends SSA Section 1860D-4(a)(1) to require that, beginning in plan year 2021, Part D plans must provide enrollees with information regarding the treatment of pain, including the risks of prolonged opioid use and coverage of non-pharmacological therapies, devices, and non-opioid medications. Rather than disclosing the information to all enrollees, a plan sponsor may provide the information through mail or electronic communications to a subset of plan enrollees, such as enrollees who have been prescribed an opioid in the previous two-year period. No applicable provision in current law. Section 6103 amends SSA Section 1852, which delineates benefits for MA managed care plans, to add a provision requiring information on safe disposal of controlled substances. Under the provision, MA or MA-PD plans must ensure that in-home health risk assessments carried out by MA plans on or after January 1, 2021, include information on the safe disposal of prescription drugs that are controlled substances. The information is to include background on drug takeback programs that meet requirements determined appropriate by the Secretary and information on in-home disposal. The section also amends SSA Section 1860D-4(c)(2)(B) to state that for plan years beginning on or after January 1, 2021, Part D plan MTM programs shall provide information to enrollees on the safe disposal of prescription drugs that are controlled substances, including information on approved drug takeback programs and in-home disposal and cost-effective means by which an enrollee may safely dispose of such drugs. In an effort to improve value in the Medicare program, Congress established several hospital-based programs that measure and sometimes reward performance. These programs include, among others, the Hospital Inpatient Quality Reporting (IQR) Program, established at SSA Section 1886(b)(3)(B)(vii) and (viii), and the Hospital Value-Based Purchasing (VBP) Program, established at SSA Section 1886(o). Both programs require participating hospitals to submit specified quality data and have differing payment adjustments based on the data reported. The Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey, developed by the Agency for Healthcare Research and Quality, measures patient satisfaction with, and experience of, care in hospitals ; it is included in the measure sets for both the Hospital IQR Program and the Hospital VBP Program. Beginning with hospital discharges on January 1, 2018, hospitals are required to use the HCAHPS survey with new questions on communication about pain that replace previous questions relating to pain management. The questions relating to pain on the HCAHPS survey have been the subject of debate with respect to their potential impact on opioid prescribing patterns, and there have been concerns that providers could inappropriately or unnecessarily prescribe opioids in an effort to receive higher ratings from patients on the HCAHPS survey. Hospital Compare is a public website that reports and presents comparative information about Medicare-certified hospitals, and many VA medical centers, on a number of quality-of-care metrics. Hospital Compare is populated with data from measures submitted under the Hospital IQR Program pursuant to a statutory requirement of the program requiring the Secretary to make information submitted under it available to the public. Section 6104 amends SSA Section 1886(b)(3)(B)(viii) to require that any HCAHPS survey conducted on or after January 1, 2020, as part of the Medicare Hospital IQR program may not include questions regarding communication about pain between hospital staff and patients unless the questions take into account whether the patient experiencing pain was informed about the risks associated with opioid use and about non-opioid alternatives for treating pain. In addition, the section prohibits the Secretary from including on Hospital Compare any measures based on questions in the 2018 or 2019 HCAHPS survey about communication between hospital staff and patients about a patient's pain. Section 6104 also amends SSA Section 1886(o)(2)(B) to prohibit the Secretary from including in the Hospital VBP Program any measures based on questions in the 2018 or 2019 HCAHPS survey about communication by hospital staff with a patient about the patient's pain. In recent years, questions have been raised about certain financial relationships between health care professionals, such as physicians, and the pharmaceutical and other medical industries. As part of these relationships, companies may give gifts or make payments to health care professionals as part of their marketing efforts or for other purposes. In an effort to promote transparency and prevent inappropriate relationships, SSA Section 1128G generally requires applicable drug, device, biological, or medical supply manufacturers that make a payment or other transfer of value to a "covered recipient" to annually report information on such transactions to the Secretary. Covered recipient is defined as either a physician or a teaching hospital but does not include physicians who are employees of applicable manufacturers. Categories of reportable payments and transfers of value include amounts for research, gifts, entertainment, consulting fees, grants, meals, or travel. Certain items are exempt from disclosure, including certain very small payments or transfers of value, samples intended for patient use, short-term loans of a covered device, and patient educational materials. Additionally, the Secretary generally is required to have procedures in place to ensure public availability of submitted information, including through a searchable website. This reporting program established by the Secretary is referred to as the Open Payments program. National Provider Identifiers (NPIs) are unique identifiers for health care providers and others that are used in transactions with Medicare, among other things. SSA Section 1128G requires applicable manufacturers to report to the Secretary NPIs of covered recipients in their submission information about payments and transfers of value, but the Open Payments website cannot contain these NPIs. Some health care commentators have claimed that although covered recipients may be identified by physician or manufacturer name on the Open Payments website, the lack of NPIs limits broader aggregation and analysis of the available data. Section 6111 amends SSA Section 1128G(e)(6) to expand the definition of covered recipient to encompass physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives (excluding employees of applicable manufacturers). Accordingly, Section 6111 requires applicable manufacturers to submit information on payments or other transfers of value to these types of health care professionals. The amendments made by this section apply to information required to be submitted on or after January 1, 2022. In addition, Section 6111 ends the exclusion of NPIs of covered recipients on the Open Payments website. Under this provision, the exclusion of NPIs from the Open Payments website will apply only to information submitted prior to January 1, 2022. | On October 24, 2018, President Trump signed into law the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act; P.L. 115-271). The conference report on the bill was approved by the House 393-8 on September 28, 2018, and it cleared the Senate 98-1 on October 3, 2018. The law was enacted in response to growing concerns among the U.S. public and lawmakers about increasing numbers of drug overdose deaths. Opioid overdose deaths, in particular, have increased significantly since 2002. In 2015, an estimated 33,091 Americans died of opioid-related overdoses, almost three times as many as in 2002, around the beginning of the opioid epidemic in the United States. In 2016, that number had increased to 42,249. In October 2017, President Trump declared the opioid epidemic a public health emergency. The SUPPORT Act is a sweeping measure designed to address widespread overprescribing and abuse of opioids in the United States. The act includes provisions to bolster law enforcement, public health, and health care financing and coverage, including under Medicare and Medicaid. It imposes tighter oversight of opioid production and distribution; requires additional reporting and safeguards to address fraud; alters programs related to the provision of support to children in the child welfare system because of their parent's or caregiver's opioid use; and limits coverage of prescription opioids. It also expands coverage of and access to opioid addiction treatment services. In addition, the act authorizes programs to expand consumer education on opioid use and train additional providers to treat individuals with opioid use disorders (OUDs). The Congressional Budget Office (CBO) forecast that the SUPPORT Act would increase the on-budget deficit by $1,001 million over 5 years (FY2019-2023) but reduce the on-budget deficit by $52 million over 10 years (FY2019-FY2028). The SUPPORT Act is one of several recent laws aimed at addressing the opioid epidemic. The 114th Congress enacted the Comprehensive Addiction and Recovery Act of 2016 (CARA; P.L. 114-198). CARA addressed substance use issues broadly, targeting the opioid crisis predominantly through public health and law enforcement strategies. The 21st Century Cures Act (Cures Act; P.L. 114-255), also enacted in 2016, authorized new funding for medical research, amended the Food and Drug Administration (FDA) drug approval process, and authorized additional funding to combat opioid addiction, among other provisions. The SUPPORT Act consists of eight titles. The Congressional Research Service is publishing a series of reports on this law, organized by title. This report provides a section-by-section description of Medicare provisions in Titles II and VI, as well as one Medicare budget offset in Title IV. Among significant Medicare changes, the law creates a Medicare bundled payment for an incident of medication-assisted treatment (MAT), which combines medications with counseling and behavioral therapies to provide a holistic approach to treating OUD and makes federally registered opioid treatment programs (OTPs) approved Medicare providers. It also requires private insurers that offer Medicare Part D prescription drug plans to implement "lock-in" programs, starting in CY2022, that limit the number of pharmacies and prescribers used by enrollees identified as at risk of opioid abuse. This report is intended to reflect the SUPPORT Act at enactment (i.e., October 24, 2018); it does not track the act's implementation or funding. This report will not be updated. |
More than 80 benefit programs provide cash and noncash aid that is directed primarily to persons with limited income. These benefit programs cost approximately $583 billion in FY2004, a record high. This sum was up $34 billion (6.2%) from the previous peak of FY2003, and it equaled 5% of the gross domestic product (GDP). Federal funds provided 73.2% of the total. Higher medical spending accounted for $26 billion of the net increase in FY2004, and 55 cents out of every dollar spent on persons with limited income went for medical benefits. Federal low-income spending represented 18.6% of the federal budget, with 9% attributed to medical assistance. See Table 1 for an FY2002-FY2004 summary. After adjustment for price inflation, 2004 spending on persons with limited income was up by approximately $21.5 billion (3.8%) from that of 2003, the previous peak. Real spending increases (2004 dollars) were dominated by medical assistance (up $19 billion). Other increases were in food benefits, $3.3 billion; cash aid, $2.4 billion; and housing, $0.6 billion. Spending in real terms dropped in the following areas: education benefits, by $2.3 billion; jobs and training, by $0.9 billion; services, by $0.6 billion; and energy aid by $0.2 billion. Spending for "human capital" programs (those providing education and employment and training activities) accounted for 6.2% of all dollars spent on persons with limited income (compared with 19.2% for cash assistance and 55.3% for medical aid). This report consists of a catalog of 84 need-based programs. For each program, the report provides the funding formula, eligibility requirements, and benefit levels. At the end of the report, Tables 14-21 provide expenditure data (federal and state/local) and recipient data for FY2002-FY2004, program by program. One program is new to this series of reports: the D.C. School Choice Incentive Program. In addition, two programs have been dropped because of the difficulty of obtaining reliable current data: General Assistance (Medical Component) and General Assistance (Nonmedical Component); spending for these programs was only from state and local sources, rather than federal. Most of these programs base eligibility on individual, household, or family income, but some use group or area income tests (see Table 7 ), and a few offer help on the basis of presumed "need." Most provide income "transfers." That is, they transfer income in the form of cash, goods, or services to persons who make no payment and render no service in return. However, in the case of the job and training programs and some educational benefits, recipients must work or study for wages, training allowances, stipends, grants, or loans. Further, the TANF block grant program requires adults to commence work (defined by the state) after a period of enrollment, the Food Stamp program imposes work and training requirements, and public housing programs require recipients to engage in "self-sufficiency" activities or to perform community service. Finally, the Earned Income Tax Credit (EITC) is available only to workers. This report excludes income maintenance programs that are not income-tested, including social insurance and many veterans' benefits, and all but two tax-transfer programs. Thus, it excludes Social Security cash benefits, unemployment compensation, and Medicare. Outlays for the Old-Age, Survivors, and Disability Insurance programs (Social Security cash benefit programs) in FY2004 totaled $502 billion, financed primarily from payroll tax collections. The report also excludes payments, even though financed with general revenues, that may be regarded as "deferred compensation," such as veterans' housing benefits and medical care for veterans with a service-connected disability. The report includes two tax-transfer programs, the EITC for low-income workers with children and the child tax credit. The EITC reduces the taxes of working families with gross income below specified limits and makes direct payments ("refunds") to those whose income is below the tax threshold or whose tax liability is smaller than their credit. Before the 2001 tax law, the child tax credit was refundable only to some taxpayers with three or more children, but it now is refundable (up to certain limits) for those with earnings above $10,000. This report treats the direct payment component of these credits, but not the reduction in tax liability, as a welfare expenditure. Other tax benefits are excluded from the report because they are not refundable (make no direct payments). Further, in most cases they impose no income test for eligibility. Examples of these other tax benefits are the deductibility of mortgage interest and property taxes on owner-occupied homes (equivalent to outlays of $61.4 billion and $18.7 billion, respectively, in 2004). These tax transfers increase families' disposable income by reducing their tax liability, and are known as "tax expenditures." (The standard deduction and personal exemption in the income tax code also decrease families' taxable income.) Total expenditures on cash and noncash programs for low-income persons multiplied many times between 1968 and 2004 ( Table 2 ). Even after allowance for price inflation, spending more than sextupled, rising 557% during the 36 years, a period when the U.S. population rose by an estimated 46%. Measured in constant 2004 dollars, the annual rate of growth in spending over the whole period was 5.4%. However, the growth pattern was uneven. Real spending almost tripled in the first 10 years, declined in some years (1979, 1982, 1996, and 1997), and in the last seven years rose at an annual rate of 3.7%. Total per capita spending for low-income programs grew in real terms (constant FY2004 dollars) from $422 in FY1968 to a peak of $1,986 in FY2004. Figure 1 shows the course of expenditures for income-tested benefits from FY1975-FY2004. The upper line shows total real spending (federal and state-local spending); the bottom line shows state-local spending alone; the space between represents federal spending. Throughout this period federal expenditures accounted for more than 70% of the total. The federal share rose above 76% in 1978-1980, then began a general decline. In the 1995-2004 decade it averaged 71.9%, reaching a peak of 73.7% in FY2003 and dropping slightly to 73.2% in FY2004. Tables 3, 4, and 5 present 1968-2004 spending on low-income programs in constant 2004 dollars, by form of benefit; Table 3 displays federal spending; Table 4 , corresponding state-local data; and Table 5 , total low-income spending amounts. Measured in constant 2004 dollars, federal spending for income-tested benefits climbed from $63 billion in FY1968 to $427 billion in FY2004, an increase of 580%. State-local spending (constant dollars) rose from $26 billion to $156 billion during the same period, an increase of 502%. Total spending on means-tested programs increased from $89 billion to $583 billion in these years, an increase of 557%. Cash aid was the leading form of federal means-tested assistance until 1980, when it was overtaken by medical benefits. Two years later, in 1982, federal spending declined for all forms of aid except subsidized housing, in which case outlays reflected earlier commitments, and education benefits. However, beginning in 1983, real federal spending for low-income programs climbed steadily before declining in FY1996 and FY1997. Federal spending set successive new record highs during FY1998-FY2004. State-local spending rose in all years after 1979, except for 1993, 1996, and 2003. Since 1979, medical spending has accounted for more than 50 cents of every low-income program dollar spent by state-local governments. In 1989, the share climbed to 60%; in 1997 it exceeded 70%, and starting in 2002, spending on medical benefits has topped 80% of all state-local spending on means-tested programs. Medical assistance has accounted for a much smaller—but growing—share of federal expenditures for low-income programs: about 25% until the mid-1980s, above 30% in the 1990s, and an average of 43% from 2000-2003, with an increase to nearly 46% in 2004. As a component of the federal budget, spending on means-tested programs for persons with limited income averaged 13% from 1975-1979, dropped to 12% in the 1980s, and since 1994 has equaled or exceeded 17% each year. In 2001 it rose above 18%, and in 2004 was 18.6%. The earned income tax credit has become the nation's largest program of income-tested cash benefits for families with children. In FY2004, the U.S. Treasury paid out $34 billion in refundable earned income tax credits (chiefly for earners with children) and $9 billion in child tax credits. The total was almost 25% larger than federal SSI payments for the aged, blind, and disabled ($35 billion), and was more than five and a half times as much as cash assistance from federal TANF dollars ($6.5 billion). (TANF expenditures for work activities, child care, and other services exceeded TANF cash aid.) The dramatic change since 1978 in the composition of total spending for income-tested benefits is shown in Figure 2 and in Table 6 . In FY1978, spending for cash relief and medical aid was nearly equal. Each accounted for 29% of total welfare spending covered by this report. Thereafter, spending for medical benefits rapidly overtook cash aid, reaching 50% in FY1999 and topping 55% in 2004. Depending on the program, the eligibility of noncitizens for major federal means-tested benefit programs—food stamps, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), Medicaid, and Section 8 housing assistance—varies with their immigration status, work history, date of entry, date of enrollment in a benefit program, age, and length of legal residence. The basic outline of current noncitizen eligibility rules was established by the 1996 welfare reform law ( P.L. 104-193 ), although prior laws for these programs had contained some limits on participation by noncitizens (typically barring temporary or illegal residents). This law sharply restricted welfare eligibility for noncitizens, although the limits it put in place have since been eased (in 1997, 1998, and 2002). The basic rules now are as follows. Nonimmigrants (those admitted temporarily for a limited purpose such as students, visitors, and temporary workers) are ineligible for all major benefits, as are unauthorized ("illegal") aliens who are in the U.S. in violation of immigration law and for whom no legal relief or recognition has been extended. Legal permanent residents with a substantial (generally, 10-year) work history documented by Social Security and those with a military connection (legally present active duty military personnel, honorably discharged veterans, and their immediate families) are eligible for all major benefits. In the case of food stamps, legal permanent residents without a substantial work history are eligible after five years lawful residence following entry. However, this five-year ineligibility period does not apply to (1) persons lawfully resident in the U.S. as of August 22, 1996 (the date of enactment of the welfare reform law), and age 65+ at the time, (2) persons receiving government disability benefits, and (3) children under age 18. In the case of SSI, legal permanent residents without a substantial work history are eligible only if they are (1) persons who were receiving SSI benefits as of August 22, 1996, or (2) individuals lawfully resident in the U.S. as of August 22, 1996, who are now disabled. [ Note: Pre-1996 SSI law barred eligibility for those with temporary or illegal status.] In the case of TANF, legal permanent residents without a substantial work history are (1) eligible, at state option, if lawfully resident in the U.S. as of August 22, 1996, and (2) for post-August-1996 entrants, eligible, at state option, five years after entry. In the case of Medicaid, eligibility rules for legal permanent residents without a substantial work history are the same as for TANF, except that coverage is required for SSI recipients. In the case of Section 8 housing assistance, legal permanent residents are eligible (with no time, work history, or age restrictions), as are noncitizens who were receiving benefits as of August 22, 1996. [ Note : Pre-1996 housing law barred eligibility for those with temporary or illegal status.] In humanitarian cases—asylees, refugees, Cuban/Haitian entrants, parolees and conditional entrants, victims of abuse (battery or cruelty by a family member), victims of trafficking in persons, and certain persons with similar status—individuals are (1) eligible for food stamps after entry or grant of status as an asylee, refugee, Cuban/Haitian entrant, or other humanitarian category, (2) eligible for SSI if they were SSI recipients as of August 22, 1996, or for seven years after entry or grant of status, (3) eligible for TANF for five years after entry or grant of status, and then eligible at state option, (4) eligible for Medicaid for seven years after entry or grant of status, and then eligible at state option, and (5) eligible for Section 8 housing assistance (with no time limits). The Census Bureau reports that 7.6 million families (including 5.8 million with children) in 2003 had total pre-tax money income—after counting any cash from the programs of TANF, Supplemental Security Income (SSI), and General Assistance (GA)—that was below their poverty threshold. The Bureau found that the money income poverty rate among related children in families was 17.2%, the highest since 1998 (18.3%). Overall, 35.9 million persons were classified as poor on the basis of 2003 pre-tax money income (compared with 31.1 million in 2000, the year preceding the most recent economic recession). Of these persons, 68.0% were in households that received means-tested aid from at least one of eight programs (TANF, SSI, GA, school lunch, food stamps, Medicaid, subsidized housing, low-income home energy assistance). By race and ethnicity, the following percentages of poor persons were in households that received pre-tax aid from one or more of the eight programs: non-Hispanic whites, 55.2%; blacks, 80.9%; and persons of Hispanic origin, 80.3%. Figure 3 depicts income-tested aid provided to families with children who were poor before receiving any cash aid from TANF, GA, or the EITC. In 2003, these families totaled 6.1 million (compared with 5.1 million in 2000): 3.7 million with a female householder and 2.4 million with a male householder (chiefly two-parent families). These numbers, based on CRS estimates, include unrelated subfamilies (the Bureau excludes these subfamilies from its "family" counts). As the chart shows, all but 9.3% of the female-headed families and 12.0% of the male-present families whose pre-tax, pre-welfare money income fell short of the poverty threshold received means-tested aid. For male-present families, the EITC, which goes only to persons with earnings, was the dominant form of aid. In all, 67.8% of male-present families who were poor before transfers received the EITC (compared with 75.2% in 2000); for 23.8% the EITC was the only aid. Among female-headed families who were poor before transfers, 43.8% received the EITC (compared with 59.6% in 2000); for 10.4% the EITC was the only aid. Various combinations of cash assistance (TANF, GA, EITC) and noncash aid—food stamps, housing subsidies, Medicaid, or coverage under the State Children's Health Insurance Program (SCHIP)—went to 27.1% of female-headed families and to 9.2% of male-present families. More than 90% of the programs in this report have an explicit test of income. The others base eligibility on area of residence, enrollment in another means-tested program, or other factors that presume need. The explicit income tests are of five kinds: income ceiling related to (1) one of the federal government's official poverty measures (federal poverty income guidelines or Census Bureau poverty thresholds); (2) state or area median income; (3) the lower living standard income level of the Bureau of Labor Statistics; (4) an absolute dollar standard; (5) a level deemed to indicate "need." Table 7 classifies the programs in this report by type of income test. Tables 8-11 present, respectively, Census Bureau poverty thresholds for 2004, federal poverty income guidelines for 2005, income eligibility limits for subsidized meals (July 2005-July 2006), and lower living standard income levels, effective in July 2005. The federal government shares in the cost of Medicaid services by means of a variable matching formula. The formula is inversely related to a state's per capita income and is adjusted annually. The federal share of administrative costs generally is 50%, but can be as high as 100% for certain items. The federal share of a state's medical vendor payments is called the federal medical assistance percentage (FMAP). The FMAP is higher for states with lower per capita incomes and lower for states with higher per capita incomes. If a state's per capita income is equal to the national average per capita income, its FMAP would be 55%. The law establishes a minimum FMAP of 50% and a maximum of 83% (though the highest rate in FY2005 was 77.08% for Mississippi). Federal matching for the territories is set at 50%, but a dollar-amount ceiling also applies. The statutory formula for determining the FMAP follows. FMAP = 100% − state share (with a minimum of 50% and a maximum of 83%) State share = (state per capita income) 2 x 45% (national per capita income) 2 The percentages are based on the average per capita income of each state and the United States for the three most recent calendar years for which satisfactory data are available from the Department of Commerce. The law provides one exception to the FMAP for benefits. Family planning services (instruction in contraceptive methods and family planning supplies) are federally matched at a 90% rate. To provide fiscal relief to states, federal matching rates were changed temporarily by the Jobs and Growth Tax Relief Reconciliation Act ( P.L. 108-27 ), which altered the rates for certain expenditures for the last two quarters of FY2003 and the first three quarters of FY2004. For these five quarters, the federal matching rate for each state was held harmless for declines from the prior fiscal year, and then was increased by 2.95 percentage points. A state was eligible for an increase in its FMAP for any of the specified quarters only if eligibility under Medicaid in effect for that quarter was no more restrictive than eligibility in effect on September 2, 2003. Federal Medicaid outlays totaled $146.6 billion in FY2002 and $161.0 billion in FY2003. During FY2002, the federal government financed about 57% of all Medicaid costs. During FY2003, the federal government financed about 58% of all Medicaid costs. Estimated federal outlays for Medicaid in FY2004 were $175.1 billion. The requirements of federal law, coupled with the decisions of individual states in structuring their Medicaid programs, determine who is actually eligible for Medicaid in a given state. Some groups are mandatory, meaning all states must cover them; others are optional. In general, federal law places limitations on the categories of individuals who can be covered and establishes specific eligibility rules for groups within those broad categories. Traditionally, Medicaid eligibility was limited to the following categories: low-income families with dependent children (in which one parent was absent, incapacitated, or unemployed), low-income persons with disabilities, and low-income elderly. In addition, certain individuals with higher income, especially those facing large costs for medical care, were eligible as "medically needy." Beginning in the 1980s, additional coverage groups were added to Medicaid for higher-income children and pregnant women. Most recently, states were given the option to provide Medicaid to other groups with specific characteristics, including certain women with breast or cervical cancer, uninsured individuals with tuberculosis, and additional working individuals with disabilities. More than 50 distinct population groups are identified in federal law. Contributing to the complexity of the Medicaid program are financial criteria. Medicaid is a means-tested entitlement program. To qualify, applicants' income and resources must be within certain limits, most of which are determined by states, again within federal statutory parameters. States have flexibility in defining countable income and assets. Consequently, income and resource standards vary considerably among states, and different standards apply to different population groups within a state. In general, individuals in similar circumstances may be automatically eligible for coverage in one state, may be required to assume a certain portion of their medical expenses before they can obtain coverage in another state, and may not be eligible at all in a third state. Medicaid-eligible families, pregnant women, and children fall into two basic groups: those meeting AFDC standards as of July 16, 1996, and those qualifying under a series of targeted Medicaid expansions that began in the 1980s. Medicaid eligibility for AFDC-related groups was affected significantly by both the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ), which replaced the AFDC cash assistance program with the Temporary Assistance for Needy Families (TANF) block grant program, and the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33 ). Mandatory. Members of families that meet the eligibility requirements of the old AFDC programs in effect in their states on July 16, 1996 must be covered under Medicaid. States may modify their rules governing income and resource standards for such AFDC-related groups in three ways: (1) income standards may be reduced below those in effect in 1996, but they cannot be lower than those used on May 1, 1988; (2) income and resource standards may be increased for any period after 1996, but by no more than the percentage increase in the Consumer Price Index (CPI) for the same period; and (3) states may use less restrictive methods for counting income and resources than those in effect on July 16, 1996. States must provide Medicaid assistance for recipients of adoption assistance and foster care (who are under age 18) under Title IV-E of the Social Security Act. Transitional or extended benefits are available to families who lose Medicaid eligibility because of increased hours of employment, increased earnings, loss of a time-limited earned income disregard, or increased child or spousal support payments. If the family loses Medicaid eligibility because of increased earnings or hours of employment, Medicaid coverage is extended for six to 12 months. (During the second six months, a premium can be imposed, the scope of benefits might be limited, or alternate delivery systems might be used.) If the family loses Medicaid because of increased child or spousal support, coverage is extended for four months. Children and pregnant women are exempt from TANF work requirements and retain their Medicaid eligibility. Optional. States are permitted to cover additional AFDC-related groups. States may provide Medicaid to former foster care recipients ages 18, 19 and 20, and may limit such coverage to those eligible for Title IV-E before turning 18. States may also extend Medicaid to children under age 21 in families whose income and resources are within AFDC standards (as of July 16, 1996), but who do not meet the definition of a dependent child (also known as Ribicoff children), and may limit this coverage to "reasonable" subgroups. Finally, states may deny Medicaid benefits to nonpregnant adults and heads of households who lose TANF benefits because of refusal to work. Beginning in the mid-1980s, Congress gradually extended Medicaid coverage to groups of pregnant women and children who are defined in terms of family income and resources rather than in terms of their ties to cash welfare programs. Mandatory. States must cover pregnant women and children under age 6 with family incomes below 133% of the federal poverty income guidelines. (A state may impose a resource standard that is no more restrictive than that for SSI, in the case of pregnant women, or AFDC as of July 16, 1996, in the case of children.) Coverage for pregnant women is limited to services related to the pregnancy or complications of the pregnancy through 60 days postpartum. Children receive full Medicaid coverage. States are also required to cover all children under age 19 whose family income is below the federal poverty level. Optional. States may cover pregnant women and infants under age 1 with family incomes of up to 185% of the federal poverty level (FPL). In addition, through other provisions of Medicaid law, states are permitted to cover additional pregnant women and children with incomes above applicable federal mandatory minimum levels. Such key provisions include waivers of eligibility rules (through Section 1115 of the Social Security Act), use of more liberal methods for calculating income and resources for some categories of eligibles (through Section 1902(r)(2) of the Social Security Act), as well as through Medicaid expansions under the State Children's Health Insurance Program (SCHIP; program No. 3 in this report). For example, under SCHIP, most states now cover at least some groups of children under age 19 in families with income at or above 200% of the federal poverty level. Finally, states have the option of continuing Medicaid eligibility for current child beneficiaries for up to 12 months without a redetermination of eligibility. States are also allowed to extend Medicaid coverage to pregnant women and children under 19 years of age on the basis of "presumptive" eligibility until formal determinations are completed. In general, Medicaid provides coverage to certain groups of individuals receiving (or qualifying for) cash assistance through the Supplemental Security Income (SSI) program. It also covers the Medicare cost-sharing obligations for certain individuals. In addition, Medicaid covers certain individuals needing institutional care or other types of long-term care services. The SSI program was established in 1972, replacing previous federal-state cash assistance programs for the aged, blind, and persons with disabilities. Income and resource standards are defined in federal law. For 2005, individuals applying for SSI could not have countable monthly income in excess of $579, and their countable resources could not exceed $2,000. Similar criteria for couples were $869 in monthly income and $3,000 in resources. However, states have the option of supplementing SSI payments (called state supplemental payments, or SSP) for aged persons living independently, and using the resulting higher income levels as the applicable financial standard for determining Medicaid eligibility. Mandatory. States are generally required to cover SSI recipients under their Medicaid programs. However, states may use more restrictive eligibility standards for Medicaid than those for SSI if they were using those standards on January 1, 1972 (before the implementation of SSI), as authorized under Section 209(b) of the Social Security Act. There were 11 such Section 209(b) states in 2005. States using more restrictive income standards must allow applicants to "spend down"—deduct incurred medical expenses from income before determining eligibility. For example, if an applicant has a monthly income of $700 (not including any SSI or state supplement payment) and the state's maximum allowable income is $600, the applicant would qualify for Medicaid after incurring $100 in medical expenses in that month. States must continue Medicaid coverage for several defined groups of individuals who lose SSI or SSP eligibility. The "qualified severely impaired" are persons with disabilities who return to work and lose SSI eligibility because of earnings, but still have the condition that originally rendered them disabled and who meet all nondisability criteria for SSI except income. Medicaid must be continued for these persons if they need ongoing medical assistance to continue working and their earnings are not sufficient to provide the equivalent of SSI, Medicaid, and attendant care benefits for which they would qualify in the absence of earnings. States must also continue Medicaid coverage for persons who were once eligible for both SSI and Social Security payments and who lose SSI because of a cost-of-living adjustment (COLA) in their Social Security benefits. Similar Medicaid continuations have been provided for certain other persons who lose SSI as a result of eligibility for or increases in Social Security or veterans' benefits. Finally, states must continue Medicaid for certain SSI-related groups who received benefits in 1973, including "essential persons" (persons who care for a person with a disability). Optional. States are permitted to provide Medicaid to individuals who are not receiving SSI but are receiving state-only supplementary cash payments. Effective in August 1997, under provisions of the Balanced Budget Act of 1997 (BBA 97), states may make Medicaid available to SSI beneficiaries with disabilities who have income up to 250% of the FPL. These individuals may "buy into" Medicaid by paying a premium based on income as determined by the state. The 1999 Ticket to Work legislation ( P.L. 106-170 ) further allows states to cover employed persons with disabilities at higher income and resource levels (i.e., income over 250% of the FPL and resources exceeding $2,000 for an individual or $3,000 for a couple). States may also cover financially eligible working individuals whose medical condition has improved to the point that they no longer meet the SSI definition of disability. Such individuals may have to buy into Medicaid by paying premiums or other cost-sharing charges on a sliding fee scale based on income, as established by the state. Finally, states have the option of extending Medicaid to certain additional elderly persons or persons with disabilities. These include the elderly and persons with disabilities whose income does not exceed 100% of the FPL and whose resources do not exceed the SSI standard. Certain low-income individuals who are aged or have disabilities as defined under SSI and who are eligible for Medicare are also eligible to have some of their Medicare cost-sharing expenses paid for by Medicaid. There are four categories of such persons: Qualified Medicare Beneficiaries (QMB) . Qualified Medicare beneficiaries are aged or disabled Medicare beneficiaries with incomes no greater than 100% of the FPL and assets no greater than $4,000 for an individual and $6,000 for a couple. States are required to cover, under their Medicaid programs, the costs of Medicare premiums, deductibles, and coinsurance for Medicare-covered benefits for such persons. Other Medicaid covered services, such as nursing facility care, prescription drugs, and primary and acute care services, are not covered for these individuals unless they qualify for Medicaid through other eligibility pathways (e.g., via SSI, medically needy, or the special income rule for institutionalized persons described below). Specified Low-Income Medicare Beneficiaries (SLMB) . Specified low-income Medicare beneficiaries meet QMB criteria, except that their income is greater than 100% of the FPL but does not exceed 120% of the FPL. Under this Medicaid pathway, states are required to cover only the monthly Medicare Part B premium. Other Medicaid services are not covered for these individuals unless they qualify for Medicaid through other eligibility pathways. Qualifying Individuals (QI-1) . The QI-1 eligibility pathway applies to aged and disabled Medicare beneficiaries whose income is between 120% and 135% of the FPL. For these individuals, states are required to pay the monthly Medicare Part B premium only until the federal allotment for this purpose is depleted. These individuals are not otherwise eligible for Medicaid. Qualified Disabled and Working Individuals (QDWIs) . States are required to pay the Medicare Part A premiums for persons who were previously entitled to Medicare on the basis of a disability, who lost their entitlement based on earnings from work, but who continue to have a disabling condition. Such persons may only qualify if their incomes are below 200% of the FPL, their resources are below 200% of the SSI limit ($4,000), and they are not otherwise eligible for Medicaid. In December 2003, the President signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA 2003, P.L. 108-173 ). This act provides that, beginning in 2006, Medicaid eligibles who are also eligible for Medicare will receive outpatient prescription drug coverage through the new Medicare prescription drug benefit instead of through Medicaid. While this act does not change Medicaid eligibility rules, it does affect the benefits that the Medicaid program will be allowed to cover. Under MMA 2003, state Medicaid programs will no longer be able to cover any drugs that are to be provided through the Medicare benefit, or pay the cost-sharing amounts for those drugs. States may provide Medicaid to certain otherwise-ineligible groups of persons who are in nursing facilities (NFs) or other institutions, or who would require institutional care if they were not receiving alternative services at home or in the community. States may establish a special income standard for institutionalized persons, not to exceed 300% of the maximum SSI benefit that would be payable to a person living at home and with no other resources ($1,737 per month in 2005). In states without a medically needy program (described below), this "300% rule" is an alternative way of providing NF coverage to persons with incomes above SSI or State Supplementary Payment (SSP) levels. Both the medically needy and those becoming eligible under the "300% rule" must contribute their available income to the costs of their care. Medicaid has distinct post-eligibility rules to determine how much of a beneficiary's income must be applied to the cost of care before Medicaid makes its payment. Special rules exist for the treatment of income and resources of married couples when one of the spouses requires nursing home care and the other remains in the community. These rules are referred to as the "spousal impoverishment" protections of Medicaid law, because they are intended to prevent the impoverishment of the spouse remaining in the community. A state may obtain a waiver under Section 1915(c) of the Social Security Act to provide home and community-based services to a defined group of individuals who would otherwise require institutional care. The waiver coverage may include persons who would be eligible under the "300%" rule if they were in an institution, or those eligible through a medically needy program. A state may also provide Medicaid to several other classes of persons who need the level of care provided by an institution and would be eligible if they were in an institution. These include certain children who are being cared for at home, persons of any age who are ventilator-dependent, and persons receiving hospice benefits in lieu of other covered services. In 2003, the Centers for Medicaid and Medicare Services (CMS) reported that 35 states and the District of Columbia provided Medicaid to at least some groups of "medically needy" persons. These are persons who meet the nonfinancial standards for inclusion in one of the groups covered by Medicaid, but who do not meet the income or resource requirements for such coverage. Under medically needy programs, individuals can spend down to the medically needy standard set by the state by incurring medical expenses, in the same way that SSI recipients in Section 209(b) may spend down to Medicaid eligibility. Under medically needy programs, states may set income standards at any level up to 133⅓% of the standard used for the most closely related cash assistance program. For families with children, the maximum applicable medically needy income standard would be up to one-third more than that which was in effect for a similar family under the state's former AFDC program. For individuals who have a disability or are elderly, it would be up to one-third more than the SSI income standard. States may limit the groups of individuals who receive medically needy coverage. If the state provides any medically needy coverage, however, it must include all children under 18 who would qualify under one of the welfare-related groups, and all pregnant women who would qualify under either a mandatory or optional group, if their income or resources were lower. Demonstration waivers available under the authority of Section 1115 (of the Social Security Act) enable states to experiment with new approaches for providing health care coverage that promote the objectives of the Medicaid program. Section 1115 allows the Secretary of Health and Human Services (HHS) to waive a number of Medicaid rules—including many of the federal rules relating to Medicaid eligibility. The Health Insurance Flexibility and Accountability (HIFA) Initiative, introduced by the Bush Administration in 2001, is an explicit effort to encourage states to seek Section 1115 waivers to extend Medicaid and SCHIP to the uninsured, with a particular emphasis on statewide approaches that maximize private health insurance coverage options and target populations with incomes below 200% of the FPL. Some states have used such waivers to enact broad-based and sometimes statewide health reforms, although demonstrations under Section 1115 need not be statewide. A number of the demonstrations extend comprehensive health insurance coverage to low-income children and families who would not otherwise be eligible for Medicaid. Legal immigrants arriving in the United States after August 22, 1996 are ineligible for Medicaid for their first five years in this country. Coverage of these persons after the five-year ban is a state option. States are required to provide Medicaid to legal immigrants who resided in the country and were receiving benefits on August 22, 1996 (and who continue to meet the criteria), and to those residing in the country as of that date who become disabled in the future. States are also required to provide coverage to (1) refugees for the first seven years after entry into the United States, (2) asylees for the first seven years after asylum is granted, (3) individuals whose deportation is being withheld by U.S. Citizenship and Immigration Services (formerly the Immigration and Naturalization Service) for the first seven years after the deportation is first withheld, (4) lawful permanent aliens after they have been credited with 40 quarters of coverage under Social Security, and (5) immigrants who are honorably discharged U.S. military veterans or active duty military personnel, and their spouses and unmarried dependent children who otherwise meet the state's financial eligibility criteria. In addition, states are required to provide emergency Medicaid services to all legal and undocumented non-citizens who meet the financial and categorical eligibility requirements for Medicaid, without regard to time in this country. COBRA provides that employees or dependents who leave an employee health insurance group in a firm with 20 or more employees must be offered an opportunity to continue buying insurance through the group for 18 to 36 months (depending on the reason for leaving the group). The employer may charge a premium of no more than 102% of the average plan cost (150% for months 19 to 29 for certain persons with disabilities). State Medicaid programs may pay the former employees' premiums but only under the following circumstances: The employee or family member worked for a firm with 75 or more employees; The premium payment is "cost effective" (i.e., the premium paid for the employer-based coverage is below the amount Medicaid would have otherwise spent on Medicaid services for the individual); The employee entitled to elect COBRA coverage is in a family with income that does not exceed 100% of FPL; and The individual or family's resources do not exceed twice the SSI resource limit. (The SSI resource limit is $2,000 for an individual and $3,000 for a couple.) States are required to offer the following services to most groups of recipients: inpatient hospital services (excluding inpatient hospital services for mental disease); outpatient hospital care, Federally Qualified Health Center (FQHC) services and, if permitted under state law, rural health clinic (RHC) services; laboratory and X-ray services; certified pediatric and family nurse practitioners; nursing facility services for those aged 21 and over; early and periodic screening, diagnosis, and treatment for those under age 21 (EPSDT); physicians' services; family planning services and supplies; medical supplies and surgical services of a dentist; home health services for those entitled to nursing facility care; nurse-midwife services; pregnancy-related services (including treatment for conditions that may complicate pregnancy); and 60 days of postpartum-related services. States must also assure transportation of any Medicaid-eligible individual to and from providers of medical care. Federal law includes two basic coverage requirements for the medically needy. First, if a state provides medically needy coverage to any group, it must provide ambulatory services to children under 18 and individuals entitled to institutional services, prenatal and delivery services for pregnant women (as well as 60 days of postpartum care for those eligible for and receiving pregnancy-related services), and home health services to individuals entitled to nursing facility services. Second, if the state provides medically needy coverage for persons in institutions for mental diseases or intermediate care facilities for the mentally retarded (ICFs/MR), it must offer to all groups covered in its medically needy program all of the mandatory services required for the categorically needy (except services provided by pediatric and family nurse practitioners), or alternatively, any of seven categories of care and services listed in Medicaid law defining covered benefits. Finally, states may also choose to provide one or more optional services to categorically and medically needy beneficiaries. These additional services include, for example, prescription drugs, eyeglasses, other dental services, physical therapy, and inpatient psychiatric care for individuals under age 21 or over 65. States may limit the amount, duration and/or scope of care provided under any mandatory or optional service category (such as limiting the number of days of covered hospital care or number of physical therapy visits). Federal law permits states to impose nominal cost-sharing charges on some Medicaid beneficiaries and for some services. In FY2002, the most recent year for which enrollment data are available, 51.5 million persons were covered by Medicaid. While non-disabled children and adults under age 65 comprised the majority of Medicaid enrollment, their costs were relatively small ($2,090 per adult and $1,397 per child) when compared with the per recipient cost of the elderly recipients ($13,313), and recipients with disabilities ($12,394). The aged and persons with disabilities represented 23% of Medicaid enrollment, but accounted for 68% of the program's spending on services. Between FY2002 and FY2004, total federal and state Medicaid spending increased by about 16%, from $258.2 billion to $300.3 billion. Note: For more information, see CRS Report RL32277, How Medicaid Works — Program Basics ; CRS Report RS21071, Medicaid Expenditures, FY2003 and FY2004 ; CRS Report RL33019, Medicaid Eligibility for Adults and Children ; CRS Report RL31413, Medicaid — Eligibility for the Aged and Disabled ; and CRS Report RL33202, Medicaid: A Primer . Medical care from the Department of Veterans Affairs (VA) is funded by the federal government. VA medical services are defined as discretionary in the federal budget. Appropriations requests are guided by estimated patient demand and associated resource requirements. In FY2005, Congress provided approximately $29.7 billion for veterans health care programs. VA is also authorized to use proceeds of the Medical Care Collections Fund (MCCF) to provide care to veterans. In FY2005, the amount of collections was estimated to be $1.98 billion. In addition to care provided in VA facilities and under contract, VA provides per diem payments to states for care of eligible veterans in veterans' nursing homes. VA also provides medical care to certain spouses and children of certain service-connected disabled veterans under the Civilian Health and Medical Program (CHAMPVA). Unlike other medical benefit entitlements such as Medicare or Medicaid, eligibility for medical benefits from VA conveys varying degrees of rights. Although all veterans are eligible to receive medical care from VA, under current law, no veteran is automatically "entitled" to VA health care, as care is dependent upon the amount of funding available for health care. VA determines eligibility primarily based on "veterans' status" resulting from military experience. "Veterans' status" is determined by active duty status in the military, naval, or air service and an honorable discharge or release from active military service. After the VA establishes "veterans' status," VA next places applicants into one of two categories. The first category in general is composed of veterans with service-connected disabilities or with lower incomes. These veterans are regarded by VA as "high priority" veterans, and they are enrolled in Priority Groups 1-6. Veterans placed in the second group are veterans who don't fall into one of the first six priority groups. These veterans are primarily those with nonservice-connected conditions and with income and net worth above the VA established means test threshold, and in general these veterans are enrolled in Priority Group 7 or 8. Based on statutory authority provided by the Veterans Health Care Eligibility Reform Act of 1996 ( P.L. 104-262 ), the Secretary of Veterans Affairs announced on January 17, 2003 that VA would temporarily suspend the enrollment of Priority Group 8 veterans. Those who enrolled prior to January 17, 2003 in VA's health care system were not to be affected by this suspension. VA claims that, despite its funding increases, it cannot provide all enrolled veterans with timely access to medical services because of the tremendous increase in the number of veterans seeking care from VA. Under current law, most veterans have to enroll to receive health care from VA. In some cases, VA provides care to non-enrolled veterans in the following classes: veterans who need treatment for a VA rated service-connected disability; veterans who are VA rated as 50% or more service-connected disabled; and veterans who were released from active duty within the previous 12 months for a disability incurred or aggravated in the line of duty. The largest category of veterans provided free medical care by VA consists of persons who qualify for that care because their annual net income and net worth are below an established VA Means Test Threshold (in 2005: single person, $25,842; with one dependent, $31,013; for each additional dependent, $1,734), or veterans whose incomes in the previous calendar year were no higher than the pension of a veteran in need of regular aid and attendance (in 2004: single person, $16,955; with one dependent, $20,099; for each additional dependent, $1,734). These veterans are enrolled in Priority Group 5. A veteran applying for care under the low-income eligibility test is advised that reported income is subject to verification by matching the amount shown on the application with income reported to the Internal Revenue Service (IRS). Once eligible under the income rules, a veteran remains eligible until determined upon (annual) reevaluation to no longer meet the income standard. VA offers a standardized medical benefits package that includes a full range of outpatient and inpatient services with an emphasis on preventive and primary care. As defined in regulations, VA medical benefits include, among other things, preventive services, including immunizations, screening tests, and health education and training classes; primary health care diagnosis and treatment, prescription drugs, comprehensive rehabilitative services, mental health services, including professional counseling, home health care, respite (inpatient), hospice, and palliative care; and emergency care. Some veterans are also eligible to receive long-term care, including nursing home care, domiciliary care, adult day care, and limited dental care. In FY2004, there were 7.4 million enrolled veterans, and 4.7 million unique veteran patients received care from VA. Of these, 2.5 million enrolled veterans and 1.6 million unique veteran patients were in Priority Group 5. That same fiscal year, VA treated 760,519 inpatients, 93,271 veterans in nursing home care units or in community nursing home facilities, and 25,523 veterans in home- and community-based facilities. The VHA's outpatient clinics registered more than 49 million visits by veterans in FY2004. During FY2004, the Veterans Health Administration (VHA) operated 157 hospitals, 134 nursing homes, 42 residential rehabilitation treatment centers; 862 ambulatory care and community-based outpatient clinics; and an extensive pharmaceutical supply apparatus. Veterans' medical care appropriations were $26.8 billion in FY2004 and $29.7 billion in FY2005. Note: For more information, see CRS Report RL32975, Veterans ' Medical Care: FY2006 Appropriations . The Balanced Budget Act of 1997 (BBA 97, P.L. 105-33 ) established the State Children's Health Insurance Program (SCHIP) under Title XXI of the Social Security Act. The program offers federal matching funds for states and territories to provide health insurance to targeted low-income children. In the original law, Congress appropriated $39.7 billion in SCHIP federal matching grants for 10 years, FY1998 through FY2007. The total annual allotment for each of FY1998 through FY2001 was a little more than $4.2 billion. This annual total dropped to a little under $3.2 billion in FY2002 through FY2004. Then the annual allotment rose to about $4.1 billion for FY2005 and FY2006, with a further increase to roughly $5.0 billion projected for FY2007. Allotment of funds among the states is determined by a formula set in law. This formula is based on a combination of the number of low-income children and low-income uninsured children in the state, and it includes a cost factor that represents average health service industry wages in the state compared to the national average. All states have submitted SCHIP program plans to the Centers for Medicare and Medicaid Services (CMS). States have three fiscal years in which to draw down a given year's funding. Under SCHIP law as enacted in 1997, allotments not spent by the end of the applicable three-year period will be redistributed—by a method to be determined by the Secretary of Health and Human Services (HHS)—to states that have fully spent their original allotments for that year. Redistributed funds not spent by the end of the fiscal year in which they are reallocated will officially expire. The rules regarding reallocation vary by fiscal year. In the first reallocation legislation for FY1998 and FY1999 ( P.L. 106-554 ), redistribution states (12 in FY1998 and 13 in FY1999) were given access to unspent funds from other states equal to their excess spending above their original allotments during the applicable three-year period. After a set-aside of 1.05% of the total unspent funds for territories that fully exhausted their original allotments, the remaining unused funds were divided among the retention states in proportion to their contribution to the total pool of unspent funds. In contrast, under the second reallocation legislation for FY2000 and FY2001 ( P.L. 108-74 ), a different rule was used. A set-aside of 1.05% of the total unspent funds was made for territories that fully exhausted their original allotments. Then, retention states kept one-half of their unused funds. The remaining unspent funds were then distributed among redistribution states (14 for FY2000 and 19 for FY2001) in proportion to their contribution to the total pool of excess spending. The final rule for reallocation of unspent FY2002 funds was published in the September 29, 2005 Federal Register . Because no law was enacted specifying otherwise, the reallocation process followed BBA 97 requirements. Under this law, at the end of the applicable three-year period, unspent allotments are subject to redistribution among only those states that fully expend their allotments by the three-year deadline, by a method to be determined by the Secretary of Health and Human Services. States that were projected to exhaust all of their available federal SCHIP accounts in FY2005, based on their August FY2005 estimated expenditures, received access to FY2002 redistribution money equal to that estimated shortfall. The five "shortfall states" were Arizona, Minnesota, Mississippi, New Jersey, and Rhode Island. The remaining balance of unspent FY2002 funds was then divided among a total of 28 redistribution states, including the five shortfall states, based on each such state's percentage of the total excess spending above the FY2002 allotments during the three-year period of availability of these funds. Also according to BBA 97, this reallocation pot was to expire at the end of one year, in this case, at the end of FY2005. Access to reallocated funds (i.e., redistributed and retained funds from prior years) has added another layer of complexity to SCHIP financing. During FY2005, for example, states could access reallocated FY2001 and FY2002 funds, plus original allotments from FY2003, FY2004, and FY2005. Generally, when multiple accounts are available simultaneously, expenditures are applied against reallocated and original allotments in chronological order from earliest to most recent. However, in regulations, CMS has allowed redistribution states only (i.e., states with excess spending that qualified them for redistribution of unspent funds from other states) the option of defining the order for applying expenditures against available accounts. That is, to optimize the use of funds, such states were given the flexibility to decide whether to use redistributed funds before or after other available funds/accounts. Once a specific order is chosen for a given set of open accounts, such states are not allowed to change that order until a new redistribution account is added to the set. Like Medicaid, SCHIP is a federal-state matching program. For each dollar of state spending, the federal government makes a matching payment, up to the state's allotment. The state's share of program spending is equal to 100% minus the enhanced federal medical assistance percentage (the enhanced FMAP). The enhanced FMAP is equal to the state's Medicaid FMAP (for the regular FMAP formula, see program No. 1 of this report), increased by the number of percentage points that is equal to 30% multiplied by the number of percentage points by which the FMAP is less than 100%. No more than 10% of the federal funds that a state draws down for SCHIP benefit expenditures can be used for administrative expenses, which include activities such as data collection and reporting, as well as outreach and education. Each state defines the group of targeted low-income children who may enroll in SCHIP. The law allows states to use the following factors in determining eligibility: geography, age, income and resources, residency, disability status, access to other health insurance, and duration of eligibility for SCHIP. In general, funds cannot be used for children who are eligible for the state's Medicaid program or for children covered by a group health plan or other insurance. Under SCHIP, states may cover children in families with incomes that are either (1) above the state's applicable Medicaid eligibility standard under the rules in effect in the state on March 31, 1997, but less than 200% of the federal poverty level (FPL), or (2) in states with Medicaid income levels for children already at or above 200% of FPL, within 50 percentage points over the state's Medicaid income eligibility limit for children. Many states cover at least some groups of children in families with income at or above 200% FPL. In addition, states that want to make changes to their SCHIP programs that go beyond what the law will allow may do so through what is called a Section 1115 waiver (named for the section of the Social Security Act that defines the circumstances under which such waivers may be granted). The Secretary of Health and Human Services may waive certain statutory requirements for conducting research and demonstration projects under SCHIP that allow states to adapt their programs to specific needs. On August 4, 2001, the Bush Administration announced the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative. Using Section 1115 waiver authority, this initiative is designed to encourage states to extend Medicaid and SCHIP to the uninsured, with a particular emphasis on statewide approaches that maximize private health insurance coverage options and target populations with income below 200% FPL. As of May 2005, 15 states had approved SCHIP Section 1115 waivers. Six additional Section 1115 waiver proposals (three for new waivers and three for amendments to existing waivers) were under review at that time. Eight states (Arizona, California, Colorado, Idaho, Illinois, Michigan, New Jersey, and Oregon) have approved HIFA demonstrations. In nine states with approved waivers (Arizona, California, Colorado, Illinois, Minnesota, New Jersey, Oregon, Rhode Island, and Wisconsin), SCHIP coverage is expanded to include one or more categories of adults with children, typically parents of Medicaid/SCHIP children, caretaker relatives, legal guardians, and/or pregnant women. Three states (Arizona, Michigan, and Oregon) also cover childless adults under their waivers. In addition to expanding coverage to new populations under waivers, some states have used this authority for other purposes. For example, two states (Alaska and New Mexico) require periods of no insurance prior to enrollment under their waivers. New Mexico also modified its cost-sharing rules for targeted low-income children under its Medicaid program. Three states (Idaho, Illinois, and Oregon) offer premium assistance programs under waiver authority. New York's demonstration provided temporary disaster relief in New York City due to the events of September 11, 2001. Finally, Ohio received approval to implement an annual enrollment fee and to give 12 months of continuous eligibility for certain targeted low-income children in its Medicaid program. States may choose from three options when designing their SCHIP programs. They may expand their existing Medicaid program, create a new "separate state" insurance program, or devise a combination of both approaches. All 50 states, the District of Columbia, and five territories have SCHIP programs in operation. As of August 2005, 17 use Medicaid expansions, 19 use separate state programs, and 20 use a combination approach. States that choose to expand their Medicaid programs by covering targeted low-income children must provide the full range of mandatory Medicaid benefits as well as all optional services specified in their state Medicaid plans. States that choose to create separate SCHIP programs may elect any of three benefit options: (1) a benchmark benefit package, (2) benchmark equivalent coverage, or (3) any other health benefits plan that the Secretary determines will provide appropriate coverage to the targeted population of uninsured children. A benchmark benefit package is one of the following three plans: (1) the standard Blue Cross/Blue Shield preferred provider option plan offered under the Federal Employees Health Benefits Program (FEHBP), (2) the health coverage that is offered and generally available to state employees in the state involved, or (3) the health coverage that is offered by an HMO with the largest commercial (non-Medicaid) enrollment in the state involved. Benchmark equivalent coverage is defined as a package of benefits that has the same actuarial value as one of the benchmark benefit packages. A state choosing to provide benchmark equivalent coverage must cover each of the benefits in the "basic benefits category." The benefits in the basic benefits category are inpatient and outpatient hospital services, physicians' surgical and medical services, lab and X-ray services, and well-baby and well-child care, including age-appropriate immunizations. Benchmark equivalent coverage must also include at least 75% of the actuarial value of coverage under the benchmark plan for each of the benefits in the "additional service category." These additional services include prescription drugs, mental health services, vision services, and hearing services. States are encouraged to cover other categories of services not listed above. Abortions may not be covered, except in the case of a pregnancy resulting from rape or incest, or when an abortion is necessary to save the mother's life. Title XXI gives states the authority to determine the amount, duration, and scope of the services covered unless the state chooses to provide a benchmark plan. Benchmark equivalent plans may limit their benefit packages in any way they choose as long as the entire package is certified to be an actuarial equivalent of the benchmark plan. While federal law permits states to impose cost sharing for some beneficiaries and services, cost sharing is not permitted for well-baby or well-child care services, and American Indian and Alaskan Native children are exempt from all cost sharing. Apart from these general exceptions, states that choose to cover targeted low-income children under Medicaid must follow the cost-sharing rules of the Medicaid program. Generally, Medicaid does not allow cost sharing (e.g., deductibles, co-payments, and co-insurance) for medical services, and cost sharing associated with program participation (e.g., enrollment fees, and premiums) is limited to nominal amounts. If the state implements SCHIP through a separate state program, premiums or enrollment fees may be imposed, but they are subject to limits. Under separate state programs, for families with incomes under 150% FPL income-related charges (i.e., enrollment fees, premiums, or similar charges tied to the total gross family income) may not exceed the amounts set forth in federal Medicaid regulations. For children whose family income is at or below 100% FPL, service-related cost sharing is limited to nominal amounts as defined in Medicaid regulations. For children whose family income is between 101% and 150% FPL, service-related cost sharing must meet "adjusted nominal amounts." These adjusted amounts reflect the enrollees' increased ability to pay. Cumulative cost-sharing maximums for each 12-month enrollment period must not exceed 5% of the family's annual income. For families with income above 150% FPL, service-related cost sharing may be imposed in any amount, provided cost sharing for higher-income children is not less than cost sharing for lower-income children. However, the total annual aggregate cost sharing (including premiums, deductibles, co-payments and any other charges) for all children in any SCHIP family may not exceed 5% of total family income for the year. Regardless of the family's cumulative cost-sharing maximum, states must (1) inform families of these limits, (2) provide a mechanism for families to stop paying once the cost-sharing limits have been reached, and (3) provide reasonable notice of any missed payments prior to disenrollment. Early enrollment estimates indicated that nearly 1 million children (982,000) were enrolled in SCHIP under 43 operational state programs as of December 1998. Nearly 2 million children (1,979,450) were enrolled in SCHIP during FY1999 under 53 operational state programs. The latest official numbers show that SCHIP enrollment reached a total of nearly 6.2 million children in FY2004. Of this total, almost 4.4 million were covered in separate state programs, and 1.8 million were targeted low-income children under Medicaid. Total SCHIP enrollment for adults reached 513,569 in FY2004. Expenditures under SCHIP have been the subject of much debate and controversy almost since the program's inception. Despite the fact that most states began enrolling children in SCHIP in late 1997 or 1998, new programs always take time to get off the ground and participation rates in the early years of SCHIP rose more slowly than expected. As a consequence, spending was slow to ramp up too, as evidenced by the fact that a minority of states (12 to 19, depending on the year) fully expended their original FY1998-FY2001 allotments by the applicable three-year deadlines. It was not until FY2005, when the redistribution of unspent FY2002 funds took place, that more than half of the states (28) succeeded in qualifying for a portion of these unused funds. A total of $26.4 billion, over one-half of the total federal SCHIP appropriation of nearly $40 billion to date, was made available to states and territories FY1998 through FY2004. By the end of FY2004, nearly 70% ($18.3 billion) of these funds was spent. However, an additional $1.3 billion available to 11 states actually expired at the close of FY2004; these expired funds were comprised of unspent FY1998, FY1999, and FY2000 reallocated monies. Thirty-three states forfeited funds they were unable to spend within the applicable time limits. Note : For more information about SCHIP, see CRS Report RL30473, State Children ' s Health Insurance Program (SCHIP): A Brief Overview ; and CRS Report RL32807, SCHIP Financing: Funding Projections and State Redistribution Issues. Indian Health Service (IHS) appropriations are allocated among its 12 service areas through a "historical," or "program continuity" basis, under which each area can expect to receive its recurring base budget from the previous year, plus an increase in certain mandatory cost categories. Using a Resource Allocation Methodology (RAM), the Service distributes a small portion of its appropriation to areas and tribes based on documented health deficiencies. Tribes may assume from the IHS the administration and operation of health services and programs in their communities, and about 52% of IHS funds are used by Indian tribes to deliver IHS services to their own communities. The Service collects reimbursements from the Medicare and Medicaid programs for services that it provides to members of its eligible population who are also eligible for those programs. In FY2002, IHS collected $534.8 million in reimbursements; in FY2003, this number increased to $591.7 million; and in FY2004, this number increased to $634.4 million. For FY2005, collections are estimated to be $598.7 million. Total program appropriations (which include both budget authority, collections, and a special diabetes program) were $3.392 billion in FY2002, $3.541 billion in FY2003, $3.706 billion in FY2004, and $3.773 billion in FY2005. Eligible under Public Health Service regulations are persons of American Indian or Alaskan Native (AI/AN) descent who: (1) are members of a federally recognized Indian tribe; (2) reside within an IHS Health Service Delivery Area (HSDA); or (3) are the natural minor children (18 years old or younger) of such an eligible member and reside within an IHS HSDA. The program imposes no income test; any eligible AI/AN can receive health services. The program serves Indians living on federal reservations, Indian communities in Oklahoma and California, and Indian, Eskimo, and Aleut communities in Alaska. According to the 2000 census, more than 57% of AI/AN reside in urban areas. Under the Indian Health Care Improvement Act of 1976, P.L. 94-437 , as amended, the IHS contracts with 34 urban Indian organizations at 41 sites throughout the United States to make health services more accessible to 600,000+ urban Indians. Combined, all IHS programs serve between 1.5 and 1.6 million AI/AN. The IHS provides hospital, medical, and dental care and environmental health and sanitation services as well as outpatient services and the services of mobile clinics and public health nurses, and preventive care, including immunizations and health examinations of special groups, such as school children. All services are provided free of charge to beneficiaries. If the eligible AI/AN has private insurance, IHS will be reimbursed for the services provided. Benefits are provided through 157 service units, 48 IHS hospitals, six school health centers, 238 health centers, and 167 smaller health stations and satellite clinics; 180 Alaskan village clinics; as well as contracts with non-federal hospitals, clinics, private physicians and dentists; and contractual arrangements with state and local health organizations. Note: For more information, see CRS Report RL33022, Indian Health Service: Health Care Delivery, Status, Funding, and Legislative Issues . The Health Care Safety Net Amendments of 2002, P.L. 107-251 , amended the Public Health Service Act (PHS Act) to reauthorize the health centers grant program through FY2006. The health centers program includes community health centers, migrant health centers, health centers for the homeless, and health centers for residents of public housing. They are codified under Section 330 of the PHS Act. The program does not have a statutory formula. The grant applicant must assume part of the project costs, which are determined on a case-by-case basis. Centers receive grant money to provide primary care services to groups that are determined to be medically underserved. Grants are awarded through the Bureau of Primary Health Care of the Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS). Centers are required to seek third-party reimbursement from other sources, such as Medicare and Medicaid. State and local governments may also contribute. Centers may receive one or more of the following types of grants: (1) planning grants, to plan and develop health centers or a comprehensive service delivery network; (2) operating grants, to assist with operation costs of a center; and (3) infant mortality grants, to assist in the reduction of infant mortality and morbidity among children less than three years of age and to develop and coordinate service and referral arrangements between health centers and other entities for the health management of pregnant women and children. FY2005 appropriations were $1.7 billion. The annual service population for FY2004 was an estimated 13.1 million persons. A health center is an entity that provides health care services to a medically underserved population, or a special medically underserved population comprised of migratory and seasonal agricultural workers, the homeless, and residents of public housing by providing required primary health services and additional health services as may be appropriate for particular centers. By regulation, medically underserved areas are designated by the HHS Secretary on the basis of such factors as: (1) ratio of primary care physicians to population, (2) infant mortality rate, (3) percentage of population aged 65 and over, and (4) percentage of population with family income below the poverty level. Profit-making organizations are not eligible for health center grants. All residents of an area served by a health center are eligible for its services. Regulations limit free service to families with income at or below the federal poverty income guidelines. The 2005 federal poverty income guideline in the 48 contiguous states was $19,350 for a family of four. Nominal fees may be collected from these individuals and families under certain circumstances. Individuals and families with annual incomes greater than the poverty guideline but below 200% of it are required to pay for services from a fee schedule adjusted on the basis of the patient's ability to pay. Full payment is required from those with income that exceeds twice the poverty level. The centers provide a range of primary health services on an ambulatory basis, including diagnostic, treatment, preventive, emergency, transportation, and preventive dental services. They can arrange and pay for hospital and other supplemental services in certain circumstances if approved by the Secretary. Note: For more information, see CRS Report RL32046, Federal Health Centers Program , available on request. The Maternal and Child Health (MCH) Services Block Grant supports activities to improve the health status of mothers and children. Most of the funds are distributed to state governments to pay for services; however, some funds are set aside for use by the federal government to finance special projects of regional and national significance (SPRANS) and the community integrated service systems program (CISS). State allocations are based on two factors: (1) a state's share of FY1981 levels of funding for programs that were combined into the block grant when it was authorized in 1981; and (2) the number of low-income children in the state. States must contribute $3 for every $4 of federal funds awarded. States are required to use at least 30% of their block grant allocations for preventive and primary care services for children and 30% for services for children with special needs. States may use the remaining 40% for services for either of these groups or for other appropriate maternal and child health services, including preventive and primary care services for pregnant women, mothers, and infants up to age 1. States may use no more than 10% of their allocations for administrative costs. Federal law requires that 15% of the appropriation for the block grant up to $600 million be set aside for SPRANS activities in categories that include research, training, genetic disease programs and newborn genetic screening, hemophilia programs, and maternal and child health improvement, especially infant mortality. When the appropriation for the block grant exceeds $600 million, the law requires that 12.75% of the amount over $600 million be set aside for CISS projects. Funds from this set-aside are used for initiatives that include case management, projects to increase the participation of obstetricians and pediatricians in both the block grant program and Medicaid, integrated delivery systems, rural or hospital-based MCH projects, and community-based programs including day care for children who usually receive services on an inpatient basis. FY2004 appropriations were $730 million, and non-federal matching funds were estimated at $547 million. The FY2005 appropriation was $724 million. States determine eligibility criteria for MCH block grant services. The law provides that block grant funds are to be used by the states "to provide and to assure mothers and children (in particular those with low income or with limited availability of health services) access to quality maternal and child health services." Low-income mothers and children are those with family income below 100% of federal poverty guidelines—$19,350 per year for a family of four in 2005 (higher in Alaska and Hawaii). States determine the level of services provided under the block grant. These services may include prenatal care, well-child care, dental care, immunization, family planning, and vision and hearing screening services. They may also include inpatient services for children with special health care needs, screening services for lead-based paint poisoning, and counseling services for parents of sudden infant death syndrome victims. States are allowed to charge for services; however, they may not charge mothers and children whose family incomes are below federal poverty guidelines. Charges must be based on a sliding scale that reflects the income, resources, and family size for those with family incomes above poverty. In FY2003 Title V provided services to 2.5 million pregnant women, 3.9 million infants, almost 1.1 million children with special health care needs, and 3 million other women of child-bearing age. Note: For more information, see CRS Report 97-350, Maternal and Child Health Block Grant , available on request. Grants are provided for voluntary family planning services through the family planning program established by Title X of the Public Health Service Act. There is no requirement that grantees match federal funds at a specified rate, but regulations specify that no family planning clinic project may be fully supported by Title X funds. Congress has continued to appropriate money for the program even though Title X has not been reauthorized since FY1985. Grants for family planning clinics are made to states and territorial health departments, hospitals, universities and other public and nonprofit agencies. Appropriations for FY2005 were $286 million. The law requires that priority for clinic services go to persons from low-income families. Clinics must provide family planning services to all persons who request them, but the priority target group has been women aged 15-44 from low-income families who are at risk of unplanned pregnancy. Clinics are required to encourage family participation. Clinics must provide services free of charge (except to the extent that Medicaid or other health insurers cover these services) to persons whose incomes do not exceed 100% of the federal poverty income guidelines ($19,350 for a family of four in the 48 contiguous states in 2005). A sliding payment scale must be offered for those whose incomes are between 100% and 250% of the poverty guideline. Participating clinics must offer a broad range of family planning methods and services. Required services include natural family planning methods and supplies, counseling services, physical examinations (including testing for cancer and sexually transmitted diseases), infertility services, services for adolescents, pregnancy tests, periodic follow-up examinations, referral to and from other social and medical service agencies, and ancillary services. The law forbids use of any Title X funds in programs where abortion is a method of family planning. In FY2004, approximately 4.8 million persons received family planning services through 4,500 clinic sites supported by 86 service grantees. The clinics administered more than 2.9 million cervical cancer screenings, 2.8 million breast cancer screenings, and 496,622 HIV tests. An estimated one-third of all clients served at Title X clinics, 1.6 million per year, are adolescents. Note: For more information, see CRS Report RL33644, Title X (Public Health Service Act) Family Planning Program , by [author name scrubbed]. Subject to available appropriations, the Immigration and Nationality Act (INA) authorizes 100% federally funded medical assistance for needy refugees and asylees during their first three years in the United States. Other legislation authorizes similar assistance for certain Cuban and Haitian entrants and for certain Amerasians. Since FY1992, funding has been appropriated to provide medical care for the first eight months after entry. These benefits are administered by the Department of Health and Human Service's Office of Refugee Resettlement (ORR). For refugee medical assistance (RMA), ORR expenditures amounted to $92 million in FY2004. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee or asylee under the act, (b) be a Cuban or Haitian paroled into the United States between April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant," or be a Cuban or Haitian national paroled into the United States after October 10, 1980, (c) be a person who has an application for asylum pending or is subject to exclusion or deportation and against whom a final order of deportation has not been issued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. If a needy person in one of the above groups meets the income and assets tests prescribed by his or her state for Medicaid eligibility but does not otherwise qualify for that program because of its categorical requirements, such as family composition, the person is eligible for RMA. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ( P.L. 104-193 ), as amended by P.L. 105-33 , these persons are now eligible for seven years after entry (earlier law gave permanent eligibility). After seven years their continued participation is at state option, as it is with other "qualified aliens." Medical benefits consist of payments made on behalf of needy refugees to doctors, hospitals, and pharmacists. Federal law requires state Medicaid programs to offer certain basic services but authorizes states to determine the scope of services and reimbursement rates, except for hospital care. Note: For more information, see CRS Report RL31269, Refugee Admissions and Resettlement Policy . Since its January 1974 beginning, Supplemental Security Income (SSI) has provided a minimum income floor financed by U.S. general revenues and administered by the Social Security Administration (SSA), to persons eligible under federal rules. Some states choose to provide additional payments to SSI recipients at their own expense. In addition, a grandfather clause requires states to provide supplements to a small number of persons previously enrolled in the pre-SSI programs of federal-state cash aid for needy aged persons and blind or disabled adults, whose income otherwise would fall below what it was in December 1973. If a state chooses to have the federal government administer its supplements, it must agree to provide supplements for all federal SSI recipients of the same class and pay an administration fee to SSA for the service. If states administer their own supplements, they are generally free to design their own supplementary programs and may adopt more restrictive eligibility rules than those of SSI. As of January 2005, the federal government administered supplements for 15 jurisdictions. Total SSI benefit outlays in CY2004 were $39.3 billion, with $34.2 billion (87% of the total) from federal funds. The federal share of total state SSI benefits ranged from 48% in Alaska to 100% in the seven jurisdictions where no recipient received a supplement (Arkansas, Georgia, Kansas, Mississippi, Tennessee, West Virginia, and the Northern Mariana Islands). Title XVI of the Social Security Act entitles to SSI payments persons (1) who are aged 65 and over, blind or disabled (adults and children of any age); (2) whose counted income and resources fall within limits set by law and regulations; and (3) who live in one of the 50 states, the District of Columbia, or the Northern Mariana Islands. Also eligible is a child who lives overseas with a parent who is on military assignment, provided the child received SSI before the parent reported for overseas duty. To be eligible for SSI on grounds of disability, an adult must be unable to engage in any "substantial gainful activity" because of a medically determined physical or mental impairment expected to result in death or that has lasted, or can be expected to last, for at least 12 months. Under terms of the 1996 welfare reform law ( P.L. 104-193 ), a child under age 18 may qualify as disabled if he or she has an impairment that results in "marked and severe" functional limitations. Previously a child could qualify if his impairment were of "comparable severity" to that of an eligible adult. In addition, to qualify for SSI a person must be (1) a citizen of the United States or (2) if not a citizen, (a) an immigrant who was enrolled in SSI on August 22, 1996 or who entered the United States by that date and subsequently became disabled; (b) a refugee or asylee who has been in the country or granted asylum, respectively, for fewer than seven years, (c) a person who has worked long enough to be insured for Social Security, usually 10 years (work test gives credit to work by spouse or parent of an alien child); or (d) a veteran or active duty member of the armed forces (spouses or unmarried dependent children of veterans/military personnel also qualify). For basic federal benefits, countable income limits in 2005 are $579 monthly per individual and $869 per couple. These income ceilings equal maximum federal benefits of the program (see below for benefit details and for rules about what income is disregarded). For states with supplementary SSI benefits, countable income limits are higher, ranging in 2004 up to $926 monthly per individual (living independently) in Alaska. Since 1989, the countable resource limit has been $2,000 per individual and $3,000 per couple. Excluded assets include a home; the first $2,000 in equity value of household goods and personal effects; the full value of an auto if needed for employment or medical treatment, or if modified for use by a handicapped person, otherwise, the first $4,500 in market value of the auto; and a life insurance policy not exceeding $1,500 in cash surrender value and burial plots and funds, subject to a limit. P.L. 98-21 requires the Social Security Administration (SSA) to inform Social Security beneficiaries aged 64 about SSI when notifying them about their approaching eligibility for Medicare. The Social Security Act establishes benefit levels and requires that whenever Social Security benefits are increased because of an automatic cost-of-living adjustment (COLA), SSI benefits be increased at the same time and by the same percentage. The following are the SSI basic monthly guarantees: From 1975 through 1982, COLAs were paid each July. In passing the Social Security Amendments of 1983, Congress accepted President Reagan's proposal to delay the 1983 COLA for six months, to January 1984, and thereafter to adjust benefits each January. At the same time it voted an increase of $20 monthly in SSI benefits ($30 per couple), payable in July 1983. States that supplement SSI benefits are required to "pass through" to recipients an increase in the federal basic benefit. However, when Congress deferred the 1983 COLA and instead enacted the $20 benefit increase (about 7%), it required states to pass through only about half this amount (the 3.5% increase that the regular COLA would have yielded). As of January 2004, state supplements for aged persons living independently were offered in 26 states and ranged from $1.70 in Oregon to $362 in Alaska. Many states do not offer supplemental benefits for those living independently. To assure some gain from work, SSI disregards a portion of recipients' earnings; namely, $65 per month, plus 50% of the balance. Because of this rule, aged SSI recipients without Social Security benefits or other unearned income who work remain eligible for a declining SSI payment until gross earnings equal double their basic benefit plus $85 monthly. In a state that does not supplement the basic federal benefit, the gross income limit in 2005 for an aged SSI recipient with only wage income is $1,243 monthly in earnings. The gross income limit is higher in states that supplement the federal benefit. In all but 12 states, SSI recipients automatically are eligible for Medicaid. In the 12 states with more restrictive eligibility rules, states must deduct medical expenses of SSI recipients in determining their countable income. Disabled SSI recipients whose counted monthly earnings exceed the $830 "substantial gainful activity" test that determines disability status are eligible for special cash benefits (calculated as though they still had disability status), as long as their gross earnings are below the regular SSI ceiling ($1,243 in 2005 in a state without supplementation). The special cash benefit preserves Medicaid eligibility for the disabled worker. In 1996 ( P.L. 104-121 ), Congress ended SSI and Social Security Disability Insurance benefits for persons disabled because of their addiction to drugs or alcohol. In July 2005, federally administered SSI benefits went to 7,082,237 persons, including 1,026,264 children. Benefits averaged $359 to aged recipients, $454 to the blind and disabled (and $523 for children). As of that date, about 35% of the Nation's SSI recipients of federally administered payments also received Social Security, and SSI checks were supplementary to Social Security benefits for 57% of aged SSI recipients and 27% of blind and disabled recipients. In December 2003, income was earned by 1.4% of aged recipients and by 6.4% and 4.5%, respectively, of blind and disabled recipients. Social Security benefits of dual recipients averaged $422. Earnings of SSI recipients averaged $310 monthly. Note: See CRS Report 94-486, Supplemental Security Income (SSI): A Fact Sheet , and CRS Report RS20294, SSI Income and Resource Limits: A Fact Sheet . This benefit is 100% federally funded and is provided through the tax system. For tax year 2003, a total of $39.1 billion in EITC was claimed, with $3.7 billion used to offset taxes and $34.4 billion issued as refunds. The refunded portion of the credit is a federal outlay. Unlike most tax credits the EITC is a "refundable" credit. A person need not owe or pay any income tax to receive the EITC. However, an eligible worker must apply for the credit by filing an income tax return at the end of the tax year. A person may receive advance payment of the credit by filing an earned income eligibility certificate with his or her employer. To be eligible for the EITC, married couples generally must file a joint income tax return. The EITC is a percentage of the person's earnings, based on the number of children, up to a maximum earned income amount. Beginning at a certain income level (i.e., the phase-out income level), the EITC is reduced by the phase-out percentage for every dollar of earnings (or adjusted gross income, whichever is greater) above the phase-out income level. Persons with earnings above the level at which the EITC is reduced to $0 are not eligible for the EITC. The EITC is available to a parent (or parents) with earnings and a qualifying child. A qualifying child must be (1) a son, daughter, grandson, granddaughter, stepson, stepdaughter or descendant of such a relative; an adopted or foster child of the tax filer; (2) less than age 19 (24 if a full-time student); and must reside with the tax filer for more than one-half of the tax year. The tax filer does not have to meet a financial support test for the child. The tax filer must be a U.S. citizen or resident alien and live in the United States for more than one-half of the tax year, unless the tax filer is in the U.S. military and on duty overseas. The EITC also is available to workers ages 25 through 64 who have no eligible children and whose Adjusted Gross Income (AGI) is less than $11,750 ($13,750 for married couples) in tax year 2005. In 1995, Congress established a limit on investment income for EITC eligibility. The 1996 welfare reform law changed filing procedures to make it less likely that undocumented workers could gain access to the EITC by requiring both the tax filer and qualifying children to have social security numbers. In 1996 and 1997, Congress broadened the definition of income used to phase out the EITC for filing units above the phase-out income threshold. In response to an Internal Revenue Service (IRS) study indicating a high incidence of tax filers claiming more in credits than is their right under the law, Congress enacted provisions against fraud in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ). If a tax filer is found to have claimed the credit fraudulently, the tax filer is barred from claiming the EITC for 10 years; if the tax filer claimed the credit by reckless or intentional disregard of EITC rules, the tax filer is barred for two years. The law also imposed a $100 penalty on paid preparers who fail to fulfill "due diligence requirements" (as specified by IRS) in filing EITC claims. While gross income for tax purposes does not generally include certain combat pay earned by members of the armed forces, P.L. 108-311 allowed members of the armed forces to include this combat pay for purposes of computing the earned income credit for tax years that ended after October 4, 2004 and before January 1, 2006. The EITC was enacted in 1975 as a temporary measure to return a portion of the employment taxes paid by lower-income workers with children. The EITC became permanent in 1978, with a maximum benefit of $500 with no expansion for family size. In the 1990s, Congress increased the credit, provided expansion of the credit based on family size and extended the credit to childless workers. The Economic Growth and Tax Relief Reconciliation Act of 2001 ( P.L. 107-16 ), contained changes to the EITC with respect to married tax filers filing jointly. The law increased the beginning and ending of the EITC phase-out range for married couples filing jointly by $1,000 in taxable years beginning in 2002-2004; by $2,000 in taxable years 2005-2007; and by $3,000 in years after 2007 (adjusted annually for inflation after 2008). The law also simplified the definition and calculation of the credit: tax filers no longer have to include nontaxable income from employment (e.g., excludable dependent care or education assistance benefits); and may use adjusted gross income (AGI, a prominent line on all tax returns) rather than modified adjusted gross income (which required a number of additions and subtractions to AGI). Prior to 1996, the federal rules for treatment of the EITC in determining eligibility for means-tested programs varied by program and changed several times. The Omnibus Budget Reconciliation Act of 1990 (OBRA 1990, P.L. 101-508 ) provided that EITC payments were not to be counted as income by the Aid to Families with Dependent Children (AFDC), Supplemental Security Income (SSI), Medicaid, Food Stamps, and certain low-income housing programs. The 1996 welfare reform law ( P.L. 104-193 ), by repealing AFDC, ended federal rules for the treatment of the EITC by the family welfare program; thus, states may treat the EITC in any way they wish in their Temporary Assistance to Needy Families (TANF) programs. However, P.L. 105-34 disallowed TANF recipients engaged in work experience or community service ("workfare") the EITC for TANF earnings to the extent the payments are subsidized. The following table shows the parameters for the EITC for tax years 2003 through 2005 Note: For more information about EITC, see CRS Report RL31768, The Earned Income Tax Credit (EITC): An Overview . Note: This entry describes use of TANF block grant funds for cash aid. Federal plus state expenditures in FY2004 for TANF cash aid were estimated at $10.4 billion (excluding administrative costs). For TANF child care, TANF work programs and activities, and TANF services, see separate entries in this report. The 1996 welfare reform law ( P.L. 104-193 ) repealed Aid to Families with Dependent Children (AFDC), Emergency Assistance (EA), and the Job Opportunities and Basic Skills (JOBS) training program, and combined federal funding levels for the three programs into a block grant ($16.5 billion annually) for Temporary Assistance for Needy Families (TANF). The law entitles each state to an annual family assistance grant roughly equal to peak funding received for the repealed programs in FY1992-FY1995. It also entitles the territories to TANF grants, and it permits Indian tribes, defined to include Native Alaskan organizations, to operate their own tribal family assistance plans with a block grant deducted from their state's TANF grant. Added to the basic federal block grant for qualifying states are other funds of five kinds: supplemental grants for 17 states with low TANF grants per poor person when compared with the national average and/or high population growth; bonuses for up to five states with the greatest decline in non-marital birth ratios and a decline in abortion rates ($100 million per year); bonuses for states with "high performance" in meeting program goals ($200 million per year); matching grants (at the Medicaid matching rate) from a contingency fund for states with high unemployment and/or increased food stamp caseloads; and Welfare-to-Work (WtW) grants (most of which required 33.3% state matching funds) for efforts, including job creation, to move into jobs long-term welfare recipients with barriers to employment ($3 billion for FY1998-FY1999). For a description of the separate WtW program, which is administered by the Labor Department, see program No. 77. TANF law also established a $1.7 billion revolving loan fund for state use in TANF operations. To avoid penalties, states must spend a specified amount of their own funds on TANF-eligible families. The required "maintenance-of-effort" (MOE) level is from 75% to 80% of the state's "historic" expenditures, defined as the state share of FY1994 expenditures on AFDC, EA, JOBS, and AFDC-related child care. Nationally, the 75% MOE level equals $10.4 billion annually; if a state fails to meet work participation minimums, the MOE level rises to 80%. Expenditures of state funds in separate state programs (or in TANF programs that segregate state funds from federal funds) are countable toward the general TANF MOE rule. However, for the contingency fund, a higher state spending requirement is imposed (100% of the historic level), and spending in separate state programs cannot be counted toward this MOE. TANF permits a state to give ongoing basic cash aid to any needy family that includes (a) a minor child who lives with his/her parent or other caretaker relative; or (b) a pregnant woman. States decide who is "needy," having the freedom to set income and resource limits. Federal law makes unwed mothers under 18 and their children ineligible for TANF-funded basic ongoing cash aid unless they live in an adult-supervised arrangement and, if they are high school dropouts, they attend school once their youngest child is 12 weeks old. Also ineligible are persons convicted of a drug-related felony for an offense occurring after August 22, 1996 (date of enactment of TANF) unless the state exempts itself by state law; aliens who enter the country after August 22, 1996 (barred from TANF for five years after entry) and persons who fraudulently misrepresented residence to obtain TANF, food stamps, SSI, or Medicaid in more than one state. TANF may not be paid to a person who fails to assign child support or spousal support rights to the state. Except for "hardship" exemptions, federal TANF funds may not be used for basic ongoing aid to a family that includes an adult who has received 60 months of TANF assistance while an adult, a minor household head, or a minor married to a household head. This is known as the benefit cutoff time limit. States must require a parent or caretaker who receives federally funded TANF basic ongoing aid to engage in work, as defined by the state, after a maximum of 24 months of ongoing basic aid, known as the work trigger limit; 25 out of the 54 TANF jurisdictions have chosen a shorter work trigger limit. Adopting a work-first philosophy, many states require immediate work, and some identify job search as the immediate work activity. To enforce the work requirement, the law sets fiscal penalties for states that fail to achieve minimum participation rates. For this purpose, only specified work activities are countable. Furthermore, to be counted as a participant, a TANF recipient must work for a minimum average number of hours weekly. The work week is 20 hours for single adults with a child under 6 years old (almost half of all TANF adults) and 30 hours for single adults with an older child, effective in FY2000. A longer work week is imposed on two-parent families. States may exempt single parents caring for a child under age 1 from work requirements and disregard them in calculating work participation rates. According to the fifth annual TANF report, 23 states exempt these parents, but 19 states require a caregiving parent to work before the child is one, and four grant no exemptions. The law imposes several sanctions for non-compliance with TANF rules. It requires states to sanction TANF recipients for refusal to engage in required work by discontinuing aid or by reducing aid to the family "pro rata" with respect to the period of work refusal. The law requires TANF recipients to assign child support and spousal support rights to the state; if a recipient does not cooperate in efforts to establish paternity or to establish or enforce a support order, the state must reduce the family's benefit by at least 25%. If a TANF family's benefits are reduced because of failure to perform a required action, the state may not give the family an offsetting increase in food stamps, and it may reinforce the cash penalty by cutting food stamp benefits by up to 25%. The law also allows states to reduce the family's benefit for failure to comply with a signed individual responsibility plan. Illustrative recipient obligations include school attendance, immunization of children, attendance at parenting or money management classes, and needed substance abuse treatment. On the other hand, states that adopt a provision known as the Family Violence Option (FVO) are permitted under certain conditions to waive federal TANF rules regarding work, time limits and child support cooperation for victims of domestic violence. States determine amounts paid to families with no countable income and whether to disregard any earnings as a work incentive and any assets as a savings incentive, and if so, how much. A CRS telephone survey found that maximum benefits for a three-person TANF family in January 2004 ranged from $170 in Mississippi to $709 in Vermont and $923 in Alaska. Although the 1996 law ended AFDC, it retained AFDC eligibility limits for use in Medicaid and in the federal programs of foster care and adoption assistance. It requires states to provide Medicaid coverage and benefits to children and family members who would be eligible for AFDC cash aid (under terms of July 16, 1996) as if that program still existed. For this purpose, states may increase AFDC income and resource standards by the percentage rise in the consumer price index since enactment of TANF; they also may adopt more liberal methods of determining income and resources. The law requires 12 months of medical assistance to those who lose TANF eligibility because of earnings that lift counted income above the July 16, 1996 AFDC eligibility limit. The law also makes federal foster care and adoption assistance matching funds available for children who would be eligible for AFDC cash aid (under terms of July 16, 1996) as if that program were still in effect. Benefits other than basic ongoing assistance are known as "nonassistance." They are not subject to TANF's time limits or work requirements, but they must promote one or more of the goals of TANF. States define who is eligible and may set different income limits for different services. See entries on TANF child care, TANF work activities, and TANF services. Note: For more detail, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements , by [author name scrubbed], and Section 7 of The 2004 Green Book: Temporary Assistance for Needy Families (TANF) , available on the House Ways and Means Committee's website at http://waysandmeans.house.gov/ media/ pdf/ greenbook2003/ Section7.pdf . Title IV-E of the Social Security Act provides federal matching funds to states for maintenance payments for the care of certain low-income children placed in licensed foster care homes, private child care institutions (non-profit or for-profit), or public child care institutions that house no more than 25 persons. The matching rate for a state is that state's Medicaid matching rate (see program No. 1). The FY2004 federal matching rate ranged from 50% to 77.08%. For certain administrative costs of the program including data collection and expenses related to child placement, the federal government offers 50% matching funds. States receive 75% federal matching for certain training expenses. FY2004 expenditures were $8.6 billion, with $4.5 billion (53%) from federal funds. For a state to be eligible to claim federal foster care payments on behalf of a child, the child's removal from the home must be the result of a judicial determination that reasonable efforts have been made to enable the child to remain home and that continuation in the home would be contrary to the child's welfare. A child's continued eligibility is contingent on a judicial determination within 12 months of the child's removal from the home (and no less than every 12 months thereafter while the child remains in care) that reasonable efforts to find a permanent placement for the child are being made. States also may claim federal payments for children placed into foster care under a voluntary placement agreement between the child welfare agency and the child's parents, if certain judicial findings are made within 180 days of the child's placement. In addition, a child must meet the eligibility standards of the repealed AFDC program, as it existed in his/her state on July 16, 1996. Finally, the child must be placed in a licensed home or institution. States determine payments to foster parents and institutions, and children are automatically eligible for Medicaid. P.L. 96-272 requires that states make reasonable efforts to prevent the need to place children in foster care, and to reunify children with their families when possible. ( P.L. 105-89 , enacted in 1997, allows certain exceptions to this requirement.) Each child in foster care must have a written case plan, and states must hold administrative and judicial reviews of each child's case according to a prescribed schedule. In FY2004, administrative costs (including training and data collection expenses) were estimated to represent 57% of total federal spending for foster care. According to the most recent data collected by the Child Welfare League of America, maintenance payments vary widely, ranging in FY2002 from $222 monthly for a 2-year-old child in Nebraska to $791 for a 16-year-old in the District of Columbia. Nationwide average monthly maintenance payments in FY2002 were $423 for a child age 2, $440 for a child age 9, and $497 for a child age 16. Note : A related program, now known as the Chafee Foster Care Independence Program, was created in 1986 ( P.L. 99-272 ) and expanded in 1999 ( P.L. 106-169 ) and 2001 ( P.L. 107-133 ). As most recently amended, Section 477 of the Social Security Act authorizes grants to states to assist foster children who are likely to "age out" of foster care without returning to their original homes or being placed for adoption, and former foster children, with their transition to independent living. The law also authorizes a separate grant to states to provide education and training vouchers to these youth. These programs are not means-tested, although it is assumed that the majority of beneficiaries are low-income. Expenditures for these programs are not included in this report. Note: For more information, see CRS Report RL31242, Child Welfare: Federal Program Requirements for States . This benefit is 100% federally funded and is provided through the tax system. For tax year 2004, a total of $31.9 billion was claimed in child credits, with $9.1 billion issued as refunds for the refundable portion of the child credit (often referred to as the "additional child credit"). The refundable portion of the child credit is a federal outlay. To be eligible for the credit, taxpayers must have a child under age 17 at the close of the calendar year in which their tax year begins. The taxpayer must be able to claim a dependent exemption for the child, and the child must be the taxpayer's son, daughter, grandson, granddaughter, stepson, stepdaughter, or an eligible foster child. The credit is phased out at higher income levels. P.L. 108-311 created a uniform definition of a child for tax purposes beginning in tax year 2005. Under the uniform definition, a child for purposes of the child tax credit must be a qualifying child as defined for the personal exemption. The Taxpayer Relief Act of 1997 ( P.L. 105-34 ) created a child credit of $400 in 1998, increasing to $500 for 1999 and thereafter. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16 ) increased the credit limit to $600 in tax years 2001 through 2004, to $700 in tax years 2005 through 2008, $800 in tax year 2009, and $1,000 in tax year 2010. The increases will expire in tax year 2011 with the credit reverting back to the prior law level of $500. The Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) raised the maximum credit to $1,000 per child for tax years 2003-2004. The credit is refundable for up to 10% of the taxpayer's earned income in excess of $10,000 for calendar years 2001-2003, indexed for inflation beginning in 2002 (resulting in $10,500 for tax year 2003). Beginning in 2004, the credit is refundable for up to 15% of the taxpayer's earned income above $10,000 (indexed). Prior to EGTRRA, the child credit was refundable in two ways: (1) as a supplemental credit in coordination with the Earned Income Tax Credit (EITC) (the credit was part of the child credit calculations, and had no separate form or calculation requirements for taxpayers); and (2) as an additional credit for taxpayers with three or more children, limited to the amount by which their social security taxes exceeded their EITC. The credit is phased out at the rate of $50 for each $1,000 (or fraction thereof) by which modified adjusted gross income exceeds certain thresholds: for singles and heads of households, $75,000; for married couples filing jointly, $110,000; and for married couples filing separately, $55,000. EGTRRA specified that the refundable portion of the child credit does not constitute income and shall not be treated as a resource for purposes of determining eligibility or the amount or nature of benefits under any federal program or any state or local program financed with federal funds. Note: For more information, see CRS Report RL34715, The Child Tax Credit , by [author name scrubbed] . The federal government provides 100% funding for veterans' and survivors' pensions. Total federal outlays for these pensions reached $3.391 billion during FY2004, and were expected to reach $3.294 in FY2005. Eligibility for a veteran's pension requires a discharge (other than dishonorable) from active service of 90 days or more, at least one of which must have been served during a period defined in law as a period of war. The veteran must be disabled for reasons neither traceable to military service nor to willful misconduct. The survivor pension is provided to surviving spouses and children of wartime veterans who died of nonservice-connected causes, subject to income limitations. There is no disability requirement for eligible survivors. After considering other sources of income, including Social Security, retirement, annuity payments, and income of a dependent spouse or child, the Department of Veterans Affairs (VA) pays monthly amounts to qualified veterans to bring their total incomes to specified levels ( maximum benefits ), shown below. These levels are increased (by $2,305 in 2005) for veterans with service in World War I or earlier in recognition of their lack of home loan and education benefits made available to veterans of later wars. Countable income can be reduced for unreimbursed medical expenses, as well as some educational expenses incurred by veterans or their dependents. Pensions are not payable to veterans with substantial assets (when it is "reasonable" that they use some of their net worth for their own maintenance). Pensions awarded before 1979 were paid under one of two programs, referred to as Old Law and Prior Law , both of which were governed by complex rules regarding countable income and exclusions. Since January 1, 1979, applications have been processed under the Improved Law program, which provides higher benefits but has eliminated most exclusions, offsetting countable income dollar-for-dollar. The Improved Law program accounts for 98% of pension costs and about 88% of beneficiaries. Title IV-E of the Social Security Act provides federal matching funds to states for payments to parents adopting certain low-income children with "special needs." The matching rate for a given state is that state's Medicaid matching rate (see program No. 1). The FY2004 federal matching rate ranged from 50% to 77.08%. For administrative expenses and certain training expenses, the federal matching rates are 50% and 75%, respectively. The 1986 tax reform legislation ( P.L. 99-514 ) amended the adoption assistance program by authorizing 50% federal matching for reimbursement of certain non-recurring adoption expenses up to $2,000, such as adoption and attorney fees and court costs. FY2004 expenditures were $2.9 billion, with $1.6 billion (54%) from federal funds. A child must be eligible for SSI (see program No. 9) or meet the eligibility standards of the repealed AFDC program, as it existed in his/her state on July 16, 1996, must be legally free for adoption, and must have "special needs," as determined by the state, that prevent adoption without assistance payments. Such special needs may include mental or physical handicap, age, ethnic background, or membership in a sibling group. (In addition, parents who adopt children with special needs who are not AFDC or SSI eligible are entitled to assistance under the matching program for non-recurring adoption expenses.) The state adoption assistance agency, by agreement with the adoptive parents, decides the amount of the adoption payment; however, the payment cannot exceed what would have been paid to maintain the child in a foster family home. Children receiving federally subsidized adoption assistance are automatically eligible for Medicaid. Benefits can continue until the child reaches age 18 or, in cases where the child is mentally or physically handicapped, age 21. The federal government provides 100% funding for dependency and indemnity compensation, as well as for death compensation. In FY2004, total DIC recipients numbered more than 315,000 (of which more than 8,000 were low-income parents receiving DIC). Information is not available on spending for low-income parents only. Under Title 38 of the United States Code, Section 1315, parents of veterans who died from a service-connected cause are eligible for DIC if their counted income is below limits in federal law and regulations. Countable annual income limits in 2004 were $11,560 for a sole surviving parent unremarried; $15,538 for a sole surviving remarried parent living with a spouse; $11,560 for one of two parents not living with a spouse; and $15,538 for one of two parents living with a spouse or other parent. Chief exclusions from countable income are cash welfare payments and 100% of retirement income, including Social Security. Recipients of death compensation benefits are required to meet the net worth rules applicable to veterans' pensioners (see program No. 14). There are no net worth rules for the DIC program. The Veterans' and Survivors' Pension Improvement Act of 1978 ( P.L. 95-588 ) established DIC rates for parents effective January 1, 1979, and required that thereafter, whenever Social Security benefits were increased by an automatic cost-of-living adjustment (COLA), DIC rates must be adjusted by the same percentage and at the same time. The maximum benefit for a sole surviving parent unmarried or living with a spouse in 2004 was $487 monthly. The maximum for one of two parents not living with a spouse was $352 per month. The maximum payment to one of two parents living with a spouse or other parent of the deceased veteran was $330 monthly. The minimum monthly payment was $5. Parents in need of "aid and attendance" received an additional monthly allowance of $263 in 2004. Note: This entry describes the program of General Assistance (GA) to Indians operated by the Bureau of Indian Affairs (BIA). Tribes, however, may use the BIA funds to design their own GA programs, changing eligibility rules and benefit levels, provided they pay any net cost increase, use any savings for tribal needs, and receive BIA approval of their plan. Tribes may administer their redesigned plan themselves or request BIA to do so. The Snyder Act authorizes 100% federal funding for General Assistance (GA) to Indians, which is administered by the Bureau of Indian Affairs (BIA). Federal obligations in FY2004 were $68.7 million. Eligible are needy Indians who are members of a tribe that is recognized by the U.S. government and also, in Alaska, Alaskan Natives with at least one-fourth degree Native blood (or who are regarded as Natives by their Native village). Federally recognized tribes are located in 34 states, of which a majority have BIA programs of GA. Persons must be deemed needy on the basis of standards established under the state's TANF program. They must apply for aid from other governmental or tribal programs for which they are eligible, and they may not receive TANF or Supplemental Security Income (SSI). They must reside in the tribe's service area and where non-federally funded aid from a state or local government unit is not available to them. Able-bodied adults must actively seek work, make satisfactory progress in an Individual Self-sufficiency Plan (ISP) jointly developed and signed by the recipient and the social services worker, and accept available local and seasonal employment unless they are enrolled at least half-time in a specified program of study, caring full-time for a preschool child, or would have a minimum commuting time of one hour each way. Certain sums of earned income are disregarded in determining benefits: federal, state, and local taxes; Social Security taxes; health insurance payments; work-related expenses, including reasonable transportation costs; child care costs (unless the other parent in the home is able-bodied and not working); and the cost of special clothing, tools, and equipment directly related to the person's employment. Also deducted from countable income is an allowance for shelter costs; namely, 25% of the total state TANF payment unless a smaller amount is designated for shelter in the state TANF standard. Disregarded as income or resources is the first $2,000 in liquid resources annually available to the household and any home produce from garden, livestock, and poultry used by the family. Specific laws exempt certain other income. Eligibility for GA must be reviewed periodically—every three months for persons not exempt from seeking work and every six months for all participants. BIA expects the GA caseload to increase from the FY2004 level of 30,000 persons to 33,000 in FY2005 and 35,000 in FY2006. Because of the relatively high levels of unemployment on Indian reservations, it was expected that many Indians enrolled in TANF would remain eligible for that program, and hence be ineligible for GA, beyond TANF's standard 60-month limit. (The TANF 60-month limit does not apply to any month of aid during which the recipient lived in Indian country, or in an Alaska Native village, where at least 50% of adults were unemployed according to the most reliable available data.) The exclusion of months that an Indian recipient spent in high-unemployment Indian country would extend that recipient's eligibility for TANF beyond 60 calendar months. As more Indian TANF recipients exceed their extended time limits for TANF assistance, BIA estimates the GA caseload will rise. General Assistance to Indians provides cash payments and work experience and training. The regulations state that the program goal is to increase self-sufficiency. BIA GA payments are made on the basis of state need standards under the TANF program unless the state "ratably reduces" actual payments. In those cases, the Bureau must reduce GA payments by the same percentage. This means that actual maximum payments in the GA program are the same as in the state TANF program. For a family of three persons, maximum monthly TANF benefits ranged in January 2004 from $170 in Mississippi to $923 in Alaska. If the state TANF program has no assistance standard for one adult, the Bureau standard for one adult is the greater of (a) the difference between the standard for one child and that for a two-person household with an adult member or (b) one-half the standard for a household of two persons. A GA recipient who participates in the tribe's Tribal Work Experience Program (TWEP) receives an extra monthly payment ($115 in FY2002 and 2003). This program provides work experience and job skills training. TWEP programs can be incorporated within self-determination contracts, self-governance annual funding agreements and programs coordinated under P.L. 102-477 , which allows for integration of federally-funded employment and training programs. Subject to available appropriations, the Immigration and Nationality Act authorizes 100% federally funded cash assistance for needy refugees and asylees during their first three years in the United States. Other legislation authorizes similar assistance for certain Cuban and Haitian entrants and for certain Amerasians. Since FY1992, funding has been appropriated to provide cash assistance for the first eight months after entry. These benefits are administered by the Department of Health and Human Service's Office of Refugee Resettlement (ORR). For refugee cash assistance (RCA), estimated ORR expenditures amounted to $41.6 million in FY2004. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee or asylee under the act, (b) be a Cuban or Haitian paroled into the United States between April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant," or be a Cuban or Haitian national paroled into the United States after October 10, 1980, (c) be a person who has an application for asylum pending or is subject to exclusion or deportation and against whom a final order of deportation has not been issued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA; P.L. 104-193 ), as amended by P.L. 105-33 , refugees, asylees, and others in the above groups are eligible for Temporary Aid for Needy Families (TANF) for five years after entry, provided they meet the income and asset tests prescribed by their state for TANF. Those who meet the state's financial eligibility tests but who are not categorically eligible for TANF or SSI qualify for RCA. (For example, a single refugee or a childless couple could receive RCA if deemed needy by state TANF standards.) At the end of the five-year period, their continued participation is at state option, as it is with other "qualified aliens." The law requires employable RCA applicants and recipients to accept "appropriate" job offers and to register for employment to receive cash assistance. Under PRWORA, as amended, refugees who qualify for Supplemental Security Income (SSI) are now eligible for seven years after entry, as opposed to permanently under prior law. At the end of the seven-year period, they become ineligible until they naturalize or meet the work requirement. However, if they were here and receiving SSI by August 22, 1996, the enactment date of PRWORA, they remain eligible. If they were here by the enactment date and subsequently become disabled, they are also eligible for SSI. RCA payment levels are based on the state's TANF payment to a family unit of the same size. For example, an able-bodied couple below age 65 would receive an RCA benefit equal to that of a two-person TANF family. (Benefit levels for persons who qualify for TANF and SSI are the levels established for those programs.) Note: For more information, see CRS Report RL31269, Refugee Admissions and Resettlement Policy . The Food Stamp Act generally provides 100% federal funding for food stamp benefits. Federal funds also pay for (1) federal administrative costs, (2) 50% of state and local administrative expenses and (3) the majority of costs associated with employment and training programs for food stamp recipients. "States," defined as the 50 states, the District of Columbia, Guam, and the Virgin Islands, are responsible for the remainder of food stamp expenses. In Puerto Rico, American Samoa, and the Northern Marianas, federal funds authorized under the Food Stamp Act provide annual grants in lieu of food stamps to fund nutrition assistance benefits and associated administrative costs. The grants for Puerto Rico and American Samoa are set by law and indexed for inflation. In FY2004, they totaled $1.4 billion ($1.413 billion for Puerto Rico and $5.6 million for American Samoa). The grant for the Northern Marianas is an annually negotiated amount based on identified needs in the Commonwealth ($8.3 million in FY2004). The Food Stamp program imposes four major tests for eligibility: income limits, liquid asset limitations, employment-related requirements, and limits on the eligibility of noncitizens. In addition, households composed of recipients of cash aid or services under state Temporary Assistance for Needy Families (TANF) programs, the Supplemental Security Income (SSI) program, or state/local General Assistance (GA) programs are, in most cases, automatically eligible for food stamps. Automatic food stamp eligibility may continue for up to five months after a household leaves a TANF program. Households not automatically eligible because they receive TANF, SSI, or GA must have counted (net) monthly income below the federal poverty income guidelines, which are adjusted annually to reflect inflation measured by the Consumer Price Index (CPI). More importantly, households without an elderly or disabled member must also have basic (gross) monthly income below 130% of the poverty guidelines in order to qualify. Changes in these income limits take effect each October. Basic (gross) monthly income includes all cash income of the household, except for certain "vendor" payments made to third parties (rather than directly to the household); unanticipated, irregularly received income up to $30 a quarter; loans (deferred payment education loans are treated as student aid, see below); income received for the care of someone outside the household; nonrecurring lump-sum payments such as income tax refunds (these are counted as liquid assets); payments of federal earned income tax credits (these are not counted as either income or—for 12 months—as assets); federal energy assistance; reimbursements for certain out-of-pocket expenses; income earned by children who are in school; the cost of producing self-employment income; education assistance under Title IV of the Higher Education Act (e.g., Pell grants, student loans); other student aid to the extent earmarked or used for tuition, fees, and education-related expenses; certain payments under the Workforce Investment Act (WIA); income set aside by disabled SSI recipients under an approved "plan to achieve self-sufficiency"; and some other types of income required to be disregarded by other federal laws (e.g. military combat pay, certain payments to Indians). In addition, states may, within certain limits, exclude income they disregard when judging TANF or Medicaid eligibility. Counted (net) monthly income subtracts from basic (gross) income the following "deductions": (1) a "standard" monthly deduction; (2) 20% of any earned income; (3) expenses for the care of a dependent (up to $200 per dependent per month for those under age two or $175 for other dependents); (4) out-of-pocket medical expenses of elderly or disabled household members, to the extent they exceed $35 per month; (5) shelter expenses, to the extent they exceed 50% of the income remaining after all other potential deductions and excluded expenses have been subtracted (up to an annually indexed ceiling standing at $400 a month in FY2006); and (6) amounts paid as legally obligated child support payments. The following table sets out the monthly net and gross income limits in the 48 contiguous states, the District of Columbia, the Virgin Islands, and Guam for the period October 1, 2005 through September 30, 2006. An eligible household's liquid assets may not exceed $2,000 or $3,000 if the household includes an elderly or disabled member. This asset test excludes the value of a residence, business assets, household belongings, and certain other resources, such as Earned Income Tax Credits paid as a lump sum. The extent to which the value of a vehicle owned by an applicant household is counted as an asset varies by state, often conforming to the state's rule for its TANF program. Under the most stringent rule, the fair market value of any vehicle above $4,650 is counted; however, the majority of states either disregard the value of at least one vehicle or apply a more liberal threshold. The food stamp asset test does not apply to automatically eligible TANF, SSI, and GA households; states also may, within certain limits, disregard assets that they do not count in their TANF or Medicaid programs. In order to maintain eligibility, certain nonworking able-bodied adult household members must register for employment, accept a suitable job if offered one, fulfill any work, job search, or training requirements established by administering welfare agencies, provide the welfare agency with sufficient information to allow a determination with respect to their job availability, and not voluntarily quit a job without good cause or reduce work effort below 30 hours a week. Exempt from these requirements are: persons caring for dependents (disabled or under age six); those already subject to another program's work requirement; those working at least 30 hours a week or earning the minimum-wage equivalent; the limited number of postsecondary students who are otherwise eligible; residents of drug addiction and alcoholic treatment programs; the disabled; and those under 16 or age 60 or older (those between ages 16 and 18 are also exempt if they are not the head of a household or if they are attending school or a training program). If the household head fails to fulfill any of these requirements, the state may disqualify the entire household for up to 180 days. Individual disqualification periods differ according to whether the violation is the first, second, or third; minimum periods range from one to six months and may be increased by the welfare agency, in some cases to permanent disqualification. In addition to the above work-related requirements, special rules apply to some persons without dependents. Many able-bodied adults (between 18 and 50) without dependents are ineligible for food stamps if, during the previous 36 months, they received food stamps for three months while not working at least 20 hours a week or participating in an approved work/training activity (including "workfare," work in exchange for benefits). Those disqualified under this rule are able to re-enter the Food Stamp program if, during a 30-day period, they work 80 hours or more or participate in a work/training activity. If they then become unemployed or leave work/training, they are eligible for an additional three-month period on food stamps without working at least 20 hours a week or enrolling in a work/training activity. But they are allowed only one of these added three-month periods in any 36 months—for a potential total of six months on food stamps in any 36 months without half-time work or enrollment in a work/training effort. [ Note: At state request, the special rule for able-bodied adults without dependents can be waived for areas with very high unemployment (over 10%) or lack of available jobs. Moreover, states themselves have authority to exempt up to 15% of those subject to the rule.] States must operate work and training programs under which recipients not exempt by law or by state policy must fulfill employment requirements (which can include workfare, training, job search, education, or other activities) as established by the welfare agency. These programs are described separately in this report (see program No. 78). Categorical eligibility restrictions include (1) a ban on eligibility for many noncitizens; (2) a ban on eligibility for households containing striking members, unless eligible prior to the strike; (3) a ban on eligibility for most nonworking postsecondary students without families; (4) a ban on eligibility for persons living in institutional settings, except for those in special small group homes for the disabled, persons living in drug addiction or alcoholic treatment programs, persons in temporary shelters for battered women and children, and those in homeless shelters; (5) a state-option ban on eligibility for those who have violated another welfare program's rules and been disqualified, (6) limits on participation by boarders; (7) a requirement that Social Security numbers be provided for all household members; (8) denial of eligibility where assets have been transferred to gain eligibility; (9) denial of eligibility where there has been intentional violation of program rules or failure to cooperate in providing information needed to judge eligibility and benefits; and (10) a ban on eligibility for SSI recipients in California. The Food Stamp Act specifies that a household's maximum monthly food stamp allotment be the cost of a nutritionally adequate low-cost diet, as determined by the U.S. Department of Agriculture's Thrifty Food Plan, adjusted each October for changes in food prices. A participating household's actual monthly allotment is determined by subtracting, from the maximum allotment for its size, an amount equal to 30% of its counted monthly income (after all applicable deductions, see above), on the assumption that the household can afford to spend that amount of its own income on food. Minimum benefits for households of one and two persons are legislatively set at $10 per month; minimum benefits for other household sizes vary but generally are somewhat higher. Maximum monthly food stamp allotments in FY2006 (October 2005 through September 2006) are shown in the following table. Food stamp benefits are issued through electronic benefit transfer (EBT) cards. These cards are used like "debit cards" to access food stamp recipients' individual food stamp accounts when purchasing food items at approved stores. Food stamp benefits can be used only to buy food items; however, EBT cards often include access to cash benefit programs (in which case, the card can be used to access cash). The Richard B. Russell National School Lunch Act provides a guaranteed federal subsidy for each free or reduced-price lunch served to needy children in schools and residential child care institutions (RCCIs) choosing to participate in the School Lunch program. A small subsidy also is provided for "full-price" meals to non-needy children, but about 90% of lunch program costs are for free or reduced-price meals served to needy children. The cash subsidy for free and reduced-price lunches consists of two parts: a basic payment authorized under Section 4 of the act for every lunch served, without regard to the family income of the participant, and an additional special assistance payment authorized under Section 11 only for lunches served free or at reduced price to lower-income children. Additionally, the federal government provides significant commodity assistance for each meal served. The level of federal cash subsidies and the value of federal commodity aid are legislatively set and annually indexed. State and local government funds and children's payments also help finance lunches. No charge may be made for a free lunch, but a charge of up to 40 cents may be imposed for a reduced-price lunch. Schools may set whatever charge they wish for lunches served to children who do not qualify for free or reduced price lunches, or who do not apply for them, so long as this charge does not result in a profit. The law requires that states contribute to their lunch programs revenues equal to at least 30% of the total Section 4 federal funding provided in the 1980-1981 school year (a fixed amount totaling about $200 million a year nationwide). However, no matching funds are required for the extra federal subsidy provided for free and reduced-price lunches, under Section 11 of the act. All children are eligible to receive at least a partially subsidized lunch in participating schools and RCCIs, although subsidies are higher for meals served free or at a reduced price. All public schools, private nonprofit schools, and RCCIs are eligible to participate and receive federal subsidies if they serve meals that meet nutrition requirements set by the U.S. Department of Agriculture based on the Dietary Guidelines for Americans, offer free and reduced-price meals to lower-income children, and agree not to make a profit on their meal program. Children whose current annual family income is at or below 130% of the annually indexed federal poverty income guidelines are eligible for a free lunch. Children whose family income is more than 130% but not more than 185% of the guidelines are eligible for a reduced-price lunch. For example, annual income limits for a family of four in the 2004-2005 school year were $24,505 for free lunches and up to $34,873 for reduced-price lunches. In addition, most children from families receiving public assistance (e.g., cash welfare, food stamps) can be certified for free school lunches based on their public assistance enrollment. Benefits are provided to local "school food authorities" through state education agencies. Federal cash subsidies are provided to participating schools and RCCIs for each lunch served. The law establishes specific reimbursement (subsidy) rates for each type of lunch served (free, reduced-price, "full-price") and mandates that they be adjusted each July for inflation. Cash reimbursement rates for the 2004-2005 school year were $2.24 for each free lunch, $1.84 for each reduced-price lunch, and 21 cents for each full-price lunch. In addition to the cash subsidies noted above, the federal government provides commodity assistance for all meals served in participating schools and residential child care institutions. This assistance rate is adjusted annually each July for inflation, and, for the 2004-2005 school year, it was 17.25 cents a meal (e.g., the total value of cash and commodity assistance for free lunches was approximately $2.41). Schools and RCCIs in the School Lunch program also may expand their programs to cover snacks (and, in some cases, suppers) served to children through age 18 in after-school programs . Federal subsidies are paid at the highest snack/supper rate offered to child care providers if the snack/supper is served free to children in lower-income areas. In other cases, federal subsidies vary by the child's family income. (See program No. 22, the Child and Adult Care Food Program, for the various federal subsidy rates for snacks/suppers and additional authority for schools and public and private nonprofit organizations to receive subsidies for snacks/suppers served in after-school programs.) In FY2004, more than 90% of schools and RCCIs received school lunch program subsidies—some 95,000 schools, plus about 6,000 RCCIs. Average daily participation was about 29 million children; 14.1 million received free lunches, 2.8 million ate reduced-price lunches, and lunches for 12 million students were subsidized at the minimum full-price rate, for which no income test is required. While children receiving free or reduced-price lunches made up 57% of those participating, subsidies for their lunches accounted for just over 90% of federal spending on the school lunch program. Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . The Child Nutrition Act provides 100% federal funding through grants to states for food costs and nutrition services and administration (NSA); money also is provided to support breast-feeding initiatives and the development of local agencies' administrative infrastructure, small farmers' market nutrition programs (see program No. 29), and research and evaluations. State allocations are based on a formula that reflects food and NSA caseload costs, inflation, and "need" as evidenced by poverty indices—although small amounts are set aside for infrastructure development and other special initiatives. No state or local matching funding is required. Section 17 of the Child Nutrition Act makes eligible for WIC benefits lower-income mothers, infants, and children judged to be at "nutritional risk." These include infants (up to age 1), children up to 5 years old, pregnant women, non-nursing mothers up to six months after childbirth, and nursing mothers up to one year after childbirth. A competent professional authority on the staff of a participating local public or private nonprofit health clinic or welfare agency that operates a WIC program must certify that the recipient is at nutritional risk through a medical or nutritional assessment guided by federal standards. In addition to meeting the nutritional risk criterion, WIC enrollees must have annual family income below state-established limits, and public assistance recipients (such as Medicaid beneficiaries) may be judged automatically income eligible. Income limits may not exceed those for reduced-price meals under school meal programs—185% of the federal poverty income guidelines (as annually adjusted)—e.g., $29, for a three-person family for July 2005 through June 2006. States can set lower income limits, but these must not be lower than 100% of the poverty guidelines (no state has taken this option). Unlike most other nutrition assistance programs, the ability of the WIC program to serve all those who apply and are judged eligible is largely limited by the annual amount of federal funding made available, and not all eligible applicants are guaranteed benefits. State health departments or comparable agencies determine which local health or welfare agencies are eligible for program participation or expansion in order of greatest need based on economic and health statistics and available funding. A priority system seeks to ensure that individuals at the greatest risk are served first. The program is estimated to serve at least 80% of the eligible population. In FY2004, average monthly participation was 7.9 million women, infants, and children. Beneficiaries receive selected supplemental foods, as called for in federal regulations, either in the form of food packages or, most commonly, as vouchers/checks valid for the purchase of specific prescribed food items in stores approved by state WIC agencies (under federal guidelines to control costs). Federal regulations include requirements governing the types and quantities of food to be made available and about tailoring food packages to meet the varying nutritional needs of the infants, children, and pregnant and postpartum women participating in the program. However, state WIC agencies have some leeway in designing specific food packages and specifying which foods may be bought with WIC vouchers. In FY2004, the national average monthly federal cost of food in a WIC food voucher/package was $38 (after an offset for rebates by infant formula companies). The law also requires that participants receive a nutritional risk evaluation (in order to qualify), breast-feeding support, and nutrition education. Monthly NSA costs for these services averaged $14 a recipient in FY2004. In addition to the regular WIC program, a majority of states have chosen to operate a farmers' market nutrition program that offers WIC applicants and recipients special vouchers that can be used to buy fresh foods at participating farmers' markets. (See program No. 29.) Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . The Richard B. Russell National School Lunch Act provides 100% federal funding for this program in the form of legislatively set (and annually indexed) cash subsidies for all meals and snacks served in participating child and adult day care centers and family/group day care homes for children. Subsidies are entitlements to centers and homes, depend on the number of meals/snacks served, and are varied by participants' family income (in day care centers), or (in the case of family day care homes) differ depending on whether the provider is low-income or is located in a lower-income area. Separate administrative payments to sponsors of day care homes (based on the number of homes sponsored), and limited federal commodity assistance also are provided. Further, some subsidy payments for day care homes may be used for administration. There is no requirement for matching funds from non-federal sources. Licensed (or otherwise government-approved) public and private nonresidential nonprofit child care, adult care, and Head Start centers, sponsors operating after-school programs, and family and group day care homes are eligible for federal subsidies for meals, snacks, and (in some cases) suppers they serve that meet federal nutrition requirements. For-profit child care institutions also are eligible, but their eligibility is limited based on the degree to which they serve lower-income children (as measured by the centers' receipt of government child care subsidies or by the degree to which they serve those with low family income). Participation by centers and homes is voluntary. All children (and elderly clients) in participating programs operated in child and adult care centers receive federally subsidized meals and snacks, although subsidies are higher for those served free or at a reduced price to lower-income individuals. As with the School Lunch and School Breakfast programs, centers receive the largest subsidies for meals/snacks served to those whose household income is not above 130% of the federal poverty income guidelines (e.g., $24,505 for a family of four during the period July 2004-June 2005); meals/snacks served to those whose household income is above 130%, but not above 185% of the poverty guidelines (e.g., $34,873 for a family of four) receive lesser subsidies. Meals/snacks for those from households with income above these limits also are subsidized, but the subsidy rates are much smaller. Unlike the school meal programs, while federal cash subsidies paid to centers differ according to recipients' family income, there is no requirement that "free" or "reduced-price" meals/snacks be served. Centers may adjust their fees to account for federal subsidies or charge (or not charge) separately for meals to account for the subsidies, but the program itself does not regulate the fees they charge. All children in participating family day care homes receive federally subsidized meals/snacks. However, the subsidies are generally not differentiated by the child's family income. Federal subsidies are provided for up to two meals and one snack per day per recipient (or three meals a day in homeless/emergency shelters). Participating centers receive cash subsidies for meals that are the same as those provided for lunches or breakfasts under the School Lunch and School Breakfast programs. For the period July 2004 through June 2005, these amounts were: (a) for lunches/suppers, $2.24 each for those served to individuals with income under 130% of the federal poverty guidelines, $1.84 for meals served to those with income between 130% and 185% of the poverty guidelines, and 21 cents for all other meals; (b) for breakfasts, $1.23, 93 cents, and 23 cents. Cash subsidies for snacks ranged from 61 cents to 5 cents. Finally, centers may receive federal commodity assistance (about 17 cents a meal), or cash in lieu of commodities. All subsidy rates are annually indexed. The federal subsidy structure for family day care homes is different. Day care homes receive subsidies that generally do not differ by the family income of individual recipients. Instead, there are two distinct annually indexed subsidy rates. "Tier I" homes (those located in lower-income areas or operated by lower-income providers) receive higher cash subsidies; for July 2004 through June 2005, all lunches/suppers were subsidized at $1.92, all breakfasts were subsidized at $1.04, and all snacks were subsidized at 57 cents. "Tier II" homes (those not located in lower-income areas or without lower-income providers) receive lower subsidies; for July 2004 through June 2005, all lunches/suppers were subsidized at $1.16, all breakfasts at 39 cents, and all snacks at 15 cents. Organizations sponsoring homes receive monthly payments for their administrative/oversight costs, which vary by the number of homes sponsored; and Tier II homes may seek higher Tier I rates for meals/snacks served to individual low-income children if the proper documentation is provided. In addition to the regular Child and Adult Care Food Program (CACFP), the law allows public and private nonprofit organizations (including child care centers and schools) operating after-school programs to receive federal CACFP subsidies for snacks served free in their programs to children (through age 18) in lower-income areas—at the highest snack rate noted above. In some cases, subsidies also are offered for suppers in after-school programs, again at the highest rate noted above. In FY2004, 46,000 child care centers and some 2,500 adult care centers (including for-profit centers and Head Start and after-school programs) with an average daily attendance of 2 million persons participated, and some 160,000 day care homes received subsidies for 900,000 children in attendance. Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . The Child Nutrition Act provides a guaranteed federal subsidy for each free or reduced-price breakfast served needy children in schools and residential child care institutions (RCCIs) that choose to participate in the School Breakfast program. A small subsidy also is provided for "full-price" breakfasts to non-needy children. Approximately 95% of breakfast program subsidy costs are for free or reduced-price meals served to needy children. Certain schools, designated as "severe need" schools, receive subsidies that exceed regular subsidies. State and local government funds, as well as children's meal payments, also help finance the cost of breakfast programs, although there is no formal matching requirement. No charge may be made for a free breakfast, but up to 30 cents may be charged for a reduced-price breakfast. As with the School Lunch program, all children are eligible to receive at least a partially subsidized breakfast in participating schools and institutions, although subsidies are higher for meals served free or at a reduced price. All public schools, private nonprofit schools, and RCCIs are eligible to participate and receive federal subsidies if they serve meals that meet nutrition requirements set by the U.S. Department of Agriculture based on the Dietary Guidelines for Americans, offer free and reduced-price meals to lower-income children, and agree not to make a profit on their meal program. Children whose current annual family income is at or below 130% of the federal poverty income guidelines are eligible for a free breakfast; those children whose family income is more than 130% but not more than 185% of the guidelines are eligible for a reduced-price breakfast. Income eligibility guidelines are annually adjusted for inflation. For example, in the 2004-2005 school year, annual income limits were $24,505 for free breakfasts and up to $34,873 for reduced-price breakfasts. In addition, most children from families receiving public assistance (e.g., cash welfare, food stamps) can be certified eligible for free breakfasts based on their public assistance enrollment. As with the School Lunch program, benefits are provided to local "school food authorities" through state education agencies. The law provides a guaranteed federal cash reimbursement (subsidy) to participating schools and RCCIs for each breakfast served. It establishes specific reimbursement rates for each type of breakfast served (free, reduced-price, full-price) and mandates that they be adjusted each July for inflation. Regular cash reimbursement rates for the 2004-2005 school year were $1.23 for each free breakfast, 93 cents for each reduced-price breakfast, and 23 cents for each full-price breakfast. In FY2004, 78% of schools in the School Lunch program (and virtually all RCCIs in the program) also operated breakfast programs. Some 74,000 schools and roughly 6,000 RCCIs were in the program, with a total average daily participation of 8.9 million children—6.5 million received free breakfasts, 800,000 received reduced-price meals, and 1.6 million were subsidized at the full-price rate. Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . Nutrition services for the elderly under Title III of the Older Americans Act are supported by grants to states and territories from the U.S. Department of Health and Human Services, Administration on Aging (HHS/AoA). The nutrition services program includes three components: congregate nutrition services, home-delivered nutrition services, and commodities or cash-in-lieu of commodities. The act specifies that the federal share of a state's allotment for congregate and home-delivered meal services may cover up to 85% of the cost of developing and/or operating local projects. The non-federal matching share can be paid in cash or in-kind contributions. Federal funds are allotted to the states on the basis of their share of the U.S. total population aged 60 and over, except that the minimum state allotment is 0.5% of the U.S. appropriation for the year. (Minimums are smaller for Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.) States also receive funds from HHS/AoA for commodities, or cash in lieu of commodities, to supplement Title III grant funds for congregate and home-delivered meals. These funds are allocated to states on a formula that is based on a state's share of meals served by all states under auspices of the Title III program for the preceding fiscal year. FY2005 appropriations for the nutrition program totaled $719 million. The Older Americans Act makes eligible persons aged at least 60 and their spouses. In addition, congregate meals may be provided to persons with disabilities under age 60 who reside in housing facilities occupied primarily by the elderly where congregate nutrition services are provided, or who reside with and accompany older persons to meals. Eligible for home-delivered meals are persons who are homebound by reason of illness or disability, or who are otherwise isolated. The law requires that preference be given to those with the "greatest" (1) economic need and (2) social need. The law defines group one to be persons whose income is at or below the poverty guideline issued by HHS (the guideline issued in February 2005 was $9,570 for a "family unit" of one person), and group two to be persons whose need for services is caused by noneconomic factors that restrict their ability to perform normal daily tasks or that threaten their capacity for independent living. The law requires that congregate meal services be located as close as possible to where most eligible older persons live, preferably within walking distance. Means tests are prohibited. The law requires providers to offer at least one meal daily, five or more days per week. If the nutrition project serves one meal a day, each meal is to assure a minimum of one-third of the daily recommended dietary allowances (RDAs) established by the Food and Nutrition Board of the National Academy of Sciences-National Research Council. If the project serves more than one meal daily, nutritional requirements are higher (two-thirds of RDA for two meals, 100% for three). Nutrition services funds also may be used to provide support services such as outreach and nutrition education. The law requires that providers give participants an opportunity to contribute toward the cost of the meal. Service providers may establish suggested contribution schedules, but each participant is to decide for him/herself what, if anything, he/she is able to pay. A service provider may not deny any older person nutrition services for failure to contribute to the cost of the service. The law requires that voluntary contributions be used to expand services for which the contributions were made. Note: For more information about nutrition services for the elderly, see CRS Report RL31336, The Older Americans Act: Programs, Funding, and 2006 Reauthorization (P.L. 109-365) , by [author name scrubbed] and [author name scrubbed], and CRS Report RS21202, Older Americans Act: Nutrition Services Program . The Emergency Food Assistance Program (TEFAP) provides federally donated food commodities to states for distribution to emergency feeding organizations (EFOs), including soup kitchens (or other congregate feeding sites) and food banks, serving the homeless and other needy persons. These commodities consist of those directly purchased for the program using annual appropriations, plus food acquired for agricultural support reasons. Cash grants also are provided to help states and local EFOs with the administrative costs of storing, transporting, handling, and distributing the commodities. These administrative/distribution cost grants come from two sources: a direct appropriation (typically $50 million a year) and authority to use some funding provided for food purchases (typically $10 million a year) for administrative or distribution costs. Commodities are allocated under a poverty-unemployment allotment formula: 60% of them are distributed based on a state's share of all persons with incomes below the poverty level, and 40% based on its share of all unemployed persons. Administrative funding is distributed to states in the same proportion as their share of commodities. To cover local EFO costs, states must distribute to localities at least 40% of the administrative funding which they receive. Further, they are required to match (in cash or in kind) funds that they do not pass along to local agencies. In FY2004, the value of federally donated commodities distributed under TEFAP was $362 million, and federal support for distribution and administrative costs was $59 million—for a total of $421 million. State agencies administering TEFAP are responsible for selecting the emergency feeding organizations that will distribute food/meals. There are no federal criteria for agency selection, except that the feeding organization must serve needy persons and have the capacity to store and handle commodities. Emergency feeding organizations include food banks and pantries, soup kitchens, hunger centers, temporary shelters, community action agencies, churches, and other nonprofit agencies offering food assistance to the indigent and needy. By law, those eligible to receive commodity packages must be "needy," but states set the criteria for individual eligibility for benefits under federal regulations that require each state agency to establish uniform criteria for determining household eligibility. The criteria must include income-based standards that enable each agency to ensure that TEFAP commodities go only to households that are in need of food assistance because of inadequate income. The commodities donated for this program are bought by the U.S. Department of Agriculture (USDA) with appropriated funds, purchased to reduce agricultural surpluses, or drawn from excess holdings of the Commodity Credit Corporation when available. In recent years, appropriated funds ($140 million a year) have been used to acquire between one-third and one-half of the commodities distributed under TEFAP; the remainder were provided from surplus purchases and Commodity Credit Corporation stocks. Benefits consist of commodities provided to states for food banks, pantries, and other feeding agencies that distribute them to individuals for at-home consumption, or to soup kitchens, homeless shelters, and central feeding centers serving meals to the poor. Commodities are packaged in sizes appropriate for program use: small package sizes for at-home consumption and larger, institutional sizes for meal service operations. Traditionally, most commodities have gone for at-home consumption. The USDA provides roughly three dozen types of food items, including canned and fresh fruits and vegetables and juices, beans, canned meats, raisins, nuts, pasta, peanut butter, dairy products, and rice. Food package size and value generally are the same for all recipients; there is no variation by income or family size. By law, TEFAP benefits may not be treated as income or resources of a recipient for any purpose. The Richard B. Russell National School Lunch Act offers federal funding in the form of legislatively set, annually indexed subsidies for all meals and snacks served under summer programs for children, as well as administrative payments to program sponsors. No matching funds are required from non-federal sources. There are no individual income tests for participation. Eligibility for benefits normally is tied to the location of the summer program. In general, eligible programs operate in communities where at least 50% of the children are from families with incomes that meet the eligibility criteria for free or reduced-price school lunches (that is, with income at or below 185% of the annually updated federal poverty income guidelines: e.g., $35, for a four-person family in the summer of 2005). Summer program sponsors also may receive federal support if at least 50% of children "enrolled" in the program meet the above-noted income eligibility test, regardless of where they are located. Sponsorship is available to all public or private nonprofit schools, local municipal or county governments, residential nonprofit summer camps, most private nonprofit organizations, and colleges and universities participating in the National Youth Sports Program. The law provides federal cash subsidies to sponsors for the cost of obtaining, preparing, and serving food. They are undifferentiated by recipient child's family income and may be supplemented with a small amount of federally provided commodity assistance. The summer 2005 subsidy rates were $2.48 for each lunch or supper, $1.42 for each breakfast, and 58 cents for each snack. Sponsoring agencies also receive funds for approved administrative costs based on the number of meals/snacks served and the type of sponsor (sponsors located in rural areas and those who prepare meals on site receive higher administrative payments). The number of subsidized meals/snacks served is limited to two per day. In the summer of 2005, some 3,700 summer program sponsors operating 31,000 sites provided subsidized meals/snacks to 2 million children in the peak month of July. Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . The Commodity Supplemental Food Program (CSFP) operates in 144 project areas in 31 states, the District of Columbia, and two Indian tribal areas; these projects often offer other services to program participants. The CSFP provides U.S. Department of Agriculture commodities and funds for administrative and distribution costs to local agencies offering food packages to low-income mothers, infants, young children, and elderly persons. Appropriations for the program finance purchase of food products to be used in monthly packages distributed to participants, as well as expenses associated with this distribution (typically, about 25% of total funding); in addition, projects can receive "bonus" commodities provided without appropriated funds from Agriculture Department stocks. Funding and commodities are distributed according to the caseload, or "slots" allocated to each project. These allocations are based on previous participation levels of the projects. However, "expansion" funding for new slots or new state projects is available if added appropriations are provided. FY2004 funding (obligations) was approximately $109 million. Eligible are pregnant women, breast-feeding women, postpartum women, infants, and children up to age 6 who (a) qualify for food, health, or welfare benefits under a governmental program for low-income persons, (b) are determined to be at nutritional risk (if the state agency has adopted this requirement), and (c) live within the service area (if the state agency has adopted such a residency rule). In general, women, infants, and children must live in households with income below 185% of the federal poverty income guidelines (e.g., about $29,767 for a three-person family in FY2005). More important, CSFP projects may serve elderly persons in their service areas whose income does not exceed 130% of the federal poverty guideline (a ceiling of about $12,441 for a single person in FY2005. The elderly make up over 85% of recipients. Persons may not participate in the CSFP and the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC program) at the same time; however they may participate in other nutrition programs for the elderly. Participants receive food commodities from local agencies. Agriculture Department guidelines establish food packages for each category of participant. Commodities in the food packages include items such as infant formula, cereals, canned and nonfat dry milk, canned meats and stews, canned poultry and fish, egg mix, fruit and vegetable juices, potatoes, canned vegetables and fruits, peanut butter, pasta, and dry beans. In FY2004, a total of 522,000 individuals (63,000 mothers, infants, and children and 459,000 elderly persons) received commodity food packages valued at $17-$20 a month. The Food Distribution Program on Indian Reservations (FDPIR) is an entitlement program that is operated and funded under the aegis of the Food Stamp Act. It provides food packages in lieu of Food Stamp benefits. Under FDPIR, the U.S. Department of Agriculture (USDA) acquires the food commodities to be included in the program's monthly food packages either by direct purchase (with appropriated funds designated for Indian food assistance) or, to a lesser degree, through its agriculture support programs. The food acquired by the USDA is given to the 98 Indian Tribal Organizations (ITOs) and five state agencies operating FDPIR projects for distribution to eligible households—based on the projects' number of recipients. In addition, the federal government pays at least 75% of administrative and distribution costs of the projects. The FDPIR allows ITOs or state welfare agencies to operate food distribution programs in lieu of the Food Stamp program. Recipients must reside on or near a participating reservation, or, in the case of Oklahoma, reside within a stipulated service area. Eligible households not residing on a reservation must include a Native American household member. Households must meet financial needs tests: Households in which all members are included in a public assistance or SSI grant are financially eligible for FDPIR; for non-assistance households, financial eligibility tests generally are the income standard of the Food Stamp program, increased by the amount of that program's standard deduction. Except for the area of residence/Native American householder requirements, eligibility rules are similar to those for the Food Stamp program. Grantee agencies are responsible for certifying recipient eligibility, providing nutrition education, transporting and storing commodities, and distributing them to recipient households. Both food stamps and the FDPIR may be available in the same area, as long as no individual household participates in both programs concurrently. Benefits consist of monthly food packages that meet federal guidelines for nutritional adequacy. Commodities contained in the monthly food packages consist of a variety of items, including canned meats, fish, fruits, and vegetables, fruit and vegetable juices, cereals, rice, pasta, cornmeal, cheese, butter, nonfat dry milk, flour, vegetable oil, peanut butter and peanuts, corn syrup, and (in most projects) fresh fruits and vegetables. In FY2004, foods valued at about $40 per person per month were provided under the FDPIR. Federal funding is provided to states (typically through state agriculture agencies that operate in cooperation with state health or social services departments, or Indian Tribal Organizations) for two farmers' market nutrition programs: (1) a program for participants in (and those on a waiting list for) the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC Farmers ' Market Nutrition program ) and (2) a Senior Farmers ' Market Nutrition program . Money for the WIC Farmers' Market Nutrition program is provided under an earmarked annual appropriation under the Agriculture Department's Commodity Assistance budget account, plus unused funding from prior years—e.g., a total of $28 million in FY2004 (made up of $23 million in appropriations plus $5 million carried over from the prior year). Funds for the Senior Farmers' Market Nutrition program are made available through a mandatory directive to spend $15 million a year, plus sums that are carried over unused from prior years or newly appropriated by Congress. At the U.S. Department of Agriculture's discretion, state grants are allocated based on the needs described in state plans, the availability of new federal funds, and states' past use of funds. Not all states participate in these programs. In FY2004, 36 states, the District of Columbia, Guam, and Puerto Rico—along with five Indian Tribal Organizations—participated in the WIC Farmers' Market Nutrition program. This program requires that states contribute at least 30% of program administrative costs (although Indian Tribal Organizations may contribute a smaller match). In FY2004, 39 states, the District of Columbia, Puerto Rico, and six Indian Tribal Organizations received grants under the Senior Farmers' Market Nutrition program. This program requires no state match. Expansion of both programs (both to additional participants and new states) depends on the availability of additional federal funding. Organized farmers' markets (and, in some cases, roadside farm produce stands or special community-supported nutrition projects) approved by administering state agencies (normally state agriculture departments) are eligible to participate in the two farmers' market nutrition programs. In FY2003, a total of about 7,400 markets, roadside stands, and community projects participated. For the WIC Farmers' Market Nutrition program, WIC recipients (see program No. 21), or those approved but waiting for WIC benefits are eligible in participating jurisdictions. Under the Senior Farmers' Market Nutrition program, lower-income elderly persons—generally defined as those at least 60 years of age who have household income of less than 185% of the federal poverty income guidelines—are eligible for benefits. However, administering agencies may accept proof of participation in a means-tested benefit program like food stamps or the Supplemental Security Income (SSI) program when determining individuals' eligibility. Benefits under the two farmers' market programs are issued as coupons or vouchers usable only at participating markets. Vouchers/coupons may be redeemed for fresh, unprepared fruits, vegetables, and herbs. Vouchers/coupons issued under the WIC Farmers' Market Nutrition program may not have a value of more than $30 per year per recipient (although participating states may increase this value using non-federal funds). Vouchers/coupons issued under the Senior Farmers' Market Nutrition program are not limited in value by law, although budgetary constraints typically require that they be limited to amounts similar to those under the WIC Farmers' Market Nutrition program. Nutrition education activities arranged by WIC program operators and other sponsors also may be provided at farmers' market sites. The Child Nutrition Act provides 100% federal funding in the form of legislatively set, annually indexed subsidies to cover the cost of free half-pints of milk served to low-income children by schools and residential child care institutions (RCCIs) choosing to participate in this program. Federal subsidies also are available for half-pints of milk served to non-needy children. In FY2004, approximately 7% of the half-pints of milk subsidized under this program were served free to low-income children. No matching funds are required from non-federal sources. All children in participating schools and RCCIs are eligible to receive subsidized milk under this program. Participating schools and RCCIs must have a policy of lowering any prices charged for milk they serve to the maximum extent possible and using their federal payments to reduce the selling price of milk to children. In addition, individual schools and RCCIs may choose to offer free milk to low-income children. The program operates primarily in those schools and institutions that do not participate in the school lunch or school breakfast programs. Each half-pint served is federally subsidized at a different rate, depending on whether it is served free or not—but provision of free milk is not required, and most children are charged. To qualify for free milk (if offered), a child must meet the income eligibility standards for a free meal under the School Lunch or Breakfast programs. That is, the child's family's income must not exceed 130% of the federal poverty income guidelines. Non-needy children and needy children in schools/RCCIs that do not offer free milk pay an amount determined by the school or RCCI. For the 2003-2004 school year, half-pints were subsidized at 13.9 cents each (if there was a charge to the child) or the net cost to the school/RCCI, typically 1-2 cents higher (if the milk was served free). In FY2004, 103 million subsidized half-pints (7% free) were served to roughly 500,000 children daily through some 7,000 schools and RCCIs. Note: For more information, see CRS Report RL33307, Child Nutrition and WIC Programs: Background and Recent Funding . This program is funded 100% by the federal government. Outlays were $22.4 billion in FY2004. The Section 8 rental assistance program was authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ). The program has two components, Section 8 project-based rental assistance and Section 8 Housing Choice Vouchers. The project-based rental assistance component is a set of rent subsidies attached to housing units owned by private landlords. The vouchers are portable subsidies that eligible households take to private landlords and use to subsidize their housing costs. Currently, HUD is not entering into any new contracts under the project-based rental assistance component of Section 8, and when the existing contracts expire, the households are given vouchers. Low-income families and single persons are eligible for both forms of subsidies. Low income, for the purpose of this program, is defined as income at or below 80% of the local area median income, adjusted for family size. Although low-income households are eligible for Section 8 housing subsidies, extremely low-income households, defined as households with incomes at or below 30% of the local area median income, are targeted for assistance. Forty percent of available project-based rental assistance subsidies and 75% of vouchers must be targeted to extremely low income households. In the project-based rental assistance program, project owners maintain waiting lists and can give priority to working families. In the voucher program, quasi-governmental local Public Housing Authorities (PHAs) maintain waiting lists for Section 8 vouchers and can develop a set of local preferences that can be used to prioritize the list. In determining the annual countable income of a family, various deductions are made from gross income. The chief ones are $480 per dependent, $400 for an elderly family, excess medical costs for an elderly family, and costs of child care and handicapped assistance. For families with net family assets above $5,000, federal regulations include in "income" used to decide eligibility and required rent the greater of (a) actual income from all net family assets, or (b) a percentage of their value, based on the current passbook savings rate. Net family assets are defined as net cash value (after costs of disposal) of real property, savings, stocks, bonds, and other forms of investment. Not included are such "necessary items" as furniture and automobiles. In 1990, the National Affordable Housing Act ( P.L. 101-625 ) increased the deductions from gross income for Section 8 housing and public housing, but made the changes subject to approval in an appropriations measure. Through FY2005, no appropriation bill had provided for the larger deductions, and old deductions still applied. Section 8 recipients must recertify their incomes annually. Eligibility and rental charges are based on countable family income expected in the 12 months following the date of determination. Benefit levels for project-based rental assistance and vouchers are calculated using different formulas. Families who receive Section 8 project-based rental assistance pay towards rent the highest of (a) 30% of counted income, (b) 10% of gross income, or (c) a minimum rent of up to $50 monthly set by the PHA. Exemptions to the minimum rent levels can be made for a variety of hardship circumstances. The federal government then pays the difference between contract rent and the rent paid by the tenant. The contract rent charged by the owner of Section 8 housing must be within limits established by a HUD survey of fair market rents (FMRs) for standard units in each metropolitan area or non-metropolitan county of the Nation. P.L. 98-181 revoked authority to contract for additional Section 8 project-based rental assistance units. Families who receive Section 8 Housing Choice Vouchers pay towards rent an amount between 30% and 40% of their adjusted income. The federal government pays a Housing Assistance Payment (HAP) based on the difference between a predetermined maximum payment, called a payment standard, and 30% of the household's income. A payment standard is calculated by the PHA as an amount between 90% and 110% of FMR, or the rent charged for the unit, whichever is less. Note: For more information about Section 8 rental assistance, see CRS Report RL32284, An Overview of the Section 8 Housing Programs . This program is funded 100% by the federal government. However, an indirect local contribution results from the difference between full local property taxes and payments in lieu of taxes that are made by local housing authorities. FY2004 federal outlays for public housing were $7.5 billion. Public housing is publicly owned housing for low-income families that is managed by local, quasi-governmental, Public Housing Authorities (PHA). The federal government subsidizes the operating and capital costs of maintaining these buildings through regular subsidies, as well as competitive subsidies paid to PHAs. The competitive subsidies include the HOPE VI Revitalization of Distressed Public Housing Grants, which can be used to demolish and/or revitalize troubled public housing developments, and the Public Housing Drug Elimination Program (PHDEP) , which can be used to promote safety in public housing. The public housing program was authorized by the U.S. Housing Act of 1937 ( P.L. 93-383 ), as amended. Households are eligible to live in public housing if they are low-income, which is defined as having income at or below 80% of the local area median income, adjusted for family size. Although low-income families are eligible for public housing, since 1998, at least 40% of all public housing units must be occupied by extremely low-income families, defined as families with income at or below 30% of area median income. However, PHAs are directed not to concentrate extremely poor families in public housing, rather to encourage an income mix. In determining the annual countable income of a family, various deductions are made from gross income. The chief ones are $480 per dependent, $400 for an elderly family, excess medical costs for an elderly family, and costs of child care and handicapped assistance. For families with net family assets above $5,000, federal regulations include as "income" (a) actual income from all net family assets, or (b) a percentage of their value, based on the current passbook savings rate. Net family assets are defined as net cash value (after costs of disposal) of real property, savings, stocks, bonds, and other forms of investment. Not included are such "necessary items" as furniture and automobiles. Eligibility and rental charges are based on countable family income expected in the 12 months following admission or recertification. Income is recertified annually. In order to maintain eligibility to live in public housing, certain residents are required to participate in an economic self-sufficiency program or contribute eight hours per month of community service. This requirement was established by the Quality Housing and Work Responsibility Act of 1998 (QHWRA) ( P.L. 105-276 ). It was suspended during FY2002, but was reinstated as of August 1, 2003. Exempt from this rule are persons who are engaged in an educational program or work-related activity, have a disability that would prohibit them from complying with the requirement or are 62 years of age or older. Those who do not comply with the requirement could lose the right to renew their lease. Households who live in public housing pay towards rent the highest of (a) 30% of counted income, (b) 10% of gross income, or (c) a minimum rent of up to $50 monthly set by the PHA. Exemptions to the minimum rent levels can be made for a variety of hardship circumstances. Under P.L. 105-276 , tenants are permitted to choose (annually) between paying either a flat rent or an income-based rent. This provision is intended to encourage families to seek employment and higher earnings. Also, if a family's income does increase as a result of work, the increase is not to be used to determine the family's portion of rental payment for one year. After one year, the rental increase is phased in. The amount of subsidy paid by the federal government on behalf of the residents of public housing is based on the difference between the cost of operating and maintaining a public housing project and the amount collected in tenant rent. FY2004 federal outlays for public housing (including capital grants, operating subsidies, PHDEP, HOPE VI, and the public housing loan fund), averaged about $6,298 per unit. Note: For more information on the HOPE VI component of public housing, see CRS Report RL32236, HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues . This program is funded 100% by the federal government. The following factors are used to allocate loan funds: states' shares of rural occupied substandard units, rural population, rural population in places of fewer than 2,500 persons, and low-income and very-low-income rural households. Federal obligations for direct and guaranteed loans totaled $4.6 billion in FY2004. The law permits loans for owners or potential owners of a farm, or owners of a home or nonfarm tract in a rural area, who are without decent, safe, and sanitary housing and unable to obtain credit elsewhere on reasonable terms. Both very-low- and low-income families are eligible for Section 502 loans and interest credits. The 1983 Housing and Urban-Rural Recovery Act (Titles I through V of P.L. 99-181 ) requires that at least 40% of units nationwide and 30% of the units in each state financed under this program be occupied by very-low-income families or persons. The law defines low-income and very low-income families as those whose incomes do not exceed limits established for these families in public housing and Section 8 housing (adjusted for family size, these limits are 80% and 50% of the area median, respectively). The Housing and Community Development Act of 1987 ( P.L. 100-242 ) directed the Farmers Home Administration (FmHA), since replaced by the Rural Housing Service (RHS), to carry out a three-year demonstration program under which moderate-income borrowers (with income at or below the area median) might obtain guaranteed loans under Section 502 for the purchase of single-family homes. The program was made permanent by the Cranston-Gonzalez National Affordable Housing Act ( P.L. 101-625 ). The Housing and Community Development Act of 1992 permits guaranteed loans to borrowers whose income does not exceed 115% of the area median. Other eligibility requirements are set by RHS. Families must have sufficient income to make mortgage payments and to pay premiums, taxes, maintenance, and other necessary living expenses. The 1983 Act required FmHA to define adjusted annual income in accordance with criteria used by the Department of Housing and Urban Development (HUD) for Section 8 housing and public housing. Accordingly, the chief deductions from countable income are $480 per year per dependent, $400 for an elderly family, excess medical costs for an elderly family, and costs of child care and handicapped assistance. RHS regulations exclude some items by definition. They also require that income from net family assets be counted in calculating income for eligibility and loan repayment purposes and define net family assets to include the equity value of real property other than the dwelling or site, savings, stocks, bonds, and other forms of investment. Items not counted as assets include necessary items of personal property, assets that are part of the business, trade, or farming operations, or irrevocable trust funds. Residents of rural areas may qualify for direct loans from RHS to purchase or repair homes. The homes must be "modest" in size, design, and cost. Section 502 direct loans generally have a term of 33 years, but the term may be extended to 38 years for borrowers with incomes below 60% of the area median. Depending on the borrower's income, the interest rate may be subsidized to as low as 1%. In a given fiscal year, at least 40% of the funding must be made available to very-low-income borrowers (those with income of 50% or less of the area median). In FY2004, direct loans from RHS totaled $1.4 billion and provided housing for 15,245 low-income families. Private lenders made about $3.2 billion in guaranteed loans to 34,817 low- to moderate-income families. Home Investment Partnerships Program (HOME) funds are allocated 40% to states and 60% to units of general local government. Grant recipients, called Participating Jurisdictions (PJs), are awarded funds based on a formula that is designed to measure relative housing need and that includes poverty-related measures. PJs must contribute a 25% match, unless they are found to be in fiscal distress, in which case the match requirement is reduced or eliminated. The HOME program was established in 1990 by the Cranston-Gonzalez National Affordable Housing Act ( P.L. 101-625 ). In FY2004, federal outlays for the HOME program totaled $1.6 billion, which were used by state and local governments to leverage an additional $4.2 billion in other public and private funding. To be eligible for HOME-funded assistance, families or individuals must meet an income test. For rental housing and tenant-based rental assistance, at least 90% of recipient families must have annual incomes that do not exceed 60% of the median family income for the area (adjusted for family size); the remaining 10% of families may have incomes up to 80% of the area median. For home buyers, the income limit is 80% of the area median. One of three definitions of annual (gross) income may be adopted by HOME grantees: the definition used in the Section 8 program, the federal income tax definition of adjusted gross income, or income as reported on the long form of the most recent decennial census. The goal of HOME is to increase the supply of affordable housing, especially rental housing, for very low-income and low-income Americans. The maximum rental subsidy payable under HOME is the difference between the rent standard established for the unit and 30% of the family's monthly adjusted income, as defined for the Section 8 and public housing programs. Rents paid by most of the extremely low-income families generally exceed 30% of income unless they receive additional tenant-based rental assistance. Over the course of the program, as of September 30, 2004, about $8.5 billion in HOME funds and $26.8 billion in other leveraged public and private funds had assisted in the completion of 552,262 housing units and provided tenant-based assistance to 110,534 families. In the projects completed through the end of FY2004, 97% of the tenants receiving rental assistance, 82% of the tenants in assisted rental housing, 69% of the residents of repaired homes, and 30% of the assisted home buyers had incomes of 50% or less of the area median income. Note: These programs were inadvertently omitted from editions of this report prior to the 2003 edition. Program outlays for FY1996 through FY2002 were added to historical tables beginning with the 2003 edition. Both programs are funded 100% by the federal government. Combined outlays for the two programs were $1.098 billion in FY2004. Section 202 Supportive Housing for the Elderly and Section 811 Supportive Housing for Persons with Disabilities both provide capital advances to finance the construction, rehabilitation, or acquisition of structures that will serve as supportive housing for low-income elderly and/or disabled households. The capital advance is interest-free and can be forgiven as long as the property remains available for very low-income elderly or disabled households for at least 40 years. The capital advances are paired with rental assistance similar to Section 8 project-based rental assistance. Each year since 1997, Congress has allocated up to 25% of Section 811 funds to provide Section 8 Housing Choice Vouchers to persons with disabilities to allow them to search for units in the private market. Both programs restrict eligibility to households with income at or below 50% of the local area median income, adjusted for family size. In determining the annual countable income of a family, various deductions are made from gross income. The chief ones are $480 per dependent, $400 for an elderly or disabled family, excess medical costs for an elderly or disabled family, costs of child care, and costs of care for disabled family members. For families with net family assets above $5,000, federal regulations include in "income" used to decide eligibility and required rent the greater of (a) actual income from all net family assets, or (b) a percentage of their value, based on the current passbook savings rate. Net family assets are defined as net cash value (after costs of disposal) of real property, savings, stocks, bonds, and other forms of investment. Not included are such "necessary items" as furniture and automobiles. As in most HUD housing assistance programs, residents of Section 202 and Section 811 properties must recertify their incomes annually. Eligibility and rental charges are based on countable family income expected in the 12 months following the date of determination. In addition to income requirements, Section 202 and Section 811 are restricted to households who are elderly or disabled. In order to live in a Section 202 property, a household must have at least one member who is at least age 62 at the time of initial occupancy. In order to live in a Section 811 property, a household must have at least one member who has a disability, such as a physical or developmental disability, or a chronic mental illness. Households who live in a Section 202 or Section 811 property pay towards rent the higher of (a) 30% of counted income or (b) 10% of gross income. The benefit level paid by the federal government to the landlord is equal to the difference between the contract rent for the unit and the amount of rent paid by the tenant. The contract rent must be within limits established by a HUD survey of fair market rents for standard units in each metropolitan area or non-metropolitan area of the Nation. In FY2004, HUD is estimated to have spent approximately $823 million for the Section 202 program and $275 million for the Section 811 program. In 2004, these programs supported 75,227 Section 202 units and 21,646 Section 811 units. This program is funded 100% by the federal government. The following factors are used to allocate funds: state shares of rural population, rural housing units that are overcrowded and/or lack plumbing, and the incidence of poor persons living in rural areas. Federal obligations for this program totaled $580.6 million in FY2004. Since 1974 the Farmers Home Administration (FmHA) and its successor, the Rural Housing Service (RHS) have been authorized to make rental assistance payments to owners of RHS-financed rural rental housing (Section 515) and farm labor housing (Sections 514 and 516) to enable them to reduce rents charged to eligible tenants. Eligible tenants must have adjusted family income that does not exceed the low-income limit established for the area by the Department of Housing and Urban Development (HUD)—80% of the area median, adjusted for family size. However, most assistance is targeted to tenants with very low income (50% of the area median, adjusted for family size.) Owners 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 owner who does not participate in the program may be petitioned to participate by 20% or more of the tenants eligible for rental assistance. The rental assistance payments, which are made directly to the housing owners, make up the difference between the tenants' payments and the RHS-approved rent for the units. Originally, tenants in the program paid no more than 25% of their income in rent. Amendments in the 1983 Housing Act provide that rent payments of eligible families are to equal the highest of (1) 30% of monthly adjusted family income, (2) 10% of monthly income, or (3) for welfare recipients, the portion of a family's welfare payment, if any, that is designated for housing costs. In FY2004, this program provided assistance to about 48,056 families in rental assistance renewal contracts and aid for newly constructed units. This program is funded 100% by the federal government. Outlays in FY2004 totaled $559 million. Authorized by the Housing and Community Development Act of 1974 ( P.L. 93-383 ), the Section 236 Interest Reduction Payments (IRP) program provides mortgage subsidies to owners of multifamily properties who agree to keep the property available to low-income families for a specified number of years. Section 236 subsidized units often also receive some form of rent subsidy, such as Section 8 rental assistance. Households are eligible to live in Section 236 properties as long as their incomes are not in excess of 80% of the area median income. The program is open to families and to single persons without regard to age, except in units also subsidized by Section 8, where Section 8 regulations apply. Until December 2, 1979, the law excluded from "income" for the purposes of determining eligibility and subsidy levels 5% of gross income, all earnings of minor children living at home, plus $300 for each child. For tenants admitted after December 21, 1979, P.L. 96-153 provided that income should be defined in accordance with procedures and deductions permissible under the Section 8 program. That program excludes some items (including earnings of children, lump-sum payments, and payments for foster care) from "income" by definition. It also deducts some items from income. The chief ones are $480 per dependent, $400 for an elderly family, excess medical costs for an elderly family, and costs of child care and handicapped assistance. Income recertification is required annually. Eligibility and subsidy amounts are based on anticipated income in the year ahead, but a shorter accounting period is permitted by regulations. A basic monthly rental charge is established for each unit on the basis of the costs of operating the project with the debt service requirements of a mortgage bearing a 1% interest rate. The Department of Housing and Urban Development (HUD) makes payments to a mortgagee to reduce the effective interest rate of the project to 1%. A fair market rental charge is established for each unit based on costs of operation with the debt service requirements of a mortgage at the full market rate. The law provides that the tenant family shall pay the basic rent or an amount equal to 30% of "adjusted gross income," (countable housing income, as defined above), whichever is greater, but not more than the market rent. However, 20% of tenants who cannot afford the basic rent are to be provided additional help to lower their rental payment to 30% of income. Further, elderly and handicapped families paying more than 50% of their income for rent can receive Section 8 assistance. In FY2004, benefits averaged $1,612 per dwelling unit, $134 monthly. These subsidies were paid on behalf on families in 346,802 units. This program is 100% federally funded. Ninety percent of appropriated funds are distributed by formula and 10% by competitive awards. Three-fourths of formula grants are made to eligible cities (those metropolitan statistical areas with a population of more than 500,000 and more than 1,500 AIDS cases) and to eligible states (those with more than 1,500 AIDS cases in areas outside of MSAs eligible for HOPWA grants through a city). Remaining formula funds are allocated among eligible cities that had a higher-than-average per capita incidence of AIDS during the year previous to the appropriation year. The minimum formula grant is $200,000. The number of jurisdictions that qualify for a formula allocation has been growing, from 97 in 1999 to 122 in 2005. Competitive awards are made for projects proposed by states and local governments for areas not included in formula allocations. Competitive grants are also available for projects of national significance proposed by nonprofit entities. HOPWA outlays for FY2004 were $254 million. The AIDS Housing Opportunity Act (enacted as part of P.L. 101-625 ) makes eligible low-income persons with AIDS or related diseases, including HIV infection, and their families. The law defines low-income to mean a person or family whose income does not exceed 80% of the local area median income. However, the law authorizes the Secretary of Housing and Urban Development (HUD) to alter the income ceiling for family size in an area if this is found necessary because of prevailing levels of construction costs or unusually high or low family incomes. The program offers information about housing to all persons with AIDS regardless of income. According to a 2000 survey of providers, more than half of households served by HOPWA have extremely low incomes, below 30% of the area median. HOPWA funds may be used for numerous benefits and services, including housing information services; acquisition, rehabilitation, conversion, lease, and repair of facilities to provide housing and services; new construction (for single room occupancy (SRO) dwellings and community residences only); project- or tenant-based rental assistance, including assistance for shared housing arrangements; short-term rent, mortgage, and utility payments to prevent homelessness; supportive services such as health and mental health services, drug and alcohol abuse treatment and counseling, day care, nutritional services, intensive care when required, aid in gaining access to other public benefits; operating costs; and technical assistance in establishing and operating a community residence. HUD data show that in FY2004, 78,000 households received housing assistance through HOPWA. HUD has projected that in FY2005, 74,250 households will receive assistance through HOPWA. Note: For more details about HOPWA, see CRS Report RL34318, Housing Opportunities for Persons with AIDS (HOPWA) , by [author name scrubbed]. This program is funded 100% by the federal government. The state shares of the following factors are used to allocate funds: rural population, rural housing units that are overcrowded and/or lack plumbing, and poor persons living in rural areas. Federal obligations for this program totaled $114.5 million in FY2004. The law permits loans for rural rental and cooperative housing units to be occupied by families with "very low" or "moderate" income, or by handicapped or disabled persons or those aged at least 62. The law requires that at least 40% of Section 515 units nationwide and 30% of units in each state be occupied by "very-low-income" families or persons. Moreover, the Housing and Community Development Act of 1987 restricts occupancy of Section 515 housing units, if constructed with help of low-income housing tax credits, to families whose incomes are within the limits established for the tax credits. However, this restriction does not apply if the Rural Housing Service (RHS) finds that units have been vacant for at least six months and that their continued vacancy threatens the project's financial viability. The law defines "low-income" and "very-low-income" families as those whose incomes do not exceed limits established by the Department of Housing and Urban Development (HUD) for such families in public housing and Section 8 housing (that is, up to 80% or 50% of area median income, respectively, adjusted for family size). Federal regulations issued October 1, 1985, provide that the moderate-income limits are $5,500 above the low-income ceilings (unless the moderate income limit in use before October 1, 1985, was higher, in which case it is continued). Sponsors can be nonprofit, profit oriented, or "limited profit," must be unable to obtain credit elsewhere on reasonable terms that would enable them to rent the units for amounts within the payment ability of eligible tenants, and must have sufficient initial capital to make loan payments and meet costs. Applicants must conduct market surveys to determine the number of eligible occupants in the area who are willing and financially able to occupy the housing at the proposed rent levels. Nonprofit sponsors and state and local public agencies are eligible for loans up to 100% of the appraised value or development cost, whichever is less. Purchase loans for buildings less than 1 year old are limited to 80% of the appraised value. Loan amounts and terms can be determined by RHS. In FY2004, Section 515 loans financed housing for about 7,639 families. This program is funded 100% by the federal government. Two factors are used to allocate loan funds: state shares of rural occupied units and very-low income rural households. For grants, a third factor is added: rural population aged at least 62. Federal obligations for this program totaled $63.7 million in FY2004. The law permits repair loans at a very low interest rate for "very low-income" owners of a farm or rural home who cannot obtain credit on reasonable terms elsewhere. The program uses the very low income limits established by the Department of Housing and Urban Development (HUD) for the area. Income of borrowers must be insufficient to qualify for a Section 502 loan, but adequate, including any "welfare-type" payments, to repay a Section 504 loan, as determined by the Rural Housing Service (RHS). The law provides that farm housing programs are to use the income definition of the Section 8 (and public housing) programs (see program No. 31). Grants are made to elderly homeowners at least age 62 whose annual income prevents any loan repayment. Loans are limited to $20,000 and have a 20-year term at a 1% interest rate. Owners who are at least age 62 may qualify for grants of up to $7,500. Depending on repair costs and the homeowner's income, the owner may be eligible for a grant for the full cost of repairs or for some combination of a loan and a grant, not to exceed $20,000. In FY2004, $33 million in loans repaired 5,594 homes. A total of $30.7 million in grants was used for the repair of 5,988 homes owned by the elderly. This program is fully funded by the federal government. The funds for the programs are not allocated to the states. The funds are kept in reserve at the RHS national office and are available as determined administratively. Federal obligations for these loans and grants totaled $53.7 million in FY2004. Individual farm owners, associations of farmers, local broad-based nonprofit organizations, federally recognized Indian tribes, and agencies or political subdivisions of local or state governments may be eligible for loans at a very low interest rate from the Rural Housing Service (RHS), successor to the Farmers Home Administration (FmHA), to provide low-rent housing and related facilities for domestic farm labor. Applicants must show that the farming operations have a demonstrated need for farm labor housing, must agree to operate the property on a nonprofit basis, and 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. Except for state and local public agencies or political subdivisions, 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 RHS 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 initial operating 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. 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 if there is a "pressing need" in the area for the housing and there is reasonable doubt that it can be provided without the grant. 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 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 U.S. 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, RHS 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 to buy and install appliances such as ranges, refrigerators, washing machines, and dryers. Related facilities may include the maintenance workshop, recreation center, small infirmary, laundry room, day care center, and office and living quarters for the 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 available from the applicant's own resources and (b) the maximum loan the applicant can repay given the maximum rent that is affordable to the target tenants. In FY2004, $36 million in loans and $17.7 million in grants financed the development of 2,642 housing units for farm workers and their families. This program is funded 100% by the federal government. Outlays totaled $56 million in FY2004. No new rent supplement contracts have been entered into since 1973, although spending in the program continues to support existing contracts. Section 101 of the Housing and Urban Development Act of 1965 (P.L. 89-117), as amended, authorized the Department of Housing and Urban Development (HUD) to pay rent supplements on behalf of low income tenants who lived in privately-owned housing or housing developed under HUD's Section 236 program. New families enter the program by moving into assisted units when they become available. Income eligibility for new recipients of rent supplements is limited to low-income families, defined as families whose incomes are 80% or less of the area median income, adjusted for family size. Included in the definition of income are earnings from total assets greater than $5,000. Income recertification is required annually. Before 1979, families were eligible if they were aged 62 or over or handicapped, displaced by governmental action or natural disaster, occupants of substandard housing, or military personnel serving on active duty or their spouses. The rent supplements paid by HUD under this program are set as the difference between 30% of a tenant's adjusted gross income (as defined above) or 30% of the market rent, whichever is higher, minus a basic rent. The basic rent is established by HUD and is designed to cover the total housing costs for each unit. In FY2004, 17,290 units received subsidies, which averaged about $3,237 per unit. These programs are funded 100% by the federal government. The funds for the programs are not allocated to the states. The funds are kept in reserve at the Rural Housing Service (RHS) national office and are available as determined administratively. Federal obligations for these grants and loans totaled $40.9 million in FY2004. States, political subdivisions, public nonprofit corporations (including Indian tribes and tribal corporations), and private nonprofit corporations may receive Technical Assistance (TA) grants from RHS, successor to the Farmers Home Administration (FmHA). The TA grants are used to pay all or part of the cost of developing, administering, and coordinating programs of technical and supervisory assistance to families that are building their homes by the mutual self-help method. This is the method whereby families, organized in groups of six or ten families, use their own labor to reduce construction costs. Each family is expected to contribute labor on group members' houses to accomplish 65% of the tasks specified by RHS. 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 limited to very-low-income and low-income rural families, defined as those with income below 50% and 80% of the area median, respectively, adjusted for family size. The 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 or Section 524. Private nonprofit organizations must have a membership of at least 10 community leaders. The site loans may be used to buy and develop rural land, which then is subdivided into building sites and sold on a nonprofit basis to low- and moderate-income families. Generally, a loan will not be made unless it will result in at least 10 sites. The sites need not be contiguous. Sites financed through Section 523 may be sold only to families who are building homes by the mutual self-help method. Section 524 site loans place no restrictions on construction methods. Houses built on either kind of subsidized site usually are financed through the Section 502 rural housing loan program (see program No. 33). The RHS state director may approve TA grants of up to $200,000 to eligible organizations. The state director must have written consent from the RHS national office for larger grants. Applicants must demonstrate that the self-help method will result in net savings per house of at least $500. The TA grants may be used for hiring personnel (director, coordinator, construction supervisor, and secretary-bookkeeper), paying office and administrative expenses, buying and maintaining specialty and power tools (participating families are expected to have their own basic hand tools), and paying for technical and consultant services that are not readily available without cost to the participating families. Section 523 site loans are made at an interest rate of 3%, but the rate on Section 524 site loans is the Treasury cost of funds. The loans may be used to buy and develop sites. Funds may be used to construct access roads and utility lines, provide water and waste disposal facilities if such facilities cannot reasonably be provided on a community basis with other financing, and to provide landscaping, sidewalks, parking areas, and driveways. Common areas such as playgrounds and "tot lots" may be funded if they are legally required as a condition of subdivision approval. In FY2004, organizations received $35.3 million in mutual and self-help housing grants, $2.4 million in self-help site development loans, and $3.2 million in Sec. 524 site development loans. The count of families receiving assistance is reported under the Section 502 program. This program is funded 100% by the federal government. Federal obligations for this program totaled $19.4 million in FY2004. Applicants must meet the following requirements: (1) they must be members of a federally recognized American Indian Tribe or Alaska Native Village (2) they must live in an approved tribal service area, (3) their annual income may not exceed 125% of the poverty income guidelines of the Department of Health and Human Services, (4) their present housing must be substandard, (5) they must meet the ownership requirements for the assistance needed, (6) they must have no other resource for housing assistance, (7) they have not received assistance after October 1, 1986, for repairs and renovation, replacement of housing, or down payment assistance, and (8) they did not acquire their present housing through participation in a federal housing program that includes the assistance referred to in item seven. Priority is given to families on the basis of four factors: annual household income as a percent of the federal poverty income guidelines, the age of elderly occupants, whether the property is occupied by disabled individuals and the percent of the disability, and the number of unmarried dependent children. The Housing Improvement Program (HIP) is operated by the Bureau of Indian Affairs (BIA) of the Department of the Interior. In general, the program is administered through a servicing housing office operated by a tribe or by the BIA. HIP grants are made in one of three categories. Category A grants are used to make interim repairs to properties that are to be made safe, more sanitary, and livable until standard housing is available. The condition of the housing must be such that it is not cost effective to renovate the property. These grants are limited to $2,500 per housing unit. Category B grants are made to qualified applicants who occupy housing that can economically be placed in standard condition. Grants are limited to $35,000 for any one dwelling and the grants may be made to homeowners or renters. Occupants of rental housing must have an undivided leasehold (the applicants are the only lessees) and the leasehold must last at least 25 years from the date that assistance is received. All applicants must sign a written agreement stating that the grant will be voided if the house is sold within five years of completion of repairs, and that the applicants will repay BIA the full cost of repairs that were made. Category C grants are made to applicants who (1) own or lease homes which can not be brought to applicable building code standards for $35,000 or less, or (2) who own or lease land that is suitable for housing and the land has adequate ingress and egress rights. The grants are used to provide modest replacement housing. Applicants who lease houses or land must have an undivided leasehold and the leasehold must last at least 25 years from the date that assistance is received. If the home is sold within 10 years, the full amount of the grant must be repaid. For each year after the 10 th year, the grantee may retain 10% of the original grant amount and refund the remainder if the home is sold. If the home is sold after 20 years, the grant does not have to be repaid. In FY2004, HIP grants assisted 430 families by providing for the renovation of 150 homes, and the construction of 280 homes. Note: P.L. 100-242 [Section 401(d)(1)] terminated authority to make additional Section 235 commitments, effective October 1, 1989. This program is funded 100% by the federal government. Federal outlays for this program totaled $4.8 million in FY2004. The Section 235 program, created by the National Housing Act (P.L. 90-448), provides monthly mortgage assistance to lower-income homeowners. Families (two or more related persons) and singles who are elderly (at least 62 years old) or handicapped; and whose adjusted annual incomes do not exceed 95% of the median family income for the area, adjusted for family size, are eligible for Section 235 assistance. The HUD regulations exclude from "income" for the purposes of determining eligibility and subsidy levels 5% of gross income, all earnings of minor children living at home, plus $300 for each such child. Also excluded is unusual income or property income that does not occur regularly or other income of a temporary nature. To qualify for this program, housing units must be new or substantially rehabilitated single-family units that were under construction or rehabilitated on or after October 17, 1975, condominium units that have never been occupied, or family units (in existing condominium projects) that are purchased by a displaced family. The Section 235 program provides aid, in the form of monthly payments to the mortgagee on behalf of the assisted home buyer, to reduce interest costs on an insured market rate home mortgage to as low as 4%. The borrower must be able to pay toward his mortgage payments at least 20% of his or her "adjusted gross income" (countable housing income, as defined above). Mortgage amounts for commitments made after July 13, 1981, are limited to $40,000 for single-family and condominium units with three bedrooms or less, and $47,500 for units with four or more bedrooms. These limits may be raised by as much as $7,500 in high cost areas, and additionally, by 10% for a dwelling to be occupied by a physically handicapped person, if the larger mortgage is needed to make the dwelling accessible and usable to him. Any assistance payment made pursuant to a commitment issued on or after May 27, 1981, is subject to recapture upon (1) disposition of the subsidized property, (2) a 90-day cessation of payments on its mortgage, or (3) its rental for longer than one year. The law provides that the amount recaptured shall be equal to the assistance actually received or at least 50% of the net appreciation in the value of the property, whichever is less. Benefits averaged about $572 per dwelling unit in FY2004, about $48 monthly. Approximately 8,500 dwelling units received assistance in FY2004. This program is funded 100% by the federal government. Grantees are encouraged, however, to leverage the grants with funds from local, state, or other sources. The following factors used to allocate funds: state shares of rural population, rural occupied substandard units, and rural poor families. Federal obligations for this program totaled $9.3 million in FY2004. States, local governments, nonprofit corporations, and Indian tribes, bands, or nations may be eligible to receive grants to operate programs that finance the repair and rehabilitation of single-family housing owned and occupied by families with "low" income (not above 80% of the area median, adjusted for family size) or "very low" income (not above 50% of the area median). The program uses the dollar limits established by the Department of Housing and Urban Development (HUD) for the area. Grant applicants must have a staff or governing body with either (1) proven ability to perform responsibly in the field of low-income rural housing development, repair, and rehabilitation; or (2) management or administrative experience that indicates the ability to operate a program offering funds for housing repair and rehabilitation. The homes must be located in rural areas and must need housing preservation assistance. Assisted families must meet the income restrictions and must have occupied the property for at least one year. 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. The Rural Housing Service (RHS), successor to the Farmers Home Administration (FmHA), is authorized to provide grants to eligible public and private organizations. The grantees may in turn provide homeowners with direct loans, grants, or interest rate reductions on loans from private lenders to finance the repair or rehabilitation of their homes. Many housing preservation activities are authorized: (1) installation and/or repair of sanitary water and waste disposal systems to meet local health department requirements; (2) installation of energy conservation materials, such as insulation and storm windows and doors; (3) repair or replacement of the heating system; (4) repair of the electrical wiring system; (5) repair of structural supports and foundations; (6) repair or replacement of the roof; (7) repair of deteriorated siding, porches, or stoops; (8) alteration of the interior to provide greater accessibility for any handicapped member of the family, and (9) 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 a dwelling may be used for improvements that neither 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 or kitchen cabinets. The Section 533 program was authorized in 1983, and regulations for the program were published in 1986. The RHS is authorized to make Section 533 grants also for rehabilitation of rental and cooperative housing. Regulations to implement these grants were issued in spring 1993, even though Congress had directed this action much earlier. Funding for this part of the Section 533 program became available in FY1994. In FY2004, rural housing preservation grants financed home repairs for 2,105 families. The Homeownership and Opportunity for People Everywhere programs (HOPE 1, 2, and 3) were established in 1990 to help low-income, first-time homebuyers purchase housing owned by federal, state, and local governments. Grants were awarded through FY1996 on a competitive basis to nonprofit organizations, resident management corporations, cooperative associations, public housing authorities, or other bodies who, in turn, carry out the economic development and homeownership goals. Recipients of HOPE 3 implementation grants contribute $1 in matching money for each $4 in federal funds awarded (for amounts granted before April 11, 1994, the required match was higher, 33%). While there has been no new funding of the HOPE 1, 2, and 3 programs since FY1996 and no new grants are being made, some money already committed and in the pipeline continues to be spent. According to figures from the Office of Management and Budget, federal outlays from current balances were $3 million in FY2002, $2 million in FY2003, and $2 million in FY2004. In general, to be eligible to purchase an available home in HOPE 1, 2, or 3, a person or family must be a tenant of an eligible property, a resident of other HUD assisted housing, or have an income that does not exceed 80% of the median income for the area, adjusted for family size. HOPE 1 authorizes funds to develop tenant management at public and Indian housing projects, for project-related jobs, and for the eventual sale of the renovated units to tenants and other qualifying households. HOPE 2 authorizes grants for the sale of multifamily properties that are insured by the Department of Housing and Urban Development (HUD) or are owned by the government, and for funds for small business startups and other economic development activities. HOPE 3 provides funds for the purchase of single-family homes held or insured by federal, state, or local governments. Over the years, a variety of HUD programs have sold public housing units to tenants and other low income households. Including HOPE 1, HUD has approved the sale of more than 4,700 public housing units since 1993. However, moving from the planning stage to actual sale of units can take as many as 10 years. In many cases, grantees are devoting a portion of the grant to support resident organizations, counseling, and training of residents, and other neighborhood economic development activities. HOPE 1 Implementation Grants of $82.4 million were made for 30 grants during FY1992 and FY1994. Under HOPE 2, grants of about $75 million were made through FY1996.As of July 1997, the cumulative amount of HOPE 3 implementation grants was $210 million for 258 grantees. As of August 1995, 2,298 homes had been acquired under HOPE 3 and 1,234 transferred to new buyers. Federal Pell Grants, the largest source of federal student grant assistance administered by the Department of Education (ED), are 100% federally funded. These grants are authorized by Title IV-A of the Higher Education Act. Appropriations for FY2004 were $12 billion. Pell Grants, originally called "Basic Educational Opportunity Grants," are available to undergraduate students enrolled in an eligible institution of postsecondary education who meet a needs test, the elements of which are prescribed in the Higher Education Act (Part F of Title IV). Grantees must meet general student aid eligibility requirements including maintaining satisfactory progress in their course of study, not being in default on a federally assisted student loan, not owing a refund on a Pell Grant or Supplemental Educational Opportunity Grant, and registering for the Selective Service, if so required. The federal need analysis methodology takes into account the income and assets of the student and his or her family, and determines the amount that a student and his/her family might reasonably be expected to contribute toward total costs for postsecondary education (the expected family contribution or EFC). For a dependent student, the expected family contribution is based on the student's and his or her parents' income and assets. For an independent student, the expected contribution is based on the income and assets of the student, if single, and student and spouse, if married. Included as income are welfare benefits, including TANF payments, child support, the earned income tax credit, untaxed Social Security benefits, and some other untaxed income and benefits. On June 17, 2004, the Department of Education announced updates to the need analysis tables for the 2005-2006 award year. The announcement provided inflation-adjusted updates to four tables used in calculating the expected family contribution: the income protection allowance, the adjusted net worth of a business or farm, the education savings and asset protection allowance, and the assessment schedules and rates. The Department publishes an annual booklet explaining the Expected Family Contribution (EFC) formula. In FY1999, more than 90% of Pell Grant recipients considered to be dependent students had total parental income below $40,000. Among independent student grantees, more than 90% had total income below $30,000. Pell Grant awards to students are the lesser of (1) a statutorily established maximum award ($4,050 for FY2004), minus the expected family contribution (see explanation under Eligibility Requirements ), or (2) the cost of attendance minus the expected family contribution. For the academic year 2003-2004, an estimated 5.1 million students received Pell Grants averaging $2,467. The Higher Education Act forbids AFDC (and its successor, TANF), food stamps, or any other governmental program that receives federal funds from taking Pell grants (or other student aid provided under the act) into account when determining eligibility for benefits, or the amount of benefits. Note: For more information, see CRS Report RL31668, Federal Pell Grant Program of the Higher Education Act: Background and Reauthorization and CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues . Also see the Federal Student Aid Handbook at http://www.ifap.ed.gov/ IFAPWebApp/ currentSFAHandbooksPag.jsp . Head Start funds are allocated among states by formula but awarded directly to local Head Start agencies. Federal assistance for a Head Start program is limited to 80% of program costs, but the law permits a larger share if the Secretary of HHS determines this to be necessary for Head Start's purposes. Federal regulations permit a higher federal share for a Head Start agency that is located in a relatively poor county or one that has been "involved" in a major disaster if the Secretary finds that the agency is "unable" to pay a 20% share despite a "reasonable effort" to do so. Also, if a Head Start agency received more than an 80% federal share for any budget period within FY1973 or FY1974, it is entitled by regulation to continue to receive the larger share. The non-federal share may be paid in cash or in kind. It may be paid by the Head Start agency or by another party. A Head Start agency is a local public or private nonprofit or for profit organization designated to operate a Head Start program. FY2005 appropriations for Head Start were $6.8 billion. Head Start is targeted by law to low-income families, but the law gives authority to HHS for determining eligibility criteria. The regulations require that at least 90% of the children in each Head Start program be from "low-income" families, defined as families with incomes below the "official poverty line," and including children from families receiving public assistance and children in foster care. In addition, at least 10% of total Head Start enrollment opportunities in each program must be made available for handicapped children. In 2005, federal poverty income guidelines were $16,090 for a family of three and $19,350 for a family of four for the 48 contiguous states and the District of Columbia. Head Start does not have asset rules restricting eligibility. The law allows certain small, remote communities to establish their own eligibility criteria as long as at least half of the families are eligible under the income guidelines. To qualify for this authority, communities must have a population no greater than 1,000, be medically underserved, and lack other preschool programs or medical services within a reasonable distance. Head Start provides comprehensive services to preschool children. Services include educational, dental, medical, nutritional, and social services to children and their families. Head Start agencies are forbidden by law from charging fees, although families who want to pay for services may voluntarily do so. Note: For further information about Head Start, see CRS Report RL30952, Head Start: Background and Issues . Subsidized Federal Stafford loans are provided to students by the Federal Family Education Loan (FFEL) program and the Ford Federal Direct Student Loan (DL) program. Capital for FFEL Stafford loans is provided by banks and other private lenders. Capital for Stafford/Ford loans is provided directly by the federal government. In the FFEL program the federal government pays the student's interest during certain periods. It also provides interest subsidies to lenders, and federal reinsurance against borrower default, death, disability, and bankruptcy. In the Ford direct loan program, the government forgoes student interest payments during certain periods. These subsidized loan programs are authorized by Title IV of the Higher Education Act of 1965, as amended. Estimated net obligations for FY2004 were $5.3 billion. FFEL and DL subsidized loans are available to undergraduate, graduate, or professional students enrolled on at least a half-time basis at a participating college, university, or vocational/technical school. While eligibility is not restricted to individuals with limited income (almost a fifth of loan recipients have incomes over $50,000), applicants must satisfy a test of need. Institutions use the methodology described in Part F of Title IV as the need analysis system to calculate an expected family contribution for educational expenses (known as the EFC). The formulas in Part F use information about the student and his or her family's income and assets to determine the amount the student and family can reasonably be expected to contribute. This amount is subtracted from the student's cost of attendance to determine the amount of a subsidized loan for which the student is eligible. On June 17, 2004, the Department of Education announced updates to the need analysis tables for the 2005-2006 award year. The announcement provided inflation-adjusted updates to four tables used in calculating the expected family contribution: the income protection allowance, the adjusted net worth of a business or farm, the education savings and asset protection allowance, and the assessment schedules and rates. The Department publishes an annual booklet explaining the Expected Family Contribution (EFC) formula. Undergraduate students must receive a determination of whether they are eligible for a Pell Grant before applying for a subsidized loan. This rule is to assure that eligible students receive grant aid before incurring loan debt. A borrower's interest rate for FFEL Stafford and Stafford/Ford loans varies annually during repayment. The variable rate is calculated based upon the bond equivalent rate of the 91-day Treasury bill plus a premium which differs depending on whether the borrower is in-school or in repayment. For loans made from July 1, 1998, through June 30, 2006, the borrower interest rate is based on the 91-day Treasury bill plus 1.7% for those in school, and the 91-day Treasury bill plus 2.3% for those in repayment. In the FFEL program, the lender is required to pay the 3% origination fee to the federal government; the lender can choose whether or not to pass the entire fee on to the borrower, within certain limitations. In the DL program, borrowers pay a 3% origination fee to the federal government. Undergraduates may borrow $2,625 for their first year of study, $3,500 for their second year, and $5,500 per year for the next three years of study; for graduate and professional school students, the limit is $10,500 per year for up to five years of school. The aggregate loan limit for undergraduate, graduate and professional study is $65,500. In FY2004, subsidized FFEL Stafford and DL Stafford/Ford loan disbursements totaled over $52.1 billion. The main components of FFEL annual federal expenditures are the in-school, grace period, and deferment interest payments to lenders on behalf of borrowers of subsidized loans, special allowance payments to lenders, and reimbursements to guaranty agencies for losses due to borrower defaults; guaranty agencies also receive allowances from the federal government for administrative expenses. In the DL program, the main components of annual federal costs are the foregone interest payments for subsidized loans while students are in school, during the grace period, and deferments; defaults; and administrative costs of contracts for loan origination, servicing and collections, and fees to schools who perform origination functions themselves. In both programs, there are also certain annual revenues that offset some of these costs, including fees that students or parents pay when borrowing, as well as collections on defaulted loans. In FFEL, other offsets include fees that are assessed on lenders/loan holders and guaranty agencies. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues ; CRS Report RL30655, Federal Student Loans: Terms and Conditions for Borrowers ; and CRS Report RL30656, The Administration of Federal Student Loan Programs: Background and Provisions . The Higher Education Act of 1965, as amended, authorizes federal funding to partially finance part-time employment for undergraduate, graduate, and professional students in eligible institutions of post-secondary education who need earnings to attend. Students may work on-campus or off-campus for a public or private nonprofit or a private for-profit organization. Since October 1, 1993, institutions have been required to use at least 5% of their allocation of Federal Work Study (FWS) funds for community service jobs; effective in FY2000, this rose to 7%. Federal grants to institutions fund 50% to 75% of the student's wages; the remainder is paid by the post-secondary institution or other employer. Funds are allocated to institutions based on previous year's allocations, with priority going to institutions that participated in the program in FY1999. These institutions are eligible to receive 100% of their FY1999 allocation as their base guarantee. FY2004 appropriations were $999 million. The law authorizes federally subsidized wages for students who are enrolled in a post-secondary program, including proprietary institutions, who demonstrate financial need, as determined by the statutory need analysis system set forth in Part F of Title IV of the Higher Education Act. This system calculates an expected family contribution. Five percent of an institution's FWS funds must be used for students who are enrolled on a less than full-time basis if the total financial need of these students exceeds 5% of the need of all students attending the institution. A student's earnings under the FWS program are limited to his or her need, and the rate of compensation must at least equal the minimum wage. The institution's share of compensation may be provided to the student through tuition payments, room and board, or books. During the academic year 2003-2004, an estimated 857,740 students received FWS-supported earnings averaging $1,394. The Higher Education Act forbids AFDC (and its successor, TANF), food stamps, or any other governmental program that receives federal funds from taking student aid provided under the act into account when determining eligibility for benefits, or the amount of benefits. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act . Note: The federal TRIO programs consist of six programs authorized by Title IV of the Higher Education Act of 1965, as amended: Upward Bound, Student Support Services, Talent Search, Educational Opportunity Centers, Ronald E. McNair Postbaccalaureate Achievement, and Staff Development. The first three were the original "TRIO" programs. The Staff Development activities provide short-term training for TRIO program staff; they are not described below. FY2004 appropriations were $833 million. These are categorical grant programs. They are 100% federally funded. In addition, institutions conducting Student Support Services programs must provide assurances that each participating student will be offered aid sufficient to meet his or her financial need for college attendance. Eligibility requirements differ slightly from program to program and are described below. At the outset it should be noted how the term "low-income" applies in these programs. The authorizing statute for the TRIO programs defines a low-income individual as one whose family's taxable income in the preceding year did not exceed 150% of the poverty level as determined under Bureau of the Census criteria. The program descriptions below are drawn from the authorizing statute and program regulations. Not fewer than two-thirds of the participants in any project must be low-income potential first-generation college-goers. The remaining one-third must be either low-income or potential first-generation college-goers. All participants must need academic support in order to successfully pursue an education beyond high school. With certain exceptions, participants must have completed grade 8 but not entered grade 12 and be 13 to 19 years of age. For veterans there is no age limit. Not fewer than two-thirds of program beneficiaries must be either disabled or low-income first-generation college-goers. The remaining participants must be disabled, or low-income, or first-generation college-goers. All participants must need academic support in order to successfully pursue a post-secondary education program. No fewer than two-thirds of program beneficiaries must be low-income, potential first-generation college-goers. The program requires that all participants must have completed the fifth grade or be at least 11 years of age but generally not older than 27. For veterans there is no age limit. No fewer than two-thirds of the beneficiaries served by each center must be low-income potential first-generation college goers. In general, participants must be at least 19 years of age. This program was authorized in 1986 to assist students in gaining admission to graduate programs. At least two-thirds of the participants must be low-income first-generation college students. The remaining participants must be from groups underrepresented in graduate education. Upward Bound and Student Support Services provide such services as instruction in reading, writing, study skills, mathematics, and other subjects necessary for education beyond high school; personal counseling; academic counseling; tutoring; exposure to cultural events and academic programs; and activities acquainting students with career options. Among its services, Talent Search provides participants with information on the availability of student financial aid, personal and career counseling, and tutoring. The program's projects encourage qualified students or dropouts to complete high school and to undertake post-secondary education. Educational Opportunity Centers provide services such as information on financial and academic assistance available for post-secondary study, assistance to participants in filling out college applications and financial aid request forms, and tutoring and counseling. McNair Postbaccalaureate Achievement provides services such as summer internships, tutoring, counseling, and research opportunities. In FY2004, an estimated 866,289 participants were served in the TRIO programs as follows. Upward Bound—60,548 Student Support Services—196,289 Talent Search—387,983 Educational Opportunity Centers—217,265 and Ronald McNair Achievement Program—4,224 Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31622, Trio and GEAR UP Programs: Status and Issues . This program allocates funds to eligible institutions of post-secondary education for grants to needy undergraduates. The non-federal share must come from the institution's own resources. Funds are allocated to institutions first on the basis of their FY1985 award and then in proportion to aggregate need. FY2004 appropriations were $771 million. The Higher Education Act of 1965, as amended, authorizes supplemental educational opportunity grants for post-secondary undergraduate students with the greatest financial need as determined by the need analysis system set forth in Part F of Title IV of the Higher Education Act. Institutions' financial aid administrators have substantial flexibility, however, in determining the size of individual student awards. The first priority is for Pell Grant recipients with exceptional need. An institution's supplemental educational opportunity grant funds may be used for less than full-time students. The law sets minimum and maximum awards at $100 and $4,000, respectively. An estimated 1,253,547 students received average grants of $778 under the program during the 2003-2004 academic year. The Higher Education Act forbids AFDC (and its successor, TANF), food stamps, or any other governmental program that receives federal funds from taking student aid provided under the act into account when determining eligibility for benefits or the amount of the benefits. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act . The Department of Education makes annual formula grants, under Title I, Part C of the Elementary and Secondary Education Act (ESEA), as amended, to state educational agencies for programs designed to meet the special needs of migratory children of migratory agricultural workers or fishermen. Through FY2002, funds were allocated among states on the basis of annual counts of eligible children and a percentage of average per-pupil expenditures. Under P.L. 107-110 , from FY2003 forward, states receive the same amount as in FY2002, plus a share of any additional appropriations (allocated on the basis of the previous formula, with updated child counts). Most programs are administered by local school districts, which receive subgrants from the state educational agencies, though some are run by other public or private nonprofit agencies. Discretionary grants and contracts are also available to state educational agencies to improve program coordination within and among states. As of 1995, record transfer is the sole responsibility of the states. FY2004 appropriations were $394 million. Eligible students are migratory children whose parents or guardians are migratory agricultural workers or fishers and who have moved within three years from one school district to another to enable a member of their immediate family to obtain temporary or seasonal employment in agricultural or fishing activities. Children who are 3 through 21 years of age are eligible to participate, though only younger children may receive day care services. There is no income test, but migratory children are presumed to need special educational and other services. Title 1 migrant education programs commonly provide regular academic instruction, remedial or compensatory instruction, bilingual and multicultural instruction, vocational and career education, testing, guidance and counseling, and medical and dental screening. Preference is given to students at risk of not meeting state academic standards or who moved during the school year. According to the Office of Migrant Education, migrant education programs served about 737,600 students in FY2004. Note: For more information, see CRS Report RL31325, The Federal Migrant Education Program as Amended by the No Child Left Behind Act of 2001 . The Perkins Loan program, authorized by Title IV of the Higher Education Act (HEA) of 1965, as amended, provides federal assistance to institutions of higher education to operate a revolving fund providing low-interest loans to students. Federal funds provide new capital contributions and pay for the cancellation of certain loans authorized in the law. Since academic year 1994-1995, participating institutions have been required to provide a 25% annual match to the federal capital contribution (previously, their match rate was 15%). FY2004 appropriations were $165 million. The law authorizes low-interest long-term loans for (1) undergraduate, graduate, or professional students, (2) who are "in need" of the amount of the loan to pursue a course of study, and (3) who maintain good academic standing. The need analysis system set forth in Part F of Title IV of the HEA is used in calculating an expected family contribution under the Perkins Loan program. On June 17, 2004, the Department of Education announced updates to the need analysis tables for the 2005-2006 award year. The Department publishes an annual booklet explaining the Expected Family Contribution (EFC) formula. Effective October 1, 1981, the law authorized loans at a 5% interest rate. Loans are to be repaid over a 10-year period beginning nine months after the end of study that is on at least a half-time basis. No interest is charged until repayment of the principal begins, unless the payment is deferred, as permitted under certain conditions. In addition, all or a portion of the loans may be canceled for those who enter specific teaching jobs, law enforcement, or military service. Annual loan limits are $4,000 for undergraduate students and $6,000 for graduate or professional students. The aggregate limits are $20,000 for undergraduate students who have completed two years of study, but who have not completed their baccalaureate degree; $40,000 for graduate and professional students; and $8,000 for any other students. An estimated 673,537 students borrowed loans averaging $1,875 under the program in the 2003-2004 school year. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act . Note: This program was known as the State Student Incentive Grant (SSIG) program until October 1, 1998, when it was revised and renamed by P.L. 105-244 . Under Leveraging Educational Assistance Partnerships, states receive federal formula grants which are matched with equal state funds to provide for the establishment of state student aid programs for needy post-secondary students. After each state's program grant is combined with the required non-federal matching funds, resulting "state aid" awards are made either directly to students or indirectly through participating institutions. The law provides that no state shall receive less from the federal government than it received in FY1979. Funds not used by one state may be reallotted to others in proportion to their higher education enrollments. State allocations are based on their share of the total number of eligible students in all states as determined by the U.S. Secretary of Education. States are permitted to use 20% of funds for community service work learning jobs for eligible students. The 1998 law, which reauthorized the program and renamed it as LEAP, also authorized a new program of Special Leveraging Education Assistance Partnerships (SLEAP), which receive a portion of LEAP appropriations above a certain threshold. FY2004 LEAP appropriations were $66 million (of which SLEAP received $36.2 million). To be eligible for a LEAP grant, post-secondary students must be enrolled in or accepted for enrollment in an institution of post-secondary education, must meet citizen/resident requirements, must demonstrate substantial financial need as determined in accordance with criteria of his/her state and approved by the Secretary of Education, must maintain satisfactory academic progress, and must not default on a student loan or owe a refund for student assistance. At state discretion, part-time students may also be eligible. All public or private nonprofit institutions of higher education as well as post-secondary vocational institutions are eligible to participate unless prohibited by state constitution or state statute. Maximum grants are $5,000 for full-time students and may be used, among other purposes, for work-study jobs provided through campus-based "community service work learning study programs." (The regulations also call these work-study jobs "community service-learning" jobs.) In academic year 2003-2004, approximately 168,517 students received average grants of $1,000. The Higher Education Act forbids AFDC (or its successor, TANF), food stamps, and any other governmental program that receives federal funds from taking student aid provided under the act into account when determining eligibility for benefits or the amount of the benefits. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21183, Leveraging Educational Assistance Partnership Program (LEAP): An Overview . Title VII of the Public Health Service Act provides 90% federal funding for student loans and 100% for scholarships for students pursuing a number of degrees in the health professions. Eligible schools must contribute to the loan fund a minimum share equal to one-ninth of the federal sum. The federal government's share of the loan fund (its capital contribution) now is financed by loan repayments from participating schools, not by appropriations. Appropriations for scholarships (and some loan repayments) in FY2005 were $79.9 million. These programs are administered by the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services (HHS). The Health Professions Student Loan Program (HPSL) provides long-term, low-interest rate loans to full-time, financially needy students to pursue a degree in an accredited public or nonprofit school of medicine, dentistry, optometry, pharmacy, podiatric medicine, or veterinary medicine. The Loans for Disadvantaged Students Program (LDS) provides long-term, low-interest rate loans to full-time, financially needy students from disadvantaged backgrounds to pursue a degree in allopathic medicine, osteopathic medicine, dentistry, optometry, podiatric medicine, pharmacy or veterinary medicine. To be eligible for LDS funds, a participating school must carry out a program for recruiting and retaining students from disadvantaged backgrounds, including racial and ethnic minorities, and must operate a program to recruit and retain minority faculty. Students at accredited public and nonprofit private schools of nursing are eligible for loans from the Nursing Student Loan (N.L.) program. The school selects qualified loan applicants, makes reasonable determinations of need, and determines the amount of student loans. These loan programs no longer receive appropriations. Funds that are returned to the Government by participating schools are re-awarded to schools that show a need for additional funds. Any school that receives returned funds is required to deposit the school's share of one-ninth of the amount received into the loan fund for additional loans to students. The Scholarships for Disadvantaged Students (SDS) program makes grants to the following accredited public or private nonprofit schools for scholarship assistance: allopathic medicine, nursing, osteopathic medicine, dentistry, pharmacy, podiatric medicine, optometry, veterinary medicine, chiropractic, allied health, or schools offering graduate programs in public health, behavioral and mental health or physician assistants. At least 16% of SDS funds must be made available to schools that will provide scholarships only for nurses, and schools must give preference to former recipients of the following: (1) Scholarships for Students of Exceptional Financial Need (EFN) and (2) Financial Assistance for Disadvantaged Health Professions Students (FADHPS). Schools are required to agree that, in providing scholarships under SDS, preference will be given to students from disadvantaged backgrounds for whom the costs of attending the school would constitute a severe financial hardship. The Secretary of HHS may not make a grant to a school unless the school is carrying out a program for recruiting and retaining students from disadvantaged backgrounds, including racial and ethnic minorities. Two programs provide loan repayments, funded by appropriations: (1) the Disadvantaged Health Professions Faculty Loan Repayment and Fellowship Program (Faculty Loan Repayment Program/FLRP), and (2) the Nursing Education Loan Repayment for Registered Nurses Entering Employment at Eligible Health Facilities Program (Nursing Education Loan Repayment Program/NELRP). Eligible for FLRP are persons who (1) have a degree in medicine, osteopathic medicine, dentistry, pharmacy, podiatric medicine, optometry, veterinary medicine, nursing, graduate public health, allied health or graduate behavioral and mental health; (2) are enrolled in an approved graduate training program in one of the health professions listed previously; or (3) are enrolled as full-time students in accredited institutions described above and in the final course of study or program leading to a degree. Eligible for NELRP are persons who (1) have received a degree in nursing; (2) have unpaid qualifying loans; (3) are a U.S. citizen, national or permanent legal resident; (4) are employed full-time at an eligible health facility; (5) have a current unrestricted license in the state in which they intend to practice; and (6) sign a contract to work full-time as a registered or advanced practice nurse for two or three years at an eligible health facility. Health Profession Student Loans and Loans for Disadvantaged Students may be made in amounts that do not exceed the cost of attendance, including tuition, other reasonable educational expenses, and reasonable living expenses. Loans have a 5% interest rate and must be repaid over a period ranging between 10 years and 25 years, at the discretion of the institution. Excluded from the time period for repayment are certain periods of active duty performed by the borrower as a member of a uniformed service; service as a Peace Corps volunteer; and periods of advanced professional training, including internships and residencies. The Secretary of HHS may, subject to the availability of funds, repay all or part of an individual's HPSL loan if the Secretary determines that the individual (1) failed to complete the health profession studies leading to the individual's first professional degree; (2) is in exceptionally needy circumstances; (3) is from a low-income family (with income below the poverty guideline) or a disadvantaged family; and (4) has not resumed or cannot reasonably be expected to resume the course of study within two years of ending them. Nursing Student loans have a maximum limit of $2,500 for an academic year, $4,000 for each of the final two years, or the amount of the student's financial need, whichever is less. The aggregate of the loans for all years is limited to $13,000 for any student. Preference for these loans is given to licensed practical nurses, to persons with exceptional financial need, and to persons who enter as first-year students. Loans are repayable over a 10-year period, excluding periods for service and study similar to those listed above. A school is authorized to extend the repayment period for up to an additional 10 years for certain borrowers who failed to make consecutive payments. The FLRP repays loans at a rate of up to $20,000 per year for persons who have agreed to serve for at least two years as faculty members at an eligible school. The NELRP provides for repayment of 30% of unpaid principal and interest for each qualified loan after the first year of service, 30% of the principal and interest after the second year of service, and 25% of the principal and interest after the third year of service. Appropriations in FY2005 were $1.3 million for FLRP and $31.5 million for NELRP. Scholarships are awarded for tuition expenses, other reasonable educational expenses, and reasonable living expenses incurred while attending school for the year. In awarding grants to eligible health professions and nursing schools, the Secretary must give priority to eligible entities based on the proportion of graduating students going into primary care, the proportion of under-represented minority students, and the proportion of graduates working in medically underserved communities. Scholarship appropriations in FY2005 totaled about $47 million. Note: For more information, see CRS Report RL32546, Title VII Health Professions Education and Training: Issues in Reauthorization , and CRS Report RL32805, Nursing Workforce Programs in Title VIII of the Public Health Service Act (pdf). The Higher Education Act of 1965 (HEA), as amended, authorizes three need-based fellowship programs: Javits Fellowships, Title VII-A, Subpart 1; Graduate Assistance in Areas of National Need (GAANN), Title VII-A, Subpart 2; and the Thurgood Marshall Legal Educational Opportunity Program, Title VII-A, Subpart 2. From FY1997 through FY2000, the Javits Fellowships were funded under GAANN, then reverted back to separate funding in FY2001. Beginning in FY2000, funding for Javits Fellowships was specifically dictated in appropriations language to provide funds a year in advance of the academic year in which the fellowships would be used. Institutions must match 25% of the federal GAANN fellowship grant. FY2004 appropriations were $40.5 million. Title VII-A, Subpart 1, HE, authorizes the Javits Fellowships in the arts, humanities, and social sciences. Title VII-A, Subpart 1 fellowship stipends are based on financial need, and recipients are selected by panels appointed by the Javits Program Fellowship Board. Students who are entering graduate school for the first time or who, at the time of application, have not completed their first year of study are eligible to apply for a Javits Fellowship. Applicants must be accepted at or attending a post-secondary institution in one of the selected fields of study. Twenty percent of the fellowships are awarded in the social sciences, 20% in the arts, and 60% in the humanities. Fellowships are awarded for a period of up to four years. Recipients are selected through a national competition based on "demonstrated achievement, financial need, and exceptional promise." The program is limited to U.S. citizens and nationals, permanent residents, and citizens of the Freely Associated States (Republic of the Marshall Islands, Republic of Palau, and the Federated States of Micronesia). Title VII-A, Subpart 2, HE, authorizes a program of Graduate Assistance in Areas of National Need (GAANN). Individual graduate students are eligible to receive a fellowship from an assisted department if they demonstrate financial need, according to criteria determined by their higher education institutions, and have excellent academic records. The Secretary of Education designates areas of graduate study in which there are national needs. The Secretary makes grants to academic departments providing courses of study leading to a graduate degree in one of these areas. In addition, institutions must assure that they will seek talented students from backgrounds traditionally under-represented in these fields of graduate study. For GAANN awards for academic year 2003-04, the Secretary designated the following areas of national need: biology, chemistry, computer and information sciences, engineering, geological and related sciences, mathematics, and physics. Title VII-A, Subpart 3, HE authorizes the Thurgood Marshall Legal Educational Opportunity Program to assist minority, low-income or disadvantaged college graduates to prepare for and complete law school. The Title VII-A, Subpart 3, program is administered by the Council on Legal Education Opportunity (CLEO) through a single grant award by the Secretary of Education for a period of not less than five years. CLEO, a nonprofit project of the American Bar Association Fund for Justice and Education, began assisting disadvantaged students in 1968. Each Javits Fellowship consists of an institutional payment covering tuition and fees and a student stipend for living expenses. The amount of the stipend is based on either the student's financial need or the level of support provided by the National Science Foundation's Graduate Research Fellowship program, whichever is less. In FY2004, 54 new fellowship awards were made. The GAANN fellowships are provided under three-year grants to academic programs. Grants for a fiscal year are for not less than $100,000 and not more than $750,000. Students may receive the fellowships for up to five years of study. Students receive a stipend to cover living expenses, while an institutional payment covers the fellow's tuition, fees, and other expenses. The amount of the student stipend is based on either the student's financial need or the level of support provided by the National Science Foundation's Graduate Research Fellowship program, whichever is less. The institutional 25% match of the federal grant can be used for additional fellowships and to meet other costs not covered by the institutional payment. In FY2004, 51 new awards were made. The Thurgood Marshall Fellows receive counseling for study at accredited law schools, preparation on selecting and applying to a law school, and financial assistance. A number of services are available to Thurgood Marshall Fellows for meeting the competition of law school and to improve the student's retention and success in law school. These include a six-week pre-law summer institute at law schools throughout the country; pre-law mentoring programs with law school faculty, bar association members and judges; and tutoring, academic counseling, midyear seminars, and preparation for bar examinations. Thurgood Marshall Fellows may also be paid a stipend for participation in summer institutes and midyear seminars. The Thurgood Marshall Legal Educational Opportunity Program was not funded in FY2004. Note: For more information, see CRS Report RL33040, The Higher Education Act: Reauthorization Status and Issues and CRS Report RS21436, Graduate Fellowship Programs Under Title VII of the Higher Education Act (HEA): Background and Reauthorization . The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with such schools to help migrant students obtain a high school equivalency certificate. Most grants are for a five-year period. FY2004 appropriations were $19 million. To be served, students or their parents must have spent a minimum of 75 days during the past 24 months in migrant and seasonal farmwork; alternatively, they must be eligible to participate (or must have participated within the last two years) in the Title I Migrant Education program (see program No. 54) or the Workforce Investment Act program for migrant and seasonal farmworkers. They must be at least 16 years of age (or beyond the age of compulsory school attendance in the state in which they reside), not enrolled in school, and not have a high school diploma or its equivalent. HEP projects typically provide instruction in reading, writing, mathematics, and other subjects tested by equivalency examinations; career-oriented work-study courses; tutoring; and personal and academic counseling. In addition, they provide financial assistance, housing, and various support services. In the 2003-2004 school year, HEP served about 6,970 students at 52 institutions. The average federal contribution per student was approximately $2,700. The Department of Education makes discretionary grants to colleges and universities and other public or private nonprofit agencies cooperating with such schools to help migrant students complete their first year in college. Most grants are for a five-year period. FY2004 appropriations were $16 million. To be served, students or their parents must have spent a minimum of 75 days during the past 24 months in migrant and seasonal farmwork; alternatively, they must be eligible to participate in the Title 1 Migrant Education program or the WIA program for migrant and seasonal farmworkers. Students must be admitted to or enrolled as first year students at a participating college or university. CAMP projects typically provide tuition and stipends for room and board and personal expenses; they also provide academic and personal counseling, tutoring in basic skills and other subject areas, and various support services. In the 2003-2004 school year, CAMP served about 2,500 students at eight institutions. The average federal contribution per student was approximately $6,400. Note: This program was formerly called Ellender Fellowships ( Title X, Part G of the Elementary and Secondary Education Act of 1965). Close Up Fellowships now are authorized by Title I, Part E, of the Elementary and Secondary Education Act (ESEA), as amended by the No Child Left Behind Act ( P.L. 107-10 ). This entry summarizes Ellender Fellowships and Close Up Fellowships rules under both laws. This program provided fellowships to economically disadvantaged students, secondary school teachers, economically disadvantaged older Americans, and recent immigrants to spend one week in Washington, D.C. attending seminars on government and current events and meeting with leaders of the federal government. "Older American" was defined as an individual at least 55 years old. Economic disadvantage was not defined in the law, and the program had no regulations. The Close Up Foundation administered the program. The Close Up Foundation continues to administer the program by providing federal funding for fellowships to middle and secondary school economically disadvantaged students, their teachers, and recent immigrants to spend one week in Washington, D.C. attending seminars on government and current events and meeting with leaders of the federal government. Appropriations for FY2004 Close Up Fellowships were $1.48 million. Fellowships cover the costs of room, board, tuition, administration, and insurance for a week-long series of meetings, tours, and seminars about public affairs in Washington, D.C., sponsored by the Close Up Foundation. Students and their teachers meet with officials from the three branches of the federal government and discuss pending issues. In the 2004-2005 school year, 2,030 students, 1,245 teachers, and 290 new American immigrants received fellowships. The federal share was $453 per student, $350 per teacher, and $431 per new American. This program is funded 100% by the federal government. Outlays for FY2005 were $13.9 million. The D.C. School Choice Incentive Program was enacted as Title III of Division C of P.L. 108-199 , the Consolidated Appropriations Act, 2004. Through a competitive grant process, the Secretary of Education funds the operation of a tuition scholarship program that assists the families of eligible District of Columbia students in meeting the costs of attendance at private elementary or secondary schools in the district. Grantees are required to establish scholarship programs that provide eligible students, who are residents of the District of Columbia, with expanded school choice options. The program is structured to give priority in receiving a scholarship to students who attended schools identified as needing improvement, corrective action, or restructuring under Title I-A of the Elementary and Secondary Education Act (ESEA); to target students from families with limited financial resources; and to provide students the widest range of school choice options. This is a five-year demonstration program. Initial eligibility is limited to students who are residents of the District of Columbia and whose family income does not exceed 185% of the poverty level. A student remains eligible to receive scholarships, in subsequent years, as long as the family income does not exceed 200% of the poverty level. If the number of students eligible to receive scholarships exceeds available funding, then students are selected through a lottery. In the first year of implementation, 2004-2005, the number of students that met the eligibility requirements and applied for scholarships exceeded the available slots in participating private schools; however, there was a mismatch between scholarship applicants and available slots in schools across the various grade levels (with an oversupply at the elementary level and a shortage at the secondary level). The scholarship covers tuition, fees, and any transportation costs to allow the student to attend the private elementary or secondary school of his or her choice in the District of Columbia. The amount of assistance provided to an eligible student, by the grantee, may not exceed $7,500 for any academic year. Participating schools are not prohibited from charging tuition and fees in excess of the scholarship amount; however, participating schools may not charge scholarship recipients more than they customarily charge other students. The scholarship is considered assistance to the student and not assistance to the school that enrolls the student. Also, the scholarship is not treated as income for the parents for federal tax laws or for determining eligibility for any other federal program. Note: For a full description of the program, see CRS Report RL32019, Proposals to Establish a K-12 Scholarship or Voucher Program in the District of Columbia: Policy Issues and Analysis . For an overview of the program's first year of operation, see CRS Report RL32994, District of Columbia: FY2006 Appropriations , and U.S. Department of Education, Evaluation of the D.C. Opportunity Scholarship Program: First Year Report on Participation , available at http://www.ed.gov/ rschstat/ eval/ choice/ dcchoice-yearone/ index.html . The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) created the Child Care and Development Block Grant (CCDBG), which provides 100% federally paid discretionary funds to states and other entities. CCDBG also receives entitlement funds, some of which require state matching funds (see below). Federal outlays in FY2004—from discretionary funds, entitlement funds, and amounts transferred to CCDBG from the block grant for Temporary Assistance for Needy Families (TANF)—totaled $6.9 billion. Of discretionary CCDBG funds, 0.5% is reserved for allotment to the territories, and 1% to 2% (determined by the Secretary of Health and Human Services) is reserved for payments to Indian tribes and tribal organizations. Remaining discretionary funds are allocated among states, based on each state's proportion of all children under age five, its proportion of all children who receive free or reduced price school lunches, and its per capita income relative to that of the Nation. Through FY1995, states were required to reserve 25% of their allocation to improve child care quality and to increase availability of early childhood development programs and before- and after-school services. Effective in FY1996, states could spend no more than 5% of their allotments for administrative costs, and no less than 4% on efforts to improve the quality and availability of child care. Before October 1, 1997, states also received federal funds for child care services on behalf of current, former, and potential recipients of Aid to Families with Dependent Children (AFDC). For these funds states had to provide matching funds. The 1996 welfare reform law repealed the AFDC-related child care programs and replaced them with entitlement funding to states for child care services. The law appropriated $13.9 billion in entitlement child care funding for six years, FY1997-FY2002, with annual amounts of $2.1 billion for FY1998, $2.2 billion for FY1999, $2.4 billion for FY2000, and $2.6 billion and $2.7 billion for FY2001 and FY2002, respectively. Funding was continued via a series of temporary extensions at the FY2002 rate of $2.717 billion annually through FY2005, and was subsequently extended through FY2010 at an annual rate of $2.9 billion. These amounts are provided under Title IV-A of the Social Security Act (the part governing TANF), but states are required to transfer them to the same agency that administers the CCDBG and to spend them in accordance with CCDBG rules. The combined discretionary and entitlement funding streams are referred to by HHS and federal regulations as the Child Care and Development Fund (CCDF). Of entitlement child care funding, between 1% and 2% is reserved for payments to Indian tribes and tribal organizations. The rest is provided to states in two components. First, each state receives a fixed amount each year, equal to the maximum annual amount received by the state under the repealed AFDC child care programs in FY1994, FY1995, or in FY1992-FY1994, on average. This amount is estimated to equal $1.2 billion each year; no state match is required to receive these funds. Second, remaining entitlement funds are allocated to states according to each state's share of children under age 13. States must achieve maintenance-of-effort spending targets to qualify for these funds; they also must provide matching funds for them, at the Medicaid match rate, which varies among states and is related inversely to state per capita income (see program No. 1). As with discretionary CCDBG funding, states may spend no more than 5% of their entitlement funds for administrative costs, and no less than 4% on activities to improve the quality and availability of child care. Note: States are authorized to transfer to the CCDBG up to 30% of their TANF block grants, which total $16.5 billion annually ( P.L. 105-33 ). To be eligible for subsidized child care, a child must (1) be less than 13 years old (or, at option of the grantee, under 18, if disabled or under court supervision ), and (2) live with at least one parent who is working or attending a job training or educational program (unless the child is receiving protective services or in need of them). In addition, the income of the child's family cannot exceed 85% of the state median for a family of the same size (before FY1996, the income ceiling was 75% of the state median). The law requires that states give priority to children in very low-income families and to those with special needs. According to statute, states must spend 70% of entitlement funds on welfare recipients working toward self-sufficiency or families at risk of welfare dependency. However, because all families with income below 85% of the state median can be classified as "at risk," the 70% targeting rule (for welfare and at-risk families) does not necessarily mean that welfare families must be served. In theory, all funds may be used for low-income, non-welfare, working families. However, state plans indicate that many states guarantee child care to welfare families. For subsidized child care services, states must establish a sliding fee schedule that requires cost sharing unless the family's income is below the poverty level. Parents must be given the option to obtain care from a provider who is paid directly by the state, through a grant or contract, or through certificates that are payable for child care from an eligible provider of the parents' choice. Child care services may include center-based care, group home care, family care, and "in-home" care. Note: See also CRS Report RL30785, The Child Care and Development Block Grant: Background and Funding and CRS Report RL32817, Child Care Issues in the 109 th Congress . See TANF block grant entry (program No. 11). In FY2004, expenditures for TANF-funded services (other than child care, shown separately in this report) were estimated at $6.3 billion, $4.9 billion (78%) from federal funds and $1.4 billion from state-local funds. This excludes TANF funds transferred by states to the Social Services Block grant. TANF law permits states to use block grant funds to provide services to recipient families and to various groups of other "needy" families, so long as the services can be expected to lead toward ending the dependence of needy parents on government benefits or enabling needy families to care for children at home, two of the program's goals. States decide what income limits to set for specific services, and they may tailor services to the circumstances of individual families. States also may provide services to non-needy families if they are directed at the goals of preventing and reducing out-of-wedlock pregnancies or encouraging the formation and maintenance of two-parent families. In their TANF plans, most states said they provide support services to recipient families plus three categories of needy families not enrolled in cash aid: former cash recipient families, families at risk of becoming eligible for cash aid, and unemployed or underemployed non-custodial parents. Generally income limits range from 150% to 250% of federal poverty guidelines (in 2005, from $24,135 to $40,225 for a family of three). However, some states have higher flat annual income limits for some services. Transportation subsidies, parental skill-building services, home energy aid, housing aid, rehabilitation services (mental health/substance abuse counseling and treatment), and domestic violence counseling are examples of benefits/services provided (other than child care, the most frequently mentioned service). Examples of TANF-funded services that impose no income test include teen pregnancy prevention programs, responsible parenthood counseling, abstinence programs, and family planning services. A broad category of TANF expenditures is for services authorized under pre-TANF law (such as services for children in the juvenile justice system and certain child welfare and foster care services). Note: For more information, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements , by [author name scrubbed]. The Social Security Act (Title XX) provides 100% federal funding to states for social services up to a maximum ceiling level ($1.7 billion annually since FY2001, lowered from $2.38 billion in FY2000). Funds are distributed among states on the basis of population. Funding for each fiscal year since FY2002 has been maintained at $1.7 billion, the same level as the ceiling. Note that since FY1997, states have had authority to transfer to the Social Services Block Grant (SSBG) up to 10% of their TANF block grants, which total $16.5 billion annually ( P.L. 105-33 ). Transfers of TANF funds to SSBG totaled 6% of the annual TANF grant in FY2003 and 5% in FY2004. The authorized transfer amount was scheduled to decline to 4.25% on October 1, 2001 under P.L. 105-178 , but more recent legislation maintained the 10% transfer limit. States are free to establish their own eligibility criteria for Title XX social services. They decide what groups to serve and what fees, if any, to charge. State expenditure reports submitted to HHS provide national data on how states spent SSBG funds in FY2002 and FY2003 (data from FY2004 are not yet available). The reporting form includes a list of 29 eligible service categories in which funds may be spent. The list includes categories such as child care, home-delivered meals for the elderly, foster care, housing services, and family planning services. In FY2003, for the country as a whole, the services receiving the greatest percentage of spending were as follows: special services for the disabled, (13.7%); child protective services, (8.7%); foster care services for children, (13.3%); and home-based services, (6.9%). For FY2002, the corresponding shares were 12.4%, 10.0%, 12.5%, and 8.5%, respectively. Note: For more details about SSBG, see CRS Report 94-953, Social Services Block Grant (Title XX of the Social Security Act) . See TANF block grant entry (program No. 11). In FY2004, expenditures for TANF child care were estimated at $2.5 billion, $1.4 billion (89%) from federal funds and $1.047 billion from state-local funds. This excludes TANF funds transferred to the Child Care and Development Block Grant (CCDBG), program No. 63. It also excludes TANF state maintenance-of-effort expenditures that could also count toward state spending required to qualify for entitlement matching funds under the CCDBG. TANF-funded child care consists of care for children in TANF families, former TANF families, and other low-income families. The law permits states to use block grant funds to provide child care to recipient families and to various groups of "needy" families not enrolled in the cash program, so long as the child care can be expected to lead toward ending the dependence of needy parents on government benefits by promoting work or job preparation, one of the program's goals. States decide what income limits to set for TANF-funded child care (i.e., how "needy" the parents must be). In their TANF plans, most states said they provide free or subsidized child care to three groups of needy families: recipient families who need it to work, study, or undergo training; former cash recipient families, for a transition period; and families "at risk" of becoming income-eligible for cash aid. Generally, income limits for families not enrolled in the cash program range from 150% to 250% of federal poverty guidelines (in 2005, from $24,135 to $40,255 for a family of three). However, some states use a relative standard (a percentage of state median income) as the income test for families not in the cash program. Many states set the usual age cutoff for TANF-funded care at 13 years, the general limit of the Child Care and Development Block Grant (CCDBG), but the TANF plan of California promises child care only for children under age 10 (older, if funds are available). TANF repealed a requirement that states "guarantee" child care needed to enable welfare parents to work or study. However, TANF provides that single parents who receive TANF assistance cannot be punished for refusal to perform required work if they are unable to obtain needed care for a child under age six for a specified reason. States decide what charges, if any, to impose for TANF child care and for how long to offer "transitional" child care to families who have left the cash welfare rolls. Note: For more information, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements , by [author name scrubbed]. Under a consolidated budget account for Homeless Assistance Grants, the Department of Housing and Urban Development (HUD) provides funding for four programs aiding the homeless that are authorized under the Stewart B. McKinney Homeless Assistance Act ( P.L. 100-77 ). They are the Emergency Shelter Grants program, Section 8 Moderate Rehabilitation Assistance for Single-Room Occupancy (SRO) Dwellings, the Shelter Plus Care program, and the Supportive Housing program. Federal funding for the Emergency Shelter Grants program is provided through formula grants to states, cities, and counties in accordance with the distribution formula used for Community Development Block Grants (CDBG). Money for the other programs is awarded through competitive grants to states, local governments, nonprofit organizations, and public housing authorities. Grantees must match federal dollars (except in the case of the SRO program). Under the Emergency Shelter Grants program, a one-for-one match is required (although the first $100,000 granted to a state need not be matched); under the Shelter Plus Care program, grantees must match federal funds provided for shelter with equal money for services; and under the Supportive Housing program, dollar-for-dollar cash matching is required for grants involving acquisition, rehabilitation, or new construction of housing units. HUD homeless assistance funds also are used for "Supportive Services Only" projects that are linked to housing provided by other organizations. The FY2005 Appropriations Act required a 25% match for all HUD-funded services. Outlays for the Homeless Assistance Grants program in 2004 were $1.238 billion. Under a "continuum of care" strategy developed by HUD, grantees generally must develop and maintain (or participate in) consolidated plans for the integration of programs and services for the homeless, including the four programs noted above. Grantees under the Emergency Shelter Grants program (governmental entities) receive their grants by formula. In the other programs, grantees (both governmental and nongovernmental agencies) must compete for HUD approval of their grant proposal. Individual eligibility for assistance from any Homeless Assistance Grant project generally depends on decisions made by the local sponsor. However, some programs restrict beneficiary eligibility to specific categories. The Shelter Plus Care program is limited to homeless persons with very low incomes who have disabilities, chronic substance abuse problems, or AIDS and related diseases. The SRO program is limited to single homeless persons. Permanent housing under the Supportive Housing program is available only to the disabled. Homeless Assistance grantees can use funding for a range of activities on behalf of homeless persons. Under the Emergency Shelter Grants program, activities include renovation, major rehabilitation, or conversion of buildings for use as emergency shelters or transitional housing for the homeless; essential social services; operating costs of facilities for the homeless; and initiatives to prevent homelessness. Supportive Housing program money may be used to assist homeless persons in transition to independent living through provision of transitional housing, follow-up services, permanent housing (as well as services) for those with disabilities, supportive services to those in housing supported by other programs, "alternative" housing for the long-term homeless, and "safe havens" for homeless individuals. The Shelter Plus Care and SRO programs provide rental assistance. Note: For more details about homeless assistance grants, along with other targeted homelessness programs sponsored by the federal government, see CRS Report RL30442, Homelessness: Targeted Federal Programs and Recent Legislation , by [author name scrubbed] et al. The Community Services Block Grant Act (CSBG) authorizes 100% federally funded block grants to states for community-based antipoverty activities. State allocations are based on the percentage of funds received in the state in FY1981 from the former Community Services Administration (CSA) under Section 221 of the Economic Opportunity Act. Of total appropriations, half of 1% is reserved for allotment to the territories, and the Secretary of Health and Human Services also must reserve 1.5% for training, technical assistance, planning, evaluation and data collection. For FY2005, $637 million was appropriated for the block grant, plus $89.7 million for several smaller related activities, such as community economic development, job opportunities for low-income individuals (JOLI), grants for rural community facilities, the national youth sports program, community food and nutrition activities and individual development accounts. In general, beneficiaries of programs funded by CSBG must have incomes no higher than the federal poverty income guidelines. For FY2005, the guidelines were $19,350 for a family of four and $9,570 for a single person in the 48 contiguous states. Amendments enacted in 1984 allow states to increase eligibility criteria to 125% of the poverty guidelines "whenever the state determines that it serves the objectives of the block grant." The program has no rules regarding assets. Programs funded by the Community Services Block Grant operate a wide variety of antipoverty activities, including local program coordination, nutrition, emergency services, and employment services. CSBG grantees also receive funds from many other sources (such as Head Start, weatherization assistance, low-income home energy assistance, emergency food and shelter programs, employment and training, and legal services) to operate antipoverty programs. Note: For more details about the Community Services Block Grant, see CRS Report RL32872, Community Services Block Grants (CSBG): Funding and Reauthorization . The law provides 100% federal funding. Funds are allocated among local legal services programs on the basis of state shares of the poverty population. The FY2003 appropriation was $338.8 million, up $9.5 million from the FY2002 sum. The increase was to provide supplemental funding for states that were scheduled to receive a cut in FY2003 funding because of use of data from the 2000 Census, which showed a shift in state poverty populations. The Legal Services Corporation Act of 1974 provides financial aid to programs that offer legal services in noncriminal proceedings to low-income persons. The law makes eligible "any person financially unable to afford legal assistance" and says the Corporation should take into account not only income, but liquid assets, fixed debts, cost of living, and other factors in determining an individual's capacity to pay for a lawyer. The law requires the Corporation to set national maximum income limits and to establish guidelines that will insure preference for those least able to afford an attorney. Regulations of the Corporation have established the maximum income limit for eligibility at 125% of the federal poverty income guidelines. Regulations permit exceptions to the income limit in specified circumstances. For example, the regulations permit legal services on behalf of a person whose income falls between 125% and 150% of the poverty line if the purpose is to obtain benefits from a "governmental program for the poor," or if warranted by certain factors such as the individual's current income prospects, medical expenses, fixed debts and obligations, child care and other work-related expenses, expenses associated with age or infirmity, and other factors related to financial inability to afford legal assistance. Beneficiaries receive legal aid in noncriminal proceedings. Most cases concern these areas of law: family, employment, consumer, housing, civil rights, public benefit programs such as cash welfare, Social Security, Supplemental Security Income (SSI), workers' compensation, unemployment compensation, Medicare, and Medicaid. The Legal Services Corporation's stated goal is to provide "minimum access to legal services for all poor persons," defined as the equivalent of two attorneys for every 10,000 poor persons; however, that goal was achieved only once, in FY1980. Corporation grantees are not allowed to give legal aid in criminal proceedings or in most civil cases that are fee-generating in nature, such as accident damage suits. Additional restrictions include prohibitions against lobbying activities, class action lawsuits, litigation related to abortion, and representation of prisoners. On February 28, 2001, the U.S. Supreme Court invalidated a restriction that Congress had imposed on LSC in every annual appropriations act since 1996. This was a prohibition against LSC funding of any organization that represented clients in an effort to amend or otherwise challenge existing welfare law. By a 5-4 vote, the Court found that this restriction violated the First Amendment (freedom of speech). The Court held that restricting LSC attorneys in advising their clients and in presenting arguments and analyses to the courts distorted the legal system by altering the attorneys' traditional role ( Legal Services Corporation v. Velazquez , 121 S.Ct. 1043 [2001]). Note: For more details about this program, see CRS Report 95-178, Legal Services Corporation: Basic Facts and Current Status . The Immigration and Nationality Act as amended by the Refugee Act of 1980 ( P.L. 96-212 ) authorizes 100% federally funded social services to assist refugees and asylees in becoming self-sufficient. Other legislation authorizes similar assistance for certain Cuban and Haitian entrants and for certain Amerasians. The refugee, asylee, and entrant social services funds are distributed among the states under formulas that usually take into account each state's proportion of persons in eligible groups who entered the United States within the previous 36 months. The Department of Health and Human Services Office of Refugee Resettlement (ORR) administers this program. Appropriations for social services were $152.2 million in FY2004. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee or asylee under the act, (b) be a Cuban or Haitian paroled into the United States between April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant," or be a Cuban or Haitian national paroled into the United States after October 10, 1980, (c) be a person who has an application for asylum pending or is subject to exclusion or deportation and against whom a final order of deportation has not been issued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. Any person mentioned above generally is eligible for social services financed by refugee program funds, but some activities so funded may have eligibility limitations such as age. The above groups also may benefit from services financed under the Social Security Act (Title XX) but generally would have to meet the state's Title XX eligibility requirements. Exceptions to Title XX rules can be made so that refugees, asylees, and entrants can receive certain particular services such as language training, vocational training, and employment counseling. States determine what social services are offered. All social services funded by the refugee program are considered refugee social services rather than Title XX social services even if they also qualify under Title XX rules. Congress has established by statute a National Board of charitable and religious organizations to coordinate and monitor the Emergency Food and Shelter program (the EFS program) under the authority and direction of the Federal Emergency Management Agency (FEMA). The National Board awards EFS funds to local boards for allocation to direct service providers. To qualify for funds, a local jurisdiction must have a relatively high rate of unemployment for the most current 12-month period, and a high poverty rate (as measured by the most recent census). The National Board allocates funds to local jurisdictions on the basis of their share of the total number of unemployed persons in all qualifying areas. The National Board also uses a portion of EFS appropriations for state set-aside programs, which allow state boards to select jurisdictions for funding using a formula established by the state boards. These funds are intended to enable state boards to target pockets of homelessness or poverty in areas not qualifying under the regular national formula. Examples include areas that suffer sudden economic changes such as plant closings, areas with high levels of unemployment or poverty that do not meet the minimum level of unemployment, or jurisdictions that have documented measures of need that are not adequately reflected in unemployment and poverty data. Federal EFS outlays for FY2004 were $152 million. Public and private organizations that provide shelter and food to the homeless and hungry receive federal funds under this program. Providers include food banks, soup kitchens, shelters, and other organizations serving the homeless. The program is designed to purchase food and shelter to supplement and expand current available resources to target special economic, not disaster-related, emergencies. The eligibility of direct service providers to receive EFS funds is determined by each local board. EFS-funded assistance is available for any individual or family whom the local board determines to be in need. The EFS program provides food and feeding related expenses (such as transport of the food and food preparation and serving equipment), mass shelter, other shelter (such as hotels and motels), rent/mortgage and/or utility assistance for one month only to avert homelessness, and limited repairs to feeding and sheltering facilities. Estimated outlays for FY2005 are $153 million. Note: For more information, see CRS Report RS22286, The Emergency Food and Shelter Program . See TANF block grant entry (program No. 11). In FY2004, expenditures for TANF work programs and activities were reported at $2.2 billion, $1.6 billion (75%) from federal funds, and $0.5 billion from state-local funds. (This excludes funding for the separate Welfare-to-Work grant program administered by the Department of Labor, program No.77 in this report.) To enforce a focus on work, TANF law allows parents and other caretakers of TANF children a maximum of 24 months of benefits without "work," as defined by the state. It also requires states to achieve minimum rates of participation by TANF families in federally recognized work activities. States may use TANF block grant funds to provide work programs and activities for recipient families and various groups of "needy" families not enrolled in the cash program, so long as the services can be expected to lead toward ending the dependence of needy parents on government benefits by promoting job preparation and work, one of the program's goals. States decide eligibility limits, and they may tailor activities to the needs of individual families. If they offer work activities to noncustodial parents of TANF children, they may choose whether or not to include them in calculating work participation rates of two-parent families. TANF reporting forms require states to break down TANF expenditures on work-related activities into three categories: work subsidies, education and training, and other work activities/expenses. In a guidance for use of TANF funds ( Helping Families Achieve Self-Sufficiency), HHS lists numerous ways to support work activities, including job search and placement, job skills training, work experience, job retention services and counseling, and specialized training for supervisors. Note: For more information, see CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF Financing and Federal Requirements , by [author name scrubbed]. The Job Corps is 100% federally funded. The Job Corps is authorized by Title I, Subtitle C of the Workforce Investment Act (WIA). FY2004 Job Corps appropriations were $1.5 billion. Those eligible for the Job Corps are "low-income" youths aged 16-24 (only 20% of enrollees may be older than 21) who have one or more of the following characteristics: deficient in basic reading, writing, or computing skills; a school dropout; homeless, a runaway, or a foster child for whom state or local government payments are made; a parent; in need of additional education, vocational training, or intensive counseling and or help to accomplish regular schoolwork or to secure and hold employment. WIA defines a low-income person as one who (a) receives cash welfare or is a member of a family that receives cash welfare, (b) receives food stamps or is a member of family that was eligible to receive food stamps in the previous six months; (c) had family income for the preceding six months no higher than the federal poverty guideline (a limit in 2003 throughout the 48 contiguous states and the District of Columbia of $ 18,400 for a family of four persons and $8,980 for a single person) or no higher than 70% of the lower living standard income level (LLSIL) (a ceiling that ranged, effective on May 30, 2003, for a four-person family from $18,270 in non-metropolitan areas of the South to $22,230 in metropolitan areas of the Northeast—and higher in Alaska, Hawaii and Guam); (d) is homeless, as defined in the Stewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whom state or local government payments are made; or (f) is a disabled person whose own income meets the program limit, but whose family income exceeds it. The Job Corps has no asset rules. Job Corps enrollees are served primarily in residential centers where they receive basic education, vocational skills training, counseling, work experience, and health services. Enrollees receive personal allowances while participating in the program and readjustment allowances upon successful completion of the program. Job Corps centers are required to provide child day care, to the extent practicable, at or near the centers. Enrollees may remain in the Corps for up to two years; the average stay is about seven months. WIA forbids needs-tested programs to take its allowances, earnings, and payments into account in determining eligibility for benefits and their amount. Note: For further information about Job Corps, see CRS Report RS22396, The Workforce Investment Act (WIA): Program-by-Program Overview and FY2007 Funding of Title I Training Programs . This program is 100% federally funded. Youth Activities are authorized under Subtitle B, Chapter 4 of the Workforce Investment Act (WIA). Funds are allocated to states on the basis of a three-part formula: state shares of the national distribution of "substantial" unemployment (unemployment rate of at least 6.5%), "excess" unemployment (rate above 4.5%), and the population of "disadvantaged" youth (family income below the federal poverty guideline or 70% of the lower living standard income level). FY2004 appropriations were $995 million. Those eligible for WIA youth activities are "low-income" youths aged 14 through 21 who have one or more of the following characteristics: deficient in basic literary skills; a school dropout; homeless, a runaway, or a foster child; pregnant or a parent; or a youth offender, in need of additional assistance to complete an educational program or to secure and hold employment. WIA defines a low-income person as one who (a) receives cash welfare or is a member of a family that receives cash welfare; (b) receives food stamps or is a member of family who was eligible to receive food stamps in the previous six months; (c) had family income for the preceding six months no higher than the federal poverty guideline (a limit in 2003 throughout the 48 contiguous states and the District of Columbia of $18,400 for a family of four persons and $8,980 for a single person) or no higher than 70% of the lower living standard income level (LLSIL) (a ceiling that ranged, effective on May 30, 2003, for a four-person family from $18,270 in non-metropolitan areas of the South to $22,230 in metropolitan areas of the Northeast, and higher in Alaska, Hawaii, and Guam); (d) is homeless, as defined in the Stewart McKinney Homeless Assistance Act; (e) is a foster child on behalf of whom state or local government payments are made; or (f) is a disabled person whose own income meets the program limit, but whose family income exceeds it. The program has no asset rules. Local youth programs must include the following services: tutoring, study skills training, and instruction leading to secondary school completion; alternative secondary school offerings; summer employment opportunities directly linked to academic and occupational learning; paid and unpaid work experience, including internships and job "shadowing," occupational skill training; leadership development opportunities, including community service and peer-centered activities; supportive services; adult mentoring for at least 12 months; followup services for at least 12 months, and comprehensive guidance and counseling, including drug and alcohol abuse counseling. At least 30% of local allotments must be used to provide activities to out-of-school youth. Local boards may determine how much of available youth funds to use for summer and for year-round activities, and local programs have discretion to decide what specific services to provide to a participant. Note: For more information, see CRS Report RS22396, The Workforce Investment Act (WIA): Program-by-Program Overview and FY2007 Funding of Title I Training Programs . This program is 100% federally funded. Adult Activities are authorized under Subtitle B, Chapter 5 of the Workforce Investment Act. Funds are allocated to states on the basis of a three-part formula: state shares of the national distribution of "substantial" unemployment (unemployment rate of at least 6.5%), "excess" unemployment (rate above 4.5%) and the "disadvantaged" adult population (family income below the federal poverty guideline or 70% of the lower living standard income level). FY2004 appropriations were $893 million. Those eligible for adult activities are persons at least 18 years old. Any individual may receive "core" services (for example, job search assistance). For intensive services, such as individual career planning, and for job training, a person must need the services in order to become employed or to obtain or retain a job that allows for self-sufficiency. If funds are limited, priority must go to recipients of cash welfare and other low-income persons. The program has no asset rules. The law requires that most services for adults be provided through One Stop Career Centers. It authorizes three levels of services: "core" services, "intensive" services, and training services. Available to all job seekers are core services, which include outreach, job search and placement assistance, and labor market information. "Intensive" services are available only to persons who have received at least one core service and need further services to obtain or retain a job. Intensive services include more comprehensive assessments, development of individual employment plans, and counseling and career planning. Training services linked to job opportunities in the community are available for persons who cannot find a job through intensive services. Both occupational training and training in basic skills may be offered. To promote individual choice, participants use an "individual training account" to select a program from a qualified training provider. The law also authorizes supportive services, such as child care and transportation aid, to enable a person to participate. WIA forbids needs-tested programs to take its allowances, earnings, and payments into account in determining eligibility for benefits and their amount. However, an exception applies to food stamp recipients, aged 19 or older, who are enrolled in on the-job-training. Food stamp rules treat the earnings of on-the-job trainees as earned income. Note: For more information, see CRS Report RL30929, Job Training: Characteristics of Workforce Training Participants (pdf). For more historical information about the adult and youth training programs under JTPA, see CRS Report 94-862, The Job Training Partnership Act: A Compendium of Programs . For more information about the programs under WIA, see CRS Report RS22396, The Workforce Investment Act (WIA): Program-by-Program Overview and FY2007 Funding of Title I Training Programs . The law provides 90% federal funding for this program (up to 100% for activities in emergency or disaster projects, for activities in economically depressed areas, and for private sector training activities). The non-federal share can be cash or in kind. The state allocation formula has three elements: a hold harmless factor (the 2000 level of funding); a state's relative share of persons aged 55 years and older; and a state's relative per capita income. For FY2005, $437 million was appropriated. Title V of the Older Americans Act makes eligible for the Senior Community Service Employment Program (SCSEP) persons aged at least 55 with low incomes. The act defines low income as not exceeding 125% of the poverty guidelines established by the Department of Health and Human Services (HHS). Department of Labor (DOL) regulations provide eligibility for a person who is a member of a family with an income that is not more than 125% of the HHS poverty guidelines. In determining income eligibility, a person with a disability may be treated as a "family of one." The 2005 income eligibility ceilings were $11,962.50 for an individual and $16,037.50 for a two-person family (higher in Alaska and Hawaii). The period for determining income is the twelve months preceding the time of application. There is no asset test. Regulations give first priority to veterans and qualified veteran spouses at least 60 years old, second priority to other persons at least 60 years old, third priority to veterans and qualified veteran spouses aged 55-59, and fourth priority to other persons aged 55-59. The regulations also say that "special consideration" should be given to persons with incomes below the poverty level, persons with poor employment prospects, persons with "the greatest social and/or economic need," eligible minorities, limited English speakers, and Indians. Regulations forbid an upper age limit, and they require annual recertification of income. The DOL instructions require SCSEP project sponsors to disregard various kinds of income of applicants and recipients, including capital gains (or losses) from the sale of property, withdrawals of bank deposits, money borrowed, tax refunds, gifts, lump-sum inheritances or insurance payments, Supplemental Security Income, public assistance payments, disability payments, child support, workers' compensation, and the first $2,000 of certain per capita fund distributions to Indians. However, unemployment compensation, veterans' payments, Social Security, pension income, interest, dividends, rents, and alimony, among other things, are included in deciding eligibility. Participants are placed in part-time community service jobs, for which their wages are subsidized by the federal government; when possible, project sponsors are encouraged to place enrollees in unsubsidized jobs. Upon placement in a job, enrollees receive no less than the highest of the federal minimum wage, the state or local minimum wage, or the prevailing wage paid by the same employer for similar public occupations. Note: For more information, see CRS Report RL31336, The Older Americans Act: Programs, Funding, and 2006 Reauthorization (P.L. 109-365) , by [author name scrubbed] and [author name scrubbed]. Note: No part of the original TANF block grant was earmarked for work programs, but in 1997, Congress added a two-year $3 billion program of welfare-to-work (WtW) grants to help states meet TANF work requirements. The Balanced Budget Act of 1997 ( P.L. 105-33 ) created a $3 billion welfare-to-work (WtW) grant program for two years, FY1998 and FY1999. Although WtW is a component of TANF (Section 403(a)(5) of the Social Security Act), it is administered by the Department of Labor (DOL). After set-asides, 75% of WtW funds were designated for matching formula grants (66.7% federal matching rate) and 25% for competitive grants. Formula grants were allocated by DOL to states on the basis of their shares of the national adult TANF population and the poverty population. States were required to distribute 85% of the formula grants to local workforce investment areas. DOL awarded a total of $2 billion in formula grants (to 48 states in 1998 and 45 in FY1999) and $712 million in competitive grants to localities and nonprofit organizations. The original law gave WtW grantees three years from the date of an award in which to spend WtW funds. Congress eventually ended the program in 2004, rescinding remaining unspent funds in P.L. 108-199 . WtW funds were focused on hard-to-employ TANF recipients. As first enacted, 70% of funds had to be used for the benefit of TANF recipients (and TANF non-custodial parents) with at least two specified barriers to work who themselves (or whose minor children) were long-term recipients (30 months of AFDC/TANF benefits) or were within 12 months of reaching the TANF five-year time limit or a shorter state time limit. The target groups had to have at least two of these three work impediments: lack a high school diploma and have low skills in reading or mathematics, require substance abuse treatment for employment, and/or have a poor work history. WtW eligibility was liberalized by P.L. 106-554 , to allow grantees to use WtW funds and state matching funds on behalf of four new groups: long-term TANF recipients without specified work barriers, former foster care youths 18 to 24 years old, TANF recipients who are determined by criteria of the local private industry council to have significant barriers to self-sufficiency, and non-TANF custodial parents with income below the poverty line. However, at least 70% of WtW funds were requested to be spent on long-term TANF recipients and/or noncustodial parents without specified work barriers. The 1999 law also set special rules for noncustodial parents. To be eligible for WtW, noncustodial parents had to be unemployed, be underemployed, or have difficulty paying child support, and they must comply with an oral or written personal responsibility contract. They also had to meet one of the following conditions: Their minor child or the child's custodial parent must be a long-time TANF recipient or within 12 months of reaching a TANF time limit; the child must be a recipient of income-tested aid (TANF, food stamps, SSI, Medicaid or SCHIP); or the child must have left TANF within the last 12 months. Activities that may receive WtW funds included the following: the conduct and administration of community service or work experience programs; job creation through wage subsidies, on-the-job training, contracts with providers of readiness, placement, and post-employment services; job vouchers for placement, readiness, and post-employment services; job retention or support services if these services are not otherwise available; and, added by P.L. 106-113 , up to six months of vocational educational or job training (effective July 1, 2000). The law specifies that a work activity paid with WtW funds may not violate an existing contract for services or a collective bargaining agreement and that a WtW worker cannot fill a vacancy resulting from cutting the hours of a job below full time. The Food Stamp Act provides for annual grants to state agencies administering the Food Stamp program to conduct employment and training activities for food stamp recipients. These grants, which are automatically reserved from annual food stamp appropriations, are set at $90 million a year. They are not limited by fiscal year, and unspent amounts can be carried over and accumulated for use in a future year or reallocated to states that have spent their allocation of funds. In addition, states may receive a portion of an additional $20 million a year if they agree to serve all recipients who are able-bodied adults without dependents (ABAWDs). Employment and training grants generally are allocated among states on the basis of their proportion of persons to which food stamp work rules apply, with special emphasis on the estimated number of ABAWDs in each state's food stamp caseload as a proportion of the national total. In addition to the above-noted unmatched federal grants for operating their employment and training programs, the federal government pays states 50% of (1) any additional operating costs and (2) any participant support costs (e.g., child care, transportation); in FY2004, these payments exceeded $160 million. As detailed in the description of the Food Stamp program (program No. 19), certain nonworking able-bodied adult recipients must register for employment, accept a suitable job if offered one, and fulfill any work, job search, or training requirements (participate in employment and training programs) established by administering state agencies. Major exemptions from this requirement incorporated in food stamp law include persons caring for dependents (disabled or under age six) and those already subject to another program's work requirement. In addition, states may choose not to require participation of otherwise covered individual recipients. Nonworking ABAWDs, on the other hand, must participate in an employment or training activity under conditions noted in the description of the Food Stamp program—unless they reside in an area for which the state agency has obtained a waiver because of very high unemployment levels or the lack of available jobs or they have been individually exempted by the state agency under its authority to exempt up to 15% of those potentially subject to ABAWD work/training rules. In FY2004, states reported some 3.4 million new work registrants (i.e., persons potentially subject to required participation in employment and training programs); approximately 2.3 million (including about 450,000 ABAWDs) were subject to employment and training requirements. State agencies have a great deal of flexibility in the types of employment and training activities they can require of food stamp recipients. These include job searches and training for job searches, educational activities to improve basic skills and employability (e.g., literacy training, high school equivalency preparation), vocational training, workfare or work experience programs. Almost two-thirds of employment/training program participants are typically assigned to job search or job search training, and another 30% are placed in workfare/work experience "slots." Fewer than 5% participate in educational or vocational training activities. The Domestic Volunteer Service Act of 1973, as amended ( P.L. 103-82 ), provides 90% federal funding for developing and/or operating a foster grandparents project (up to 100% in special situations). The local project may provide its matching share in kind or cash. A total of $111 million was appropriated for FY2005. The law makes eligible as foster grandparents persons at least 60 years old who are no longer in the regular workforce. Individuals must have an annual income, after deducting allowable medical expenses, that does not exceed 125% of the federal poverty guideline (or 135% of the poverty line in the case of volunteers living in areas determined by the Corporation for National and Community Service to have a higher cost of living). For 2005, the 125% of poverty limit was $11,962.50 for a single person and $16,037 for a two-person family in the 48 contiguous states (higher in Alaska and Hawaii). Allowable medical expenses are annual out-of-pocket medical expenses for health insurance premiums, health care services, and medications that were not and will not be paid by Medicare, Medicaid, other insurance or other third party payer, and which do not exceed 15% of the applicable income guideline. Once enrolled, a person remains eligible so long as his countable income does not exceed 150% of the poverty guideline (or, in high cost areas, 162%). The program has no asset rules. The law requires low-income volunteers to be provided with a stipend plus transportation and meal costs. The stipend is set at $2.65 per hour. Stipends are tax-free and cannot be treated as wages or compensation for the purposes of any public benefit program. Volunteers also receive annual physical examinations and accident and personal liability insurance. Foster grandparents provide services to children with exceptional or special needs. Note: For more information about the Foster Grandparent program, see CRS Report RL30186, Community Service: A Description of AmeriCorps, Foster Grandparents, and Other Federally Funded Programs (pdf), and CRS Report RS20419, VISTA and the Senior Volunteer Service Corps: Description and Funding Levels . The Domestic Volunteer Service Act of 1973, as amended ( P.L. 103-82 ), provides 90% federal funding for developing and/or operating a senior companion project (up to 100% in special situations). The local project may provide its matching share in kind or cash. A total of $45.9 million was appropriated for FY2005. The law authorizes support for senior companions persons at least 60 years old who are no longer in the regular workforce. Individuals must have an annual income, after deducting allowable medical expenses, that does not exceed 125% of the federal poverty guideline (or 135% of the poverty line in the case of volunteers living in areas determined by the Corporation for National and Community Service to have a "higher" cost of living). For 2005, the 125% of poverty limit was $11,962.50 for a single person and $16,037.50 for a two-person family in the 48 contiguous states (higher in Alaska and Hawaii). Allowable medical expenses are annual out-of-pocket medical expenses for health insurance premiums, health care services, and medications that were not and will not be paid by Medicare, Medicaid, other insurance or other third-party payer, and which do not exceed 15% of the applicable income guideline. Once enrolled, a person remains eligible so long as his countable income does not exceed 150% of the poverty guideline (or, in higher cost areas, 162%). The law requires low-income volunteers to be provided with a stipend plus transportation and meal costs. The stipend is set at $2.65 per hour. Stipends are tax-free and cannot be treated as wages or compensation for the purposes of any public benefit program. Volunteers also receive annual physical examinations and accident and personal liability insurance. Senior companions provide supportive services to vulnerable, frail adults who are homebound and who usually live alone. Note: For more information about the Senior Companion program, see CRS Report RL30186, Community Service: A Description of AmeriCorps, Foster Grandparents, and Other Federally Funded Programs (pdf), and CRS Report RS20419, VISTA and the Senior Volunteer Service Corps: Description and Funding Levels . Subject to available appropriations, the Immigration and Nationality Act authorizes 100% federally funded targeted assistance (primarily for employability-related services) for refugees and asylees. Other legislation authorizes similar assistance for certain Cuban and Haitian entrants and for certain Amerasians. The Department of Health and Human Service's Office of Refugee Resettlement (ORR), which administers the program, awards grants to designated state agencies on behalf of counties with high concentrations of refugees, asylees or other eligible groups. States must allocate at least 95% of funds to counties. For refugee targeted assistance, ORR benefit expenditures amounted to $44.1 million in FY2004. A person must (a) have been admitted to the United States as a refugee or asylee under the Immigration and Nationality Act or have been paroled as a refugee or asylee under the act, (b) be a Cuban or Haitian paroled into the United States between April 15 and October 20, 1980, and designated a "Cuban/Haitian entrant," or be a Cuban or Haitian national paroled into the United States after October 10, 1980, (c) be a person who has an application for asylum pending or is subject to exclusion or deportation and against whom a final order of deportation has not been issued, or (d) be a Vietnam-born Amerasian immigrant fathered by a U.S. citizen. In allocating targeted assistance funds, states must give priority to the following groups, in order: (a) cash assistance recipients, particularly long-term recipients; (b) unemployed individuals who are not cash recipients; (c) employed individuals who need services to retain jobs or become economially independent. Counties develop their own plans for targeted assistance, which must be approved by the state. Targeted assistance funds must be used primarily for employability services designed to enable beneficiaries to obtain jobs within a year. They may not be used for long-term training programs lasting more than a year or for educational programs that are not intended to lead to employment within a year. The 1996 welfare law ( P.L. 104-193 ), which abolished the Job Opportunities and Basic Skills (JOBS) training program, established the Native Employment Works (NEW) Program to continue tribal work and training grants that existed under JOBS. Administered by HHS, the NEW program is 100% federally funded. Funding is authorized and pre-appropriated at $7.6 million for each fiscal year through FY2010. This equals the sum received by Indian tribes and Alaska native organizations to operate their own JOBS programs in FY1995. The NEW program is not subject to federal definitions of TANF work activities, TANF work requirements, or to old JOBS rules. Indian tribes design their own NEW programs, define who will be eligible, decide what benefits and services to provide, and specify the population and geographic area to be served. Target groups generally include TANF recipients, non-custodial parents, recipients of General Assistance (GA) from the Bureau of Indian Affairs (BIA), and unemployed parents. Of NEW participants in program year 2000-2001, about 70% also were enrolled in TANF and 6% in BIA general assistance. (In early 2003, 38 tribal TANF plans were in operations, covering about 27,000 families in 15 states.) Also, as noted in the entry on General Assistance to Indians (program No. 17 in this report), some tribes operate Tribal Work Experience Programs (TWEP), which pay a monthly $115 supplement to GA cash benefits. In program year 2000-2001, about 23% of the reported total of 5,615 NEW participants received child care; 35%, transportation assistance; 17%, counseling; 16% other supportive/job retention services (such as equipment, tools and uniforms) and 4%, medical services. Major program activities included job search (40% of clients); classroom training (5%); work experience (26%); on-the job training (3%); and other tribal work activity (12%). A total of 1,565 NEW participants, including 616 TANF recipients, began unsubsidized jobs during the year. According to the Fifth annual TANF report, many tribes with NEW programs co-located training, employment, and social services, often in "one-stop" centers. Some grantees established information/resource centers and learning centers, which provided a variety of job preparation services and worked closely with local colleges. The Low-Income Home Energy Assistance Act (Title XXVI of P.L. 97-35 , as amended) provides 100% federal funding for the Low-Income Home Energy Assistance Program (LIHEAP) through annual block grants to states, the District of Columbia, more than 100 eligible Indian tribes, two commonwealths, and four territories. The Department of Health and Human Services (HHS) distributes annual federal appropriations using an allocation formula established in law. P.L. 103-252 , which reauthorized the program through FY1999, authorized a special fund of $600 million annually for emergencies (contingency funding). P.L. 105-285 reauthorized LIHEAP at $2 billion annually for FY2002-FY2004. This law also expanded the criteria for LIHEAP contingency funding and added a section concerning natural disasters. The Energy Policy Act of 2005 reauthorized LIHEAP from FY2005-FY2007 at $5.1 billion annually. In FY2005, LIHEAP contingency funds totaling at least $250 million were released to all grantees (all states, tribes and territories). Federal outlays for LIHEAP in FY2004 totaled $1.89 billion. States and other grantees design and administer their own programs under general federal guidelines. These guidelines set maximum and minimum income eligibility standards and allow jurisdictions operating LIHEAP to make categorically eligible most households receiving Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps, or veterans' pension. Income eligibility standards vary, but the standard may not be set above 150% of the federal poverty income guidelines (a 2005 limit of $29,025 for a family of four in the 48 contiguous states), or 60% of the state's median income adjusted for family size. In addition, a household may not be excluded from eligibility if its income is below 110% of the federal poverty income guidelines. The law requires that benefits and outreach activities be targeted to those with the greatest home energy needs (as well as costs), particularly households with young children, frail elderly, and disabled individuals. Eligibility for LIHEAP benefits is typically determined on a "household" basis, and grantees may establish eligibility standards in addition to income. A household can be an individual, or group of individuals who are living together as one economic unit for whom residential energy is customarily purchased in common or who make undesignated rent payments for energy. LIHEAP grantee states, tribes, and territories decide benefit levels and the manner in which payments are made. However, to the extent permitted by efficient administration, jurisdictions are required to provide the highest benefits to households with lowest incomes and highest energy costs in relation to their income. They also must set aside a "reasonable" portion of their allotment for energy-related emergencies (basing the set-aside on past experience). LIHEAP funds may be used to help pay residential heating or cooling costs, purchase/install low-cost weatherization materials, and assist households facing energy-related emergencies. Operating jurisdictions can use a maximum of 15% of their LIHEAP allotment for weatherization activities (or 25% if a federal waiver is granted). LIHEAP obligations for weatherization totaled $222 million in FY2003, nearly matching outlays of $223 million for the weatherization program of the Department of Energy (program No. 81.042). Benefits most commonly take the form of cash payments to households, vendor "lines of credit," vouchers, and tax credits. In FY2003, some 4.4 million households are estimated to have received home heating benefits (and, in 15 states, cooling assistance was given to an estimated 493,694 households). The program includes a Residential Energy Assistance Challenge (REACH) grant program, established by 1994 law, to increase efficiency of energy usage by low-income households. Grantees may use up to 10% of their LIHEAP allotments for administrative expenses and may carryover up to 10% of one year's funds for use in the next year. Note: For more information, see CRS Report RL31865, The Low-Income Home Energy Assistance Program (LIHEAP): Program and Funding , by [author name scrubbed]. The Energy Conservation and Production Act of 1976 ( P.L. 94-385 ), as amended, provides 100% federal funding for weatherization assistance to low-income persons through grants administered by the Department of Energy (DOE). Administrative costs may not exceed 10% of grant funds. Weatherization funds are allocated among the states on the basis of factors that include number of heating degree days and cooling degree days, number of low-income owner-occupied and renter-occupied dwellings, percentage of total residential energy used for space heating and space cooling. Although states are not required to provide matching funds, state and local funds often supplement federal amounts. Appropriations totaled $227 million in FY2004. States and other grantees design and administer their own programs under general federal guidelines. The law makes eligible all "low-income" households and offers alternate definitions of this term. States are permitted to give DOE weatherization assistance (a) to households whose combined income falls at or below 125% of the federal poverty income guidelines, a ceiling equal in the 48 contiguous states to $23,563 for a family of four in 2004 (at state option, the ceiling can be lifted to 150% of the poverty guideline, if the state has adopted that income limit for LIHEAP) and (b) to families with a member who received cash welfare payments during the previous 12 months from TANF, SSI, or state assistance programs. Legislation allows a maximum average expenditure, adjusted annually for price inflation, per dwelling unit for weatherization materials, labor, and related matters (such as transportation of materials and workers; maintenance, operation and insurance of vehicles; maintenance of tools and equipment; purchase or lease of tools, equipment and vehicles; employment of on-site supervisors; and storage of weatherization materials). DOE reports that this program weatherized more than 94,000 homes in FY2004 and 5.4 million over the 28-year history of the program. The Low-Income Home Energy Assistance Program (LIHEAP) usually spends more funds on weatherization assistance than the DOE program. For information about LIHEAP weatherization assistance, see program No. 83. Note: For more information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues . For a DOE summary, see http://www.eere.energy.gov/ buildings/ weatherization/ about.html . | More than 80 benefit programs provide aid—in cash and noncash form—that is directed primarily to persons with limited or low income. Such programs constitute the public "welfare" system, if welfare is defined as income-tested or need-based benefits. This definition omits social insurance programs like Social Security and Medicare. Income-tested benefit programs in FY2004 cost approximately $583 billion: $427 billion in federal funds and $156 billion in state-local funds (Table 1). Spending on these programs represented 18.6% of all federal spending, with medical aid accounting for 9% of the budget. Total low-income spending in FY2004 equaled 5% of the gross domestic product and set a record high, up $34 billion (6.2%) from the previous peak of FY2003. In current dollars, spending on income-tested programs increased during the year for all forms of aid except jobs, training, services, and energy aid. Higher medical spending accounted for $26 billion of the net increase in FY2004, and 55 cents of every low-income dollar went for medical assistance. Expressed in constant FY2004 dollars (Table 2), income-tested spending increased by 3.8% from the 2003 level. The composition of low-income spending differed by level of government (Tables 3 and 4). Medical aid consumed nearly 82% of state-local funds, but 46% of federal low-income dollars. Most income-tested programs provide benefits in the form of cash, goods, or services to persons who make no payment and render no service in return. However, in the case of the job and training programs and some educational benefits, recipients must work or study for wages, grants, or loans. Further, the block grant program of Temporary Assistance for Needy Families (TANF) requires adults to start work after a period of enrollment, the food stamp program imposes work and training requirements, and public housing requires residents to engage in "self-sufficiency" activities or perform community service. Finally, the Earned Income Tax Credit (EITC) is available only to workers. An unduplicated count of beneficiaries of income-tested programs is not available. Enrollment in TANF and food stamps remained below 1994-1995 peak levels during 2002-2004 (although food stamp enrollment rose from the 2000-2002 period), while Medicaid enrollment set a record high. Average 2004 monthly numbers: food stamps, 24.9 million; TANF, 4.7 million; and Supplemental Security Income (SSI), 7.1 million. During the year, 56.1 million persons received Medicaid services, and in calendar year 2004, EITC payments went to an estimated 19.2 million tax filers. Census Bureau data indicate that 5.8 million families with children were poor in 2003 before receiving cash aid from TANF, General Assistance (GA), or the EITC, compared with 6.7 million in 1996 (the last full year of the pre-TANF welfare program). Among these families, the EITC was received by 43.8% of those with a female head, and by 67.8% of those with a male present (Figure 3). |
The chairmen of the three committees with jurisdiction over health policy in the U.S. House of Representatives have introduced the America's Affordable Health Choices Act of 2009, H.R. 3200 , and the Affordable Healthcare for America Act of 2009, H.R. 3962 , to promote health care reform, and the Small Business and Infrastructure Jobs Tax Act of 2010, H.R. 4849 , to provide tax relief to small businesses and extend the Build America Bond program. Among the revenue provisions in all of the acts is one designed to curb "treaty shopping." The most recent preliminary revenue estimates project a revenue gain of $3.8 billion over 5 years and $7.7 billion over 10 years. Treaty shopping occurs where a foreign parent firm in one country receives its U.S.-source income through an intermediate subsidiary in a third country that is signatory to a tax-reducing treaty with the United States. The purpose of a treaty shopping is solely to reduce U.S. tax liability. Supporters of proposals to curb treaty shopping argue that it would restrict a practice that deprives the United States of tax revenue and that it is unfair to competing U.S. firms. Opponents maintain that proposals to curb treaty shopping would harm U.S. employment by raising the cost to foreign firms of doing business in the United States and may violate U.S. tax treaties. In addition, some Members of Congress have objected to the use of revenue-raising tax measures under the jurisdiction of tax-writing committees to offset increases in spending programs authorized by other committees Tax treaty proposals in prior Congresses have been directed at U.S. tax treatment of foreign firms that conduct business in the United States, and to understand how the proposed changes would have affected current law treatment it is useful to take a brief look at the existing structure. A foreign firm that earns business income in the United States is at least potentially subject to two levels of U.S. tax: the corporate income tax and a flat "withholding" tax. The U.S. corporate income tax may apply whether the foreign firm conducts its business through a U.S.-chartered subsidiary corporation or through a branch of the foreign parent that is not separately incorporated. In the case of a U.S. subsidiary, U.S. tax applies because the United States generally taxes all U.S.-chartered corporations, regardless of their ownership; U.S. taxes apply to foreign branch income because the United States asserts the right to tax foreign-chartered corporations on their income from the active conduct of a U.S. trade or business. In addition, the United States applies a withholding tax on interest, dividends, rents, royalties, and other "fixed or determinable" income foreign corporations and other non-residents receive from sources within the United States. The tax is required to be withheld by the U.S. payer (hence "withholding") and is applied on a "gross" basis without the allowance of deductions. The rate of the tax is nominally 30%. However—and importantly for the proposal at hand—the tax is frequently reduced or eliminated under the terms of one of the many bilateral tax treaties the United States has signed. In principle, the withholding tax does not apply to intra-firm repatriations of income where a foreign firm's U.S. operation is not separately incorporated in the United States. Since the Tax Reform Act of 1986 (TRA86; P.L. 99-514 ), however, the United States has applied a 30% "branch tax" as a parallel to the withholding tax (and that also may be reduced by treaty). Theoretically, both levels of tax could apply to a foreign firm's U.S. source income. Picture, for example, a foreign firm that operates a U.S.-chartered subsidiary that remits its income to the home-country parent by means of a stream of dividend payments. Dividend payments are not deductible under the corporate income tax, so the tax applies in full to the subsidiary's earnings. Then, if the dividends are paid directly to a parent in a non-treaty country, the 30% withholding tax applies. The combined rate of the two taxes on dividend payments could amount to as much as 53.8%. This combined rate, however, is usually not reached. First, many types of intra-firm payments are tax-deductible under the corporate income tax, even if the payments are to related foreign parents. For example, interest on intra-firm debt is tax deductible (albeit with some restrictions, as mentioned below); royalties paid for the use of patents, trademarks, and other intangible assets are likewise deductible. Thus, a foreign firm can eliminate the U.S. corporate income tax on income transmitted to its parent via tax-deductible payments. The foreign parent can, for example, finance its U.S. operations by making loans to the U.S. subsidiary; or it can charge the U.S. subsidiary royalty fees for the use of patented technology. Tax treaties frequently reduce or eliminate the withholding tax. Like most developed countries, the United States is signatory to a large number of bilateral tax treaties. The treaties address a variety of topics aside from withholding taxes—for example, reciprocal assurances of non-discrimination and provisions for the exchange of information by tax authorities. Reciprocal reduction of withholding taxes is, however, a key element of most treaties. To illustrate, the U.S. Internal Revenue Service publication on tax treaties lists tax-treaty withholding tax rates for 56 countries; the top 30% rate applies to intra-firm interest payments in only four instances and is completely eliminated for 20 countries. In short, notwithstanding the two potential levels of tax, U.S. tax on payments foreign subsidiaries make to their parents can be eliminated or substantially reduced in the case of payments made to firms in a large number of countries. H.R. 3200 , H.R. 3962 , and H.R. 4849 , however, focus on firms whose ultimate home country did not have a tax-reducing treaty with the United States. The next section looks at how such firms are nonetheless able to use "treaty shopping" to reduce or eliminate their U.S. tax. Not all countries have income tax treaties with the United States, so if interest, dividends, royalties, or similar U.S. income were paid directly to firms from these countries, the full 30% withholding tax would apply. "Treaty shopping" is an arrangement where a firm gets around the absence of a treaty by routing its U.S. income through intermediate subsidiary corporations located in third countries where lower or non-existent withholding taxes apply. Treaty shopping, further, is not used exclusively by foreign firms conducting business in the United States; it is also used by foreign "portfolio" investors, whose U.S. investments are only financial. However, the focus of H.R. 3200 , and H.R. 3962 , as described below, on deductible payments, implies that it is targeted to treaty-shopping by foreign corporations, and such is also the focus of this report. The following countries listed by the U.S. Commerce Department as having significant direct investment in the United States are not on the IRS list of tax-treaty countries: Thus, firms whose ultimate home is one of these non-treaty countries are candidates to benefit from treaty shopping. But treaty shopping likely does not occur exclusively in "either/or" situations, where a firm faced by the full 30% withholding tax routes income through a country where no tax applies. Treaty-shopping is likely a matter of degree; a firm facing a 10% rate in its true home country, for example, could benefit substantially from routing U.S. income through a country where no tax applies. Or, a firm facing the 30% rate could benefit by channeling income through an intermediary taxed at only 15%. Further, while the exclusive focus of the current legislative proposals is deductible payments—for example, interest and royalties—treaty shopping can also benefit non-deductible payments such as dividends. To be attractive as intermediate stops in the treaty-shopping process, a country's treaty provisions must reduce or eliminate the applicable withholding tax rate with the United States, thus reducing U.S. tax on payments to the intermediate subsidiary. In addition, however, the intermediate country must impose no taxes of its own that negate the advantage of a reduced U.S. tax. According to the IRS list, a 0% rate applies to 20 treaty countries in the case of interest payments. Even if no withholding tax applies to a country, its treaty may contain "limitation on benefits (LOB)" provisions that prevent its use as a conduit for U.S. income. These provisions (also discussed below) have been included in every U.S. treaty that has entered into force since 1990; they have all denied treaty benefits to residents of third countries. In the 111 th Congress, both the America's Affordable Health Choices Act of 2009, H.R. 3200 , the Affordable Healthcare for America Act of 2009, H.R. 3962 , and the Infrastructure Jobs Tax Act of 2010, H.R. 4849 , propose to limit tax treaty benefits with respect to U.S. withholding tax imposed on deductible related-party payments. This proposal is identical to one proposed by H.R. 3970 in the 110 th Congress. Under the proposal if a U.S. subsidiary made a deductible payment to a foreign corporation that had a common foreign parent, and the withholding tax rate on the payment would be higher if the payment were made directly to the common parent, the higher rate would have been applied. For example, if the payment were made to a fellow subsidiary in country Y where no U.S. withholding tax applied, and the common parent of the U.S. subsidiary and country-Y subsidiary was a resident in country X where the applicable tax is 15%, the rate that would have been applied to payments to the country-Y subsidiary would be 15%, notwithstanding the nominal 0% rate. The provision would only apply to payments deductible under the U.S. corporate income tax (e.g., interest and royalties). The degree of common ownership applied by the bill would be 50%. Thus, the provision would apply to payments to a foreign corporation where the U.S. corporation and the payee corporation were linked to a common foreign parent by chains of at least 50% ownership. H.R. 3200 , H.R. 3962 , and H.R. 4849 all propose that the tax on a payment to a subsidiary could not be reduced unless the withholding tax was also reduced on a direct payment to the parent. Thus, it seems that the acts' restrictions would not apply where a tax-reducing treaty exists with a parent's home country (a treaty the restriction might otherwise violate). Members in the 110 th Congress considered several, largely similar, proposals to curb treaty shopping. All of the proposals would have withheld taxes at the rate of the common foreign parent. The treaty provisions in H.R. 3970 were modeled off of provisions contained in H.R. 2419 and H.R. 3160 with additional language to ensure compliance with existing tax treaties. In all of these proposals, the treaty-shopping provisions would have only applied to payments deductible under the U.S. corporate income tax (e.g., interest and royalties). The degree of common ownership applied by the bills would have been 50%. Thus, the provision would have applied to payments to a foreign corporation where the U.S. corporation and the payee corporation are linked to a common foreign parent by chains of at least 50% ownership. A central concern of supporters of the anti-treaty-shopping proposal is tax revenue: foreign firms that reduce their U.S. withholding taxes with treaty shopping reduce the tax revenue the United States collects on U.S.-source income, and in international taxation, the country of source—in this instance, the United States—traditionally has the primary right to the tax revenue it generates. Supporters cite fairness as underlying this concern, contrasting the low U.S. taxes treaty-shopping foreign firms pay with taxes paid by U.S.-resident individuals and businesses. Opponents of the measure have argued that the provision would increase the cost to U.S. firms of doing business in the United States, and would thus harm U.S. employment and wages. The tax-treaty proposals in the 111 th and 110 th Congresses were not the first instance where U.S. policymakers have attempted to restrict treaty shopping. Conceptually, one alternative to legislation is to include such restrictions in tax treaties. As described above, the treaties that the United States has negotiated in recent decades have all contained limitation on benefits (LOB) clauses that deny treaty benefits to third-country residents. The LOB provisions generally do so by requiring firms qualifying for a treaty benefit to be owned primarily by residents of the treaty country and not erode the tax base of the treaty country by making deductible payments to third-country residents. The current U.S. model income tax treaty contains such provisions. One analyst has noted, however, that considerable time would be required to renegotiate all U.S. treaties with such an approach, and not all treaty countries would be likely to agree to stringent LOB provisions. Legislation explicitly restricting treaty shopping was included as part of TRA86's branch tax provisions. Under its terms, a treaty cannot reduce the branch tax for a foreign firm where less than 50% of the firm's stock is owned by residents of the treaty country, or where 50% or more of the firm's income is used to meet liabilities to non-residents. Note that these conditions parallel those of the model income tax treaty. An existing provision of the tax code that does not directly address treaty shopping, but that is nonetheless related, is the code's "earnings stripping" rules applied by Section 163(j). Earnings stripping refers to the removal by foreign firms of profits earned in the United States by arranging for the subsidiary U.S. corporation to make tax-deductible payments—for example, interest and royalties—to the foreign parent. As described above, such a practice eliminates the U.S. corporate income tax on the deductible payments and, in combination with treaty shopping, can remove all U.S. tax on a foreign firm's U.S. income. Provisions designed to limit earnings stripping by foreign firms investing in the United States were enacted with the Omnibus Budget Reconciliation Act of 1989 ( P.L. 101-239 ) as Section 163(j) of the Internal Revenue Code. The provisions deny deductions for interest payments to related corporations, but apply only after a certain threshold of interest payments and level of debt-finance is exceeded. While the provisions do not address treaty shopping per se, they do address the same general policy goal: attempting to ensure that foreign firms pay some amount of U.S. tax on their U.S. income. Economic analysis of restrictions on treaty shopping begins by focusing on tax revenue: when foreign firms avoid withholding taxes by routing income through treaty-country intermediaries, the United States loses the tax revenue that it would collect if the income were paid directly to a foreign parent and a higher withholding tax were applied. As noted at the outset, the treaty-shopping restrictions proposed in H.R. 3200 , H.R. 3962 , and H.R. 4849 would increase revenue by an estimated $3.8 billion and $7.7 billion over 5 and 10 years, respectively. But beyond the proposals' revenue effect, economic analysis poses a more fundamental question: would the plans enhance U.S. economic welfare? The answer to this question still involves the plan's tax revenue impact, but it also looks at a balance—that between the benefit from collecting tax revenue, on the one hand, and from attracting foreign investment to the United States, on the other. The economic benefit from collecting tax revenue from foreign firms is clear: in collecting revenue, the United States retains in its own economy a portion of the profit that foreign firms would otherwise repatriate to their home country. The counterpoised benefit—the economic benefit from foreign investment—needs a closer look. Popular discussions of foreign investment frequently focus on jobs. But while "inbound" foreign investment can create new employment in particular U.S. geographic areas, its positive impact on the U.S. economy as a whole is on wages rather than jobs, according to economic theory. But, while foreign investment can attract employment from one sector of the economy to another, it does not have an appreciable long-run impact on aggregate employment—a policy goal that is the target of aggregate fiscal and monetary policy rather than targeted tax provisions. Foreign investment can, however, increase wages. Basic economic theory indicates that increases in capital serve to increase labor productivity: foreign investment thus increases productivity of domestic labor. Another basic economic principle holds that, in smoothly functioning markets, labor is paid a wage that is equal to its marginal product. It follows, then, that increases in foreign investment in the domestic economy increase domestic wages. The balance, then, is this: a given increase in taxes on foreign investors increases tax revenue and produces tax revenue, on the one hand, and a given increase in foreign investment produces higher wages, on the other. But if foreign firms are sensitive at all to taxes, a given tax increase also reduces the U.S. investment they undertake, thus reducing their positive impact on U.S. wages. From an economic point of view, the optimal policy is to tax foreign investors such that the added revenue from an increment of tax is just equal to the reduction in wages that increment would cause. The analogy of a goose and golden egg is perhaps apt. Is the rate of tax on foreign firms close to the optimal rate? Would the proposals' treaty-shopping restrictions move towards or away from the optimal point? In part, the answer depends on exactly how sensitive foreign firms are to U.S. taxes—the elasticity of supply of foreign investment, in economic parlance. The more sensitive is foreign investment, the lower the optimal tax rate. A thorough investigation of the elasticity of supply is beyond the scope of this report. Importantly, however, in some cases foreign firms may be able to use treaty shopping to eliminate all U.S. tax on their U.S. earnings, and it is unlikely that foreign investors are so sensitive to U.S. taxes that the optimal tax rate on foreign investment is zero. If this is the case, economic theory suggests that it is likely that the proposal would increase U.S. economic welfare. There are, however, a couple of important qualifications. One is economic: the analysis does not take into account possible counter-actions by foreign governments, which might erode or offset any benefit to the United States. For example, a country that is home to firms that would be affected by the treaty-shopping proposals might impose anti-treaty-shopping restrictions of its own that would affect U.S. firms' investment within its own borders. The other is non-economic: as noted above, some have argued that the anti-treaty-shopping proposal in H.R. 2419 , from the 110 th Congress, would abrogate existing U.S. tax treaties. An analysis of these questions is, however, beyond the scope of this report. | "Treaty shopping" occurs where a foreign parent firm in one country receives its U.S.-source income through an intermediate subsidiary in a third country that is signatory to a tax-reducing treaty with the United States. Supporters of proposals to curb treaty-shopping argue that it would restrict a practice that deprives the United States of tax revenue and that it is unfair to competing U.S. firms. Opponents maintain that proposals to curb treaty-shopping would harm U.S. employment by raising the cost to foreign firms of doing business in the United States and may violate U.S. tax treaties. In addition, some Members of Congress have objected to the use of revenue-raising tax measures under the jurisdiction of tax-writing committees to offset increases in spending programs authorized by other committees. In the 111th Congress, the America's Affordable Health Choices Act of 2009, H.R. 3200, the Affordable Healthcare for America Act of 2009, H.R. 3962, and the Small Business and the Infrastructure Jobs Tax Act of 2010, H.R. 4849, include tax-treaty proposals which would restrict in certain cases the use of tax-treaty benefits by foreign firms with operations in the United States. The most recent preliminary revenue estimates projected a revenue gain of $3.8 billion over 5 years and $7.7 billion over 10 years, which would be used to partially offset either the cost of health care reform or provide tax relief to small businesses and extend the Build America Bonds. These provision are identical to the provision offered in the Tax Reduction and Reform Act of 2007, H.R. 3970, during the 110th Congress. Economic theory suggests there is an economically optimal U.S. tax rate for foreign firms that balances tax revenue needs with the benefits that foreign investment produces for the U.S. economy. Under current law, the treaty-shopping arrangements some foreign firms undertake may combine, in some cases, with corporate income-tax deductions to eliminate U.S. tax on portions of their U.S. investment. In these cases, economic theory suggests that added restrictions on treaty-shopping would improve U.S. economic welfare. This analysis, however, does not consider possible reactions by foreign countries where U.S. firms invest, nor does it consider possible abrogation of existing U.S. tax treaties. This report will be updated as legislative events warrant. |
A variety of legislative issues have raised interest in the First Amendment implications of mandatory public health programs, such as the minimum coverage requirements enacted in the Patient Protection and Affordable Care Act or considerations of vaccination programs to prevent an outbreak of serious illness that may arise from potential acts of bioterrorism. Because some religious denominations believe that certain health care measures would violate their First Amendment right to religious freedom, congressional action related to mandatory health care programs must be considered in light of the First Amendment's Establishment and Free Exercise Clauses. This report will discuss the legal issues that arise in the context of religious exemptions for mandatory health care programs. It will discuss constitutional and statutory provisions relating to religious protection and how such laws have been applied in the medical context. The report will also briefly address examples of health care programs that have included religious exemptions. It will analyze whether the U.S. Constitution requires religious exemptions for mandatory health care programs and whether, if not required, the Constitution allows religious exemptions for such programs. The First Amendment of the U.S. Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof...." These clauses are known respectively as the Establishment Clause and the Free Exercise Clause. Although the U.S. Supreme Court had historically applied a heightened standard of review to government actions that allegedly interfered with a person's free exercise of religion, the Court reinterpreted that standard in its 1990 decision, Employment Division, Department of Human Resources of Oregon v. Smith . Since then, the Court has held that the Free Exercise Clause never "relieve[s] an individual of the obligation to comply with a valid and neutral law of general applicability." Under this interpretation, the constitutional baseline of protection was lowered, meaning that laws that do not specifically target religion or do not allow for individualized assessments are not subject to heightened review under the Constitution. Congress responded to the Court's holding by enacting the Religious Freedom Restoration Act of 1993 (RFRA), which statutorily reinstated the heightened scrutiny standard for government actions interfering with a person's free exercise of religion. When RFRA was originally enacted, it applied to federal, state, and local government actions, but in 1997 the Supreme Court ruled that its application to state and local governments was unconstitutional under principles of federalism. Under RFRA, a statute or regulation of general applicability may lawfully burden a person's exercise of religion only if it (1) furthers a compelling governmental interest and (2) uses the least restrictive means to further that interest. This standard is sometimes referred to as strict scrutiny analysis. The Supreme Court has held that in order for the government to prohibit exemptions to generally applicable laws, the government must "demonstrate a compelling interest in uniform application of a particular program by offering evidence that granting the requested religious accommodations would seriously compromise its ability to administer the program." Some religious doctrines forbid medical treatment or conflict with specific medical procedures. Followers of these religions believe that receiving treatment would violate their First Amendment right to exercise their religion freely. This conflict raises the issue known as forced care—whether patients can be forced to receive medical care to which they object on religious grounds. Legal issues of forced care typically arise in situations where patients lack the capacity to make an informed decision about whether or not to receive care. These situations often involve patients facing death if they do not receive treatment. For example, because some religions have specific teachings regarding matters of life and death, a patient may object to life-saving treatment on religious grounds. However, if that patient lacks the capacity to provide informed consent at the time that care would be provided, a doctor or hospital may not be willing to withhold care based on religious affiliation alone, without an informed discussion with the patient. Federal and state courts have addressed these issues of forced care for patients with religious objections to medical care. Courts have indicated a growing willingness over the past several decades to recognize patients' religious objections to medical care, including life-saving treatments. In the 1960s, a federal court authorized a hospital to treat a patient with what would be an objectionable procedure under her religion. The patient faced death without a blood transfusion, a procedure that her religion prohibited, but due to emergency circumstances, the hospital staff was unable to determine if the patient was making an informed decision when she refused the treatment. By the 1980s, courts were giving greater weight to patients' choices regarding care. In later cases, courts concluded that competent adults with religious objections to procedures cannot be forced to receive care, with one court noting that courts should give "great deference to the individual's right to make decisions vitally affecting his private life according to his own conscience." It is important to note, however, that such deference to patients' objections to care may not be recognized in cases in which parents are claiming objections on behalf of a child. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ), enacted in March 2010, creates a requirement that individuals maintain insurance coverage. This individual responsibility requirement (sometimes referred to as an individual mandate) requires that individuals and their dependents maintain "minimum essential coverage" after the effective date of the provision. Individuals who do not maintain the required coverage face financial penalties for the months that they are not covered (a shared responsibility requirement), if they do not qualify for one of the included exemptions. ACA includes a religious conscience exemption, which provides that the individual responsibility requirement does not apply to any individual who has been certified to be "a member of a recognized religious sect or division thereof described in section 1402(g)(1) [of the Internal Revenue Code of 1986] and an adherent of established tenets or teaching of such sect or division as described in such section." Section 1402(g)(1) provides an exemption from self-employment income tax if the individual seeking exemption: is a member of a recognized religious sect or division thereof and is an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care.... Thus, there is no list of specific religious groups that qualify for the exemption. Rather, the exemption is general, such that any member of any religious organization with the beliefs described in the provision would qualify. This construction of the exemption appears to conform with the constitutional requirements of the First Amendment, as discussed later in this report. Members of any religious group who can demonstrate conformance with the requirements of Section 1402(g) would therefore be qualified for exemption under ACA. The exemption for religious groups with conscientious objections to medical treatment outside the religious community is typically associated with religious groups such as the Amish, which have historically opposed participation in public social service programs based on their religious beliefs. However, the exception is not specifically offered to that group, and speculation on which religious groups' tenets would qualify for exemption is beyond the scope of this report. Several lawsuits have challenged the constitutionality of the minimum essential coverage requirement on various grounds. Such challenges have included religious freedom claims, with at least one court addressing the merits of those claims. In that case, taxpayers claimed that the requirement violated RFRA by imposing a substantial burden on their religious exercise because obtaining health insurance would indicate a lack of trust as Christians that God would provide for their needs. The U.S. District Court for the District of Columbia noted that, according to the U.S. Supreme Court, a substantial burden would indicate that the government has substantially pressured an individual to modify his or her behavior in violation of his or her religious beliefs. The court held that the burden imposed by the coverage requirement did not rise to the level of a substantial burden because there was insufficient evidence that the individuals would be pressured to modify their behavior and violate their beliefs. The court reasoned that the individuals could opt out of the coverage requirement by paying a shared responsibility requirement instead. Further, the court found the individuals "routinely contribute to other forms of insurance, such as Medicare, Social Security, and unemployment taxes, which present the same conflict with their belief that God will provide for their medical and financial needs." The court concluded that even if it had found a substantial burden on religious exercise, the coverage requirement nonetheless complied with RFRA. According to the court, the requirement served a compelling governmental interest in lowering health insurance premiums and improving access to health care through the least restrictive means, which provided individuals with a choice between the minimum coverage requirement or the shared responsibility requirement. On appeal, the U.S. Court of Appeals for the D.C. Circuit affirmed the district court's opinion, agreeing "that appellants failed to allege facts showing that the mandate will substantially burden their religious exercise." ACA also requires group health plans and health insurance issuers that offer health insurance coverage to provide coverage for certain preventive health services without imposing any cost sharing requirements. The U.S. Departments of Health and Human Services, Labor, and Treasury subsequently issued guidelines and regulations for coverage of a range of preventive health services, including contraceptives and related services. The rules provide authority for an exemption for "religious employers" from the preventive health services guidelines "where contraceptive services are concerned." To qualify as a religious employer, an organization must meet four criteria: (1) The inculcation of religious values is the purpose of the organization; (2) The organization primarily employs persons who share the religious tenets of the organization; (3) The organization serves primarily persons who share the religious tenets of the organization; and (4) The organization is a nonprofit organization as described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended. The exemption appears to apply to churches, but potentially would not apply to other religiously affiliated institutions such as universities, hospitals, and social service providers. Like the exemption to the individual coverage requirement, this exemption does not specify particular religions that would qualify and instead is generally available to any religious employer that satisfies the four criteria, regardless of the specific religious affiliation. State courts that have considered challenges to exemptions from state contraceptive coverage requirements that are essentially identical to that included in the federal exemption have upheld the exemptions under the Smith analysis. Although RFRA was not applicable to the state contraceptive coverage requirements, the California Supreme Court applied a similar analysis based on state law requirements. It held that the state's interest in requiring coverage of prescription contraceptives was compelling to avoid gender discrimination resulting from the economic inequity existing between the out-of-pocket health care costs of men and women. The state courts also held that the narrow exemption was adequate to accommodate religious burdens imposed by the requirement. The California Supreme Court explained that "any broader exemption increases the number of women affected by discrimination in the provision of health care benefits," which would undermine the compelling interest intended by the requirement. The New York Court of Appeals noted that organizations that employ many individuals who do not share the religious beliefs of the organization could not expect broad accommodations. The court explained, "when a religious organization chooses to hire nonbelievers it must, at least to some degree, be prepared to accept neutral regulations imposed to protect those employees' legitimate interests in doing what their own beliefs permit." As a matter of public health, all 50 states and the District of Columbia have enacted laws requiring vaccination, particularly in the context of school immunization laws. These laws have been enacted under a rationale of preventing the spread of communicable and debilitating diseases. Forty-eight states (all but Mississippi and West Virginia) and the District of Columbia have enacted religious exemptions for these vaccination programs. These exemptions allow students who have religious objections to the vaccinations, but would otherwise be required to be vaccinated, not to comply with the vaccination requirements. The Supreme Court has recognized that mandatory vaccination laws are a valid exercise of protecting the welfare of the people. Nonetheless, constitutional questions arise in the context of such laws with competing interests: the state's interest in the public welfare and individuals' interest in religious freedom. Faced with such a conflict between the government's interest in protecting public health and individuals' interest in being free to exercise their religious beliefs, the Court has held in favor of public health concerns. The implication that public health concerns outweigh the right to exercise one's religion without interference has led some state supreme courts to hold that mandatory vaccination programs are not a violation of religious freedom. The exemptions have also been challenged under the Establishment Clause. Allowing an exemption based on religion might appear to be endorsing a religion in violation of the Establishment Clause. Exemptions that allow certain individuals to claim religious objections to a process required for others also may give the appearance of distinct treatment for those individuals who have religious objections in violation of equal protection doctrine. Under the First Amendment, a law cannot favor some individuals based on their religious beliefs. Allowing an exemption based on religion to a generally required practice may be construed as special treatment for religious adherents, particularly in cases in which the legal provisions limit the scope of the exemption to religious beliefs only (that is, excluding philosophical beliefs) or to members of specific religions only. The Supreme Court of Mississippi has held that the inclusion of a religious exemption discriminates against individuals who do not have religious beliefs that conflict with vaccination requirements, and as a result, Mississippi is one of two states that do not offer a religious exemption. The court held that requiring certain individuals to be vaccinated while still allowing them to be exposed to individuals who are exempted does not provide equal protection and is therefore unconstitutional. The U.S. tax code includes several provisions that provide religious exceptions to certain revenue programs relating to health care. Specifically, the income "received for services performed by a member of a religious order in the exercise of duties required by the order" is excepted from the Federal Insurance Contributions Act (FICA) tax, which funds Social Security and Medicare. Also, ministers, members of religious orders, Christian Science practitioners, and members of religious faiths who oppose acceptance of insurance benefits, including medical care, are generally exempt from self-employment taxes. The U.S. Supreme Court has held that the Free Exercise Clause does not prohibit mandatory payment of social security taxes even when the payment of such taxes or the receipt of the related benefits would violate the taxpayer's religion. In United States v. Lee , an Amish man claimed that paying FICA taxes violated his belief in an obligation to provide similar assistance for church members. Lee argued that his religion prohibited him from accepting such benefits from the state or paying taxes to fund the social security system. Although the Court recognized a burden on religious belief, it held that the burden was justified by the governmental interest in "maintaining a sound tax system," and that accommodation of all of the diverse religious beliefs relating to taxation would pose too great a difficulty to maintain a functional tax system. Religious exemption provisions in mandatory health care programs often raise constitutional issues of religious freedom and equal protection. Any religious exemption must meet the requirements of the First Amendment's religion clauses, which serve as guarantees that individuals will neither be required to act under a prescribed religious belief (the Establishment Clause) nor be prohibited from acting under their chosen religious beliefs (the Free Exercise Clause). Thus, constitutional analysis of religious exemptions in mandatory health care programs must address two questions: (1) whether the Constitution requires a religious exemption to ensure the free exercise rights of citizens who may have religious objections to a mandatory program, and (2) if a religious exemption is not constitutionally required, but included nonetheless, whether it would be constitutional. Any congressional enactment regarding mandatory health care programs would be subject to constitutional rules and would qualify for review under RFRA as a federal action that potentially burdens religious exercise. Thus, any legislation that would mandate a health care program would be subject to strict scrutiny analysis. Generally, it does not appear that the U.S. Constitution requires a religious exemption with respect to legislation that creates mandatory health care programs, but the details of that legislation may impact the analysis. Under strict scrutiny, an exemption would be required only if the government does not have a compelling state interest that is achieved by the least restrictive means possible. The U.S. Supreme Court and other lower courts generally have allowed federal mandates that relate to public health, but nonetheless interfere with religious beliefs, to continue without exemptions. In addressing the issue of religious objections to generally applicable public health requirements, the Supreme Court has upheld legislative acts that promote public policies relating to public health as a valid exercise of protecting the welfare of the people. The government's interest in protecting public health has been held to outweigh individuals' religious interests. According to the Court, "the right to practice religion freely does not include liberty to expose the community or the child to communicable disease or the latter to ill health or death." The Court's decision to hold the interest of public health above the interest of individuals to freely exercise their religious belief was made before the Court applied strict scrutiny to religious exercise cases, but nonetheless provides an indication of the nature of the government's interest in public health regulation. The Court has also held that the government's interest in tax programs used to fund health care programs outweighs individuals' interests in exercising their religion freely. The Court's treatment of public health as an interest paramount to individual religious practice appears to open the door to recognition of public health as a compelling state interest under strict scrutiny analysis. A mere connection to public health is not necessarily enough to find a compelling interest. Some courts have addressed the issues of religious exemptions in the context of certain mandatory health care programs, but the nature of other programs may lead to different outcomes. Laws that require an affirmative participation in a medical procedure (e.g., vaccination) differ from laws that require a more indirect participation in medical programs (e.g., funding for insurance programs). One factor that might affect the outcome of the constitutional analysis is the role the federal government plays in the objective of the program. Public health has historically been a matter of state regulation. The vaccination laws were enacted under states' authority to regulate the public health of their citizens. The federal government, however, does have some authority to act in the realm of public health. Also, the actual connection to public health might affect whether the government's interest is compelling. For example, although courts have recognized a compelling state interest in statutes preventing the spread of disease, it may be more difficult to find a compelling state interest in requiring individuals to have health insurance. Thus, the government's interest may vary depending on the specific requirements imposed by the legislation. If the legislation does further a compelling governmental interest, it must also use the least restrictive means. That is, the government must make the burden as narrow as possible. This test may be met by providing alternative means of compliance with the legislation. In the context of the vaccination laws, for example, the government might allow individuals with religious objections to vaccination requirements to be quarantined or isolated to avoid infecting others, rather than receive the vaccination. In the context of universal health care insurance, the government might allow an exemption for individuals with religious objections and also allow individuals who objected without qualifying religious reasons to pay into a state fund rather than receive insurance coverage. These types of accommodations may be deemed the least restrictive means of advancing the government's interest if a court determines that they satisfy both the individual's free exercise of religion and the government's interest in protecting public health. There may be other accommodations that would satisfy the requirement of tailoring the legislation narrowly to meet strict scrutiny requirements. Thus, when determining whether a mandatory health care program would require a religious exemption, two factors are critical to the outcome of the analysis. First, the constitutionality may depend on the nature of the mandatory health care program (e.g., whether it is a required medical procedure or a required payment for an insurance program). Second, the constitutionality may depend on the structure of the program (e.g., whether the program provides the required participants options with which to comply in order to meet the program objectives). These factors would affect the extent of the burden placed on an individual's religious exercise and significantly impact the strict scrutiny analysis. Because legislation that mandates participating in health care programs may conflict with religious beliefs, Congress may choose to include an exemption for relevant religious objections even if it is not required. The exemption would provide an alternative for certain people based on their religious belief that would not be available to other people who do not share that religious belief. Thus, some individuals may claim that the exemption violates the Establishment Clause (by providing a benefit to groups based on religion). The Establishment Clause prohibits preferential treatment of one religion over another or preferential treatment of religion generally over nonreligion. Providing an exemption based on religion may be construed as favoring a particular religion or religion generally because only individuals with religious affiliation would be eligible for the exemption. However, the mere fact that a law addresses religion does not automatically make that law unconstitutional. Under Establishment Clause analysis, a government action must meet a three-part test known as the Lemon test. To meet the Lemon test, a law must (1) have a secular purpose, (2) have a primary effect that neither advances nor inhibits religion, and (3) not lead to excessive entanglement with religion. The Supreme Court has upheld religious exemptions for government programs, in which the exemptions were enacted to prevent government interference with religious exercise. Like the analysis under the Free Exercise Clause, the constitutionality of a religious exemption under the Lemon test would depend on the language of the exemption. Exemptions that are specifically available only to certain religions have been construed in some cases as a violation of the Establishment Clause. However, providing an exemption that does not specify certain religions as eligible may not pass the Lemon test either. A generally available religious exemption may be construed as a violation of the Establishment Clause because it provides preferential treatment to individuals with religious beliefs, but does not provide individuals who might object on philosophical grounds to claim the exemption. The Supreme Court has upheld several exemptions generally available to religious objectors as constitutional under the First Amendment. | The Patient Protection and Affordable Care Act (ACA; P.L. 111-148), enacted in 2010, established requirements for employers and individuals to ensure the provision or availability of certain health care coverage. Additionally, the threat of bioterrorism has caused some to consider the possibility of introducing vaccination programs to prevent an outbreak of serious illnesses. Programs like health care coverage and vaccinations have the potential to violate certain religious beliefs and therefore may conflict with the First Amendment. In the continuing debate over issues for which mandatory health care programs might be solutions, questions have been raised about the legal issues relating to exemptions for health care programs. For the purposes of this report, mandatory health care programs are those which require individuals to take some action relating to a health care policy objective. A variety of mandatory health care programs currently exists at the federal and state levels. Some programs are medical programs that require individuals to participate in a medical program, while some programs are financial programs that require individuals to pay for program costs. For example, all 50 states and the District of Columbia require children to be vaccinated for certain illnesses and diseases before entering school. At the federal level, the tax system requires individuals to pay taxes that fund Medicare to provide health care to elderly citizens. In some instances, mandatory health care programs include exemptions that allow qualified persons to opt out of the required action. Religious exemptions permit individuals who object to the program based on religious beliefs to avoid compromising those beliefs. This report will discuss the legal issues that arise in the context of religious exemptions for mandatory health care programs. It will discuss constitutional and statutory provisions relating to religious protection and how such laws have been applied in the medical context. The report will also briefly address examples of health care programs that have included religious exemptions. It will analyze whether the U.S. Constitution requires religious exemptions for mandatory health care programs and whether, if not required, the Constitution allows religious exemptions for such programs. |
The attempted attack on a U.S.-bound airliner on December 25, 2009, and the earlier shootings at Fort Hood Army Base in November 2009 and various other incidents have led to increased concerns about the effectiveness of the laws, regulations, and organizational relationships created in the aftermath of the 9/11 attacks to prevent future terrorist attacks. Although no system is infallible and the possibility of human errors has to be assumed, recent attacks appear to demonstrate specific failures by the Intelligence Community to "connect the dots," to bring together disparate pieces of information to provide clear warning of an impending attack. In regard to the December 2009 attack, President Obama stated that, "this was not a failure to collect intelligence; it was a failure to integrate and understand the intelligence that we already had." Within the sprawling U.S. Intelligence Community, the National Counterterrorism Center (NCTC) was specifically established in 2004 to bring together all available information on terrorism, analyze the information, and provide warning of potential attacks on the U.S. Some observers argue that the failed December aircraft plot as well as other incidents raise questions about the NCTC's ability to carry out its responsibilities. The challenges involved in sifting through mountains of data on a daily or even an hourly basis are acknowledged and supporters point out many unpublicized successes by NCTC working with its sister agencies. Nevertheless, questions exist about the roles and missions of NCTC and whether it is fulfilling its statutory responsibilities. Potentially, there are also concerns about the relationship between NCTC and the Counterterrorism Center of the Central Intelligence Agency (CIA) which, prior to the establishment of NCTC, was responsible for performing much of NCTC's current mission. A central lesson that Congress and the Executive Branch drew from the 9/11 attacks was that there had been inadequate interagency coordination partially as a result of separate statutory missions and administrative barriers. A series of investigative and legislative initiatives followed. In October 2001, provisions encouraging the exchange of law enforcement and intelligence information were included in the USA Patriot Act ( P.L. 107-56 ), sometimes described as "breaking down the wall" between intelligence and law enforcement. In February 2002 the two congressional intelligence committees established a Joint Inquiry into the activities of the U.S. Intelligence Community in connection with the terrorist attacks of September 11, 2001. By the following December, the Joint Inquiry concluded that, "for a variety of reasons, the Intelligence Community failed to capitalize on both the individual and collective significance of available information that appears relevant to the events of September 11." The two intelligence committees recommended the establishment (within the newly created Department of Homeland Security (DHS)) of an effective all-source terrorism information fusion center that will dramatically improve the focus and quality of counterterrorism analysis and facilitate the timely dissemination of relevant intelligence information, both within and beyond the boundaries of the Intelligence Community. Congress and the Administration should ensure that this fusion center has all the authority and the resources needed to: • have full and timely access to all counterterrorism-related intelligence information, including 'raw' supporting data as needed; • have the ability to participate fully in the existing requirements process for tasking the Intelligence Community to gather information on foreign individuals, entities and threats; • integrate such information in order to identify and assess the nature and scope of terrorist threats to the United States in light of actual and potential vulnerabilities; • implement and fully utilize data mining and other advanced analytical tools, consistent with applicable law; • retain a permanent staff of experienced and highly skilled analysts, supplemented on a regular basis by personnel on 'joint tours' from the various Intelligence Community agencies; • institute a reporting mechanism that enables analysts at all the intelligence and law enforcement agencies to post lead information for use by analysts at other agencies without waiting for dissemination of a formal report; • maintain excellence and creativity in staff analytic skills through regular use of analysis and language training programs; and • establish and sustain effective channels for the exchange of counterterrorism-related information with federal agencies outside the Intelligence Community as well as with state and local authorities. At approximately the same time Congress, in the Homeland Security Act ( P.L. 107-296 ), enacted on November 25, 2002, provided the new Department of Homeland Security (DHS) with a specific mandate for an Under Secretary for Information Analysis and Infrastructure Protection in DHS. The mission of this office was To access, receive, and analyze law enforcement. information, intelligence information, and other information from agencies of the Federal Government, State and local government agencies (including law enforcement agencies), and private sector entities, and to integrate such information in order to— (A) identify and assess the nature and scope of terrorist threats to the homeland; (B) detect and identify threats of terrorism against the United States; and (C) understand such threats in light of actual and potential vulnerabilities of the homeland. [and] To integrate relevant information, analyses, and vulnerability assessments (whether such information, analyses, or assessments are provided or produced by the Department or others) in order to identify priorities for protective and support measures by the Department, other agencies of the Federal Government, State and local government agencies and authorities, the private sector, and other entities. (4) To ensure, pursuant to section 202, the timely and efficient access by the Department to all information necessary to discharge the responsibilities under this section, including obtaining such information from other agencies of the Federal Government. The placement of this analysis center within DHS was not questioned prior to the signing of the Homeland Security Act in late November 2002, but there was, however, apparently considerable concern that DHS, as a new agency and not a longtime member of the Intelligence Community, would not be the best place for the integration of highly sensitive information from multiple government agencies. In the 2003 State of the Union address, President Bush revealed his instructions to "the leaders of the FBI, the CIA, the Homeland Security and the Department of Defense to develop a Terrorist Threat Integration Center, to merge and analyze all threat information in a single location." Despite the statutory responsibilities of DHS for threat integration, in May 2003 the Terrorist Threat Integration Center (TTIC) was established (without a statutory mandate) to merge all threat information in a single location. Some members of Congress expressed concerns about the possibility that the roles of the DHS intelligence analysis office and TTIC might be confused, but DHS was a partner in TTIC and gradually came to concentrate on serving as a bridge between the national intelligence community and state, local, and tribal law enforcement agencies that had never been components of the national Intelligence Community. A year later, in July 2004, the 9/11 Commission (the National Commission on Terrorist Attacks Upon the United States), noting the existence of a number of various centers in different parts of the government assigned to combine disparate pieces of intelligence, called for the establishment of a National Counterterrorism Center built on the foundation of TTIC but having a responsibility for joint planning for responding to terrorist plots in addition to assessing intelligence from all sources. The NCTC would, according to the 9/11 Commission, compile all-source information on terrorism but also undertake planning of counterterrorism activities, assigning operational responsibilities to lead agencies throughout the Government. In August 2004 shortly after publication of the 9/11 Commission Report, President Bush issued Executive Order 13354, based on constitutional and statutory authorities, that established the National Counterterrorism Center as a follow-on to TTIC. The NCTC was to serve as the primary organization of the Federal Government for analyzing and integrating all intelligence possessed or acquired pertaining to terrorism or counterterrorism (except purely domestic terrorism) and serve as the central and shared knowledge bank on known and suspected terrorists. The NCTC would not just have the analytical responsibilities TTIC had possessed; it would also assign operational responsibilities to lead agencies for counterterrorism activities, but NCTC would not direct the execution of operations. The Director of the NCTC would be appointed by the Director of Central Intelligence (DCI) with the approval of the President. Some members of Congress, however, remained concerned about the status of NCTC, the likelihood that Congress would have no role in the appointment of its leadership, and the possibility that an interagency entity might not be responsive to congressional oversight committees. In December 2004 the Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ), implemented many of the 9/11 Commission's recommendations. The act established the position of Director of National Intelligence (DNI) along with the Office of the DNI (ODNI) and it created an NCTC with a statutory charter and placed it within the ODNI. In accordance with the 2004 Intelligence Reform Act and Terrorism Prevention Act, the Director of the NCTC was henceforth to be appointed by the President with the advice and consent of the Senate. The position of the NCTC Director is unusual, if not unique, in government; he reports to the DNI for analyzing and integrating information pertaining to terrorism (except domestic terrorism), for NCTC budget and programs; for planning and progress of joint counterterrorism operations (other than intelligence operations) he reports directly to the President. In practice, the NCTC Director works through the National Security Council and its staff in the White House. For the first time, NCTC had a statutory charter. P.L. 108-458 sets forth the duties and responsibilities of the NCTC Director: to serve as principal adviser to the DNI on intelligence operations relating to terrorism; to provide strategic operational plans for military and civilian counterterrorism efforts and for effective integration of counterterrorism intelligence and operations across agency boundaries within and outside the United States; to advise the DNI on counterterrorism programs recommendations and budget proposals; to disseminate terrorism information, including current terrorism threat analysis, to the President and other senior officials of the Executive Branch and to appropriate committees of Congress; to support the efforts of the Justice and Homeland Security Departments and other appropriate agencies in disseminating terrorism information to State and local entities and coordinate dissemination of terrorism information to foreign governments; to develop a strategy for combining terrorist travel intelligence operations and law enforcement planning and operations; to have primary responsibility within the Government for conducting net assessments of terrorist threats; and consistent with presidential and DNI guidance, to establish requirements for the Intelligence Community in collecting terrorist information. The NCTC is to contain a "Directorate of Intelligence which shall have primary responsibility within the United States Government for analysis of terrorism and terrorist organizations (except for purely domestic terrorism and domestic terrorist organizations) from all sources of intelligence, whether collected inside or outside the United States." The Intelligence Reform Act and Terrorism Prevention Act of 2004 also tasked the NCTC Director with undertaking strategic operational planning for counterterrorism operations. The statute specifies that strategic planning is to include the mission, objectives to be obtained, tasks to be performed, interagency coordination of operational activities, and the assignment of roles and responsibilities. However, NCTC may not direct the execution of such operations. In carrying out these planning responsibilities the NCTC Director is responsible statutorily to the President rather than the DNI. These unusual dual reporting responsibilities might lead to a situation in which the NCTC Director could recommend policies to the President specifically opposed by the DNI. The extent of NCTC's planning responsibilities are unclear. The legislation did not repeal the authorities of other agencies to collect counterterrorism intelligence or prepare for counterterrorism operations. NCTC can prepare and obtain approval for counterterrorism plans, but it cannot ensure implementation. Some observers have expressed concern that DOD's own planning responsibilities under Title X of the U.S. Code could be complicated by the NCTC role. The official NCTC website, summarizes the organization's understanding of its responsibilities: Lead our nation's effort to combat terrorism at home and abroad by analyzing the threat, sharing that information with our partners, and integrating all instruments of national power to ensure unity of effort. The website further states: By law NCTC serves as the USG's [U.S. Government's]central and shared knowledge bank on known and suspected terrorists and international terror groups. NCTC also provides USG agencies with the terrorism analysis and other information they need to fulfill their missions. NCTC collocates more than 30 intelligence, military, law enforcement and homeland security networks under one roof to facilitate robust information sharing. NCTC is a model of interagency information sharing. . . . NCTC also provides the CT [counterterrorism] community with 24/7 situational awareness, terrorism threat reporting, and incident information tracking. NCTC hosts three daily secure video teleconferences (SVTC) and maintains constant voice and electronic contact with major intelligence and CT Community players and foreign partners. With the approval of P.L. 108-458 in December 2004 the NCTC was established in law. The first Director, retired Navy Admiral John Redd, was confirmed by the Senate in July 2005. Redd was succeeded by Michael E. Leiter who was confirmed in June 2008. In August 2011, Matthew Olsen, formerly general counsel of the National Security Agency, was confirmed as NCTC Director and currently serves in that position. The NCTC is housed in suburban Virginia and has a staff of more than 500 officials of which some 60 percent are on detail from other agencies. According to publicly available information, NCTC provides intelligence in a number of ways—items for the President's Daily Brief and the National Terrorism Bulletin both of which are classified. NCTC claims to provide the Intelligence Community with 24/7 situational awareness, terrorism threat reporting and tracking. According to one media report, "agency-integrated teams [are] assigned by subject matter and geography [to] turn out reports disseminated to thousands of policy and intelligence officials across the government. Agency representatives sit around a table three times daily—at 8 a.m., 3 p.m, and 1 a.m.—to update the nation's threat matrix." NCTC maintains databases of information on international terrorist identities (in a system known as the Terrorist Identities Datamart Environment (TIDE)) to support the Government's watch-listing system designed to identify potential terrorists. NCTC products are available to some 75 government agencies and other working groups and facilitates information sharing with state, local, tribal, and private partners. NCTC has also established Intelligence Community-wide working groups—a Radicalization and Extremist Messaging Group and a Chemical, Biological, Radiological, Nuclear Counterterrorism Group and a working group for alternative analysis as part of an effort to improve the rigor and quality of terrorism analysis. NCTC also coordinates the DNI Homeland Threat Task Force that examines threats to the United States from al Qaeda, other groups and homegrown violent extremists. Public information on NCTC's planning responsibilities is limited. One press account describes a National Implementation Plan for the National Strategy for Combating Terrorism prepared in June 2006. The Plan identified major objectives with more than 500 discrete counterterrorism tasks to be carried out by designated agencies. The objectives included disrupting terrorist groups, protecting and defending the homeland, and containing violent extremism. Observers suggest that the primary benefit of such generalized planning is requiring agencies to coordinate their initiatives and providing an opportunity to reduce duplication of effort and ensure that specific tasks are not neglected. The 2006 implementation plan has reportedly been updated but no details have been made public. From information available on the public record, NCTC appears to reflect the mission it was assigned by the Intelligence Reform and Terrorism Prevention Act and other legislation. NCTC's organization reflects the determination to create, within the Intelligence Community, an office that could gather information from all government agencies and from open sources, analyze the data, and provide policymakers with greater situational awareness and warning of planned attacks. According to all available reports, NCTC has access to the databases of all intelligence agencies and it can draw upon analytical resources throughout the government to supplement its own files, but it is unclear to what extent the disparate databases are technically compatible or whether they are, or can be, linked in ways that permit simultaneous searching. One assessment of the NCTC undertaken by a student at the Army War college in 2007 concluded that "More than two years since its inception, however, the NCTC has arguably achieved neither an acceptable level of effectiveness nor efficiency in performing its intended role." The author, Army Col. Brian R. Reinwald, argued that in focusing on consolidating information from other agencies, the NCTC demonstrated "a seeming unwillingness to take a bold implementation approach and a preference to avoid bureaucratic conflict." Its "vision statement inauspiciously paints a picture of a non-confrontational think tank that identified issues, and attempts to merely influence the greater governmental efforts against counterterrorism." In sum, Reinwald argued that NCTC's approach "does not capture the literal roles and mission assigned by Congress, to plan, to integrate, delineate responsibility, and monitor." Moreover, the large percentage of detailees from other agencies in NCTC "sustains an environment that fosters continued loyalty of NCTC employees to their parent agencies rather than the NCTC itself." The author, taking an expansive view of the NCTC's role argues that "The U.S. requires a single federal entity focused on GWOT [Global War on Terror] counterterrorism strategy with the necessary authorities to integrate intelligence, conduct comprehensive interagency planning, compel specific action when required, and coordinate and synchronize the elements of national power for successful operations." For NCTC as for the Intelligence Community as a whole, in many cases the successes go unreported while the failures are trumpeted. However, two incidents in late 2009 led to widespread publicity about information sharing and counterterrorism analysis that led to significant congressional interest. Reports of the multiple assassinations that occurred in Fort Hood Army Base in Texas on November 5, 2009, led to expressions of concern about the Government's counterterrorism capabilities. The extent of NCTC's role, if any, in gathering information about Major Nidal M. Hasan prior to the incident has not been made available publicly. As Major Hasan was both a U.S. citizen and a commissioned officer much relevant information would have come from internal DOD information that would not necessarily be shared with NCTC. Press reports indicate, however, that he had been in contact with a known terrorist living in Yemen . This type of information might have come to the attention of law enforcement and intelligence agencies and could have been available to NCTC. Whether NCTC did access such information and whether it notified the Army or other DOD elements is unknown. Ongoing investigations will probably provide more background on NCTC's role, but Congress may move to undertake its own assessment. The December 25, 2009, incident in which a Nigerian traveler, Umar Farouk Abdulmutallab, attempted to set off an incendiary device onboard an aircraft approaching Detroit was a more straightforward foreign intelligence problem. It did not involve a U.S. citizen nor was he an employee of the U.S. Government. In this case, according to the Obama Administration, it was not the availability or the interagency sharing of data that was the problem; there were no major difficulties in collecting or sharing information (as had been the case prior to 9/11). The problem in December 2009 was inadequate analysis. Despite the information "available to all-source analysts at the CIA and the NCTC prior to the attempted attack, the dots were never connected and, as a result, the problem appears to be more about a component failure to 'connect the dots,' rather than a lack of information sharing." The Administration has pointed to several specific failures by the counterterrorism community generally and NCTC in particular: "NCTC and CIA personnel who are responsible for watchlisting did not search all available databases to uncover additional derogatory information that could have been correlated with Mr. Abdulmutallab." Further, "A series of human errors occurred—delayed dissemination of a finished intelligence report and what appears to be incomplete/faulty database searches on Mr. Abdulmutallab's name and identifying information." There was not a process for tracking reports and actions taken in response and there appears to have been a greater concern with the threat posed to American interests in Yemen than to the possibility of an attack by Al Qaeda in the Arabian Peninsula (AQAP) on the U.S. Homeland. The extent to which such failings belong solely or even significantly to NCTC as opposed to other agencies is as yet undetermined. The Executive Branch has undertaken several overall investigations of the Fort Hood shooting and the December 25 airline attack. The Senate Intelligence Committee reviewed the Christmas bombing with specific focus on the intelligence on the alleged perpetration Abdulmutallab held by various agencies. According to the published unclassified summary of the report, the committee found "systemic failures across the Intelligence Community." Despite the responsibilities assigned to NCTC, the "Committee found that no one agency saw itself as being responsible for tracking and identifying all terrorism threats." Specifically, the Senate Intelligence Committee found that NCTC's Directorate of Intelligence failed to connect reporting on Abdulmutallab; it was neither adequately organized or resourced for this effort. "Like other analysts in the Intelligence Community, NCTC's analysts were primarily focused on Yemen-based AQAP-related threats." Furthermore, NCTC's Watchlisting Office did not connect key intelligence reporting with other relevant reporting. The Committee made a number of recommendations for NCTC and other intelligence agencies to improve their performance. Beyond the recommendations coming out of these investigations, there may also be a more general interest in an assessment of the role of various agencies and how they work together. In particular, Congress may act to review the statutory framework that created the NCTC in 2004 and how the Center has functioned in the years since. In particular, Congress may wish to satisfy itself that the NCTC has access to all appropriate information and intelligence. It may wish to assure itself that detaillees to the NCTC from other agencies are highly qualified and committed to the Center's mission and do not see their role as protecting their agency's bureaucratic equities. Congress may wish to assess the availability of adequate technologies at NCTC for accessing and sharing information. Although significant efforts have been made to remove the "wall" between law enforcement and intelligence, there may be residual barriers especially those resulting from separate bureaucratic cultures. As in the case of Major Hassan the natural tendency to avoid over-involvement in law enforcement or the personnel policies of a cabinet department may have influenced the handling of information relating to contacts between a U.S. person and a suspected terrorist in another country. Concern has also been expressed that NCTC might rely on authorities available to foreign intelligence agencies that do not encompass the restrictions on domestic intelligence gathering and law enforcement operations and that this approach may jeopardize privacy rights. Congress might seek additional information on NCTC policies regarding privacy rights of U.S. persons. It has become clear that the question of "home-grown" terrorists, U.S. persons who become radicalized through contacts with foreign terrorists is especially challenging in this regard. Congress exerts its greatest influence through authorization and appropriations legislation. However, NCTC is not a large collection agency and its relatively small budget goes mainly for personnel expenses. Some in Congress may find the number of NCTC personnel either excessive or inadequate, but changes in the number of positions would affect the NCTC budget but in relatively small amounts in comparison to the $53+ billion budget for all national intelligence programs. Some observers have argued that NCTC's information technology capabilities need to be enhanced, but it is unlikely that the budgetary implications would be dramatic. There will undoubtedly be varying assessments of NCTC's analytical products; observers argue, however, that judging the overall quality of analytical efforts can be challenging. Analysis is an intellectual exercise that incorporates education and training, experience, insight, determination and occasionally elements of luck. Simply replacing current officials with those with greater education, or paying them more or giving them more (or less) supervision will not guarantee better results. Some argue that the best approach is to build and maintain a culture of excellence. The unusual dual mission of the NCTC and the different reporting responsibilities of the NCTC Director to the DNI and the President may be a source of congressional interest. Are there contradictions between the two missions? Has the NCTC Director's direct link to the President caused difficulties with his relationship with the DNI? Does the NCTC monitor the responses of other agencies to analytical information it provides? What role does the CIA's Counterterrorism Center currently have and how do the two entities interact? Does the NCTC become involved in planning covert actions? Is there beneficial or counterproductive competition between the two centers? In general, how has NCTC's strategic analysis of the overall terrorist threat evolved in recent years? Is the relationship between strategic analyses and operational planning been carefully reviewed? What is the NCTC's current role in dealing with different agency approaches to specific terrorist threats? To what extent does the NCTC Director choose options and to what extent are different proposals forwarded to the National Security Council staff? Arguably most important, however, is the capability of ensuring that analysts are integrated into the counterterrorism effort, that operational planning is shared with analytical offices so that particular reactions or threats can be anticipated and assessed. The most important "wall" may not be the one that existed between law enforcement and intelligence agencies prior to 2001, but the one that often persists between analysts and operators. The latter may lack the time and opportunity to integrate analytical efforts into their ongoing work, but if the country is aiming for a "zero defects" approach to terrorism, close attention to intelligence is a prerequisite. Some experienced observers maintain that "zero defects" is unrealizable, some failures are inevitable and argue that it is more responsible to minimize failures and limit their effects. The use of intelligence by policymakers and military commanders is in largest measure the responsibility of the Executive Branch, but some observers argue that the quality of analysis may be enhanced when analytical efforts are regularly reviewed by congressional committees and hearings are conducted to ensure that they are properly prepared and fully used. | The National Counterterrorism Center (NCTC) was established in 2004 to ensure that information from any source about potential terrorist acts against the U.S. could be made available to analysts and that appropriate responses could be planned. Investigations of the 9/11 attacks had demonstrated that information possessed by different agencies had not been shared and thus that disparate indications of the looming threat had not been connected and warning had not been provided. As a component of the Office of the Director of National Intelligence, the NCTC is composed of analysts with backgrounds in many government agencies and has access to various agency databases. It prepares studies ranging from strategic assessments of potential terrorist threats to daily briefings and situation reports. It is also responsible, directly to the President, for planning (but not directing) counterterrorism efforts. The NCTC received a statutory charter in the Intelligence Reform and Terrorism Prevention Act of 2004 (P.L. 108-458); it currently operates with a staff of more than 500 personnel from its headquarters in northern Virginia. The NCTC Director is appointed with the advice and consent of the Senate. Although there have been a number of arrests of individuals suspected of planning terrorist attacks in the U.S., two incidents in 2009—the assassination by an Army Major of some 13 individuals at Fort Hood Army Base on November 5, 2009, and the failed attempt to trigger a bomb on an airliner approaching Detroit on December 25, 2009—contributed to increased concern about counterterrorism capabilities domestically and internationally. An Executive Branch assessment of the December 2009 bombing attempt concluded that, whereas information sharing had been adequate, analysts had failed to "connect the dots" and achieve an understanding of an ongoing plot. Attention has focused on the NCTC which is responsible for ensuring both the sharing of information and for all-source analysis of terrorist issues. A review by the Senate Intelligence Committee released in May 2010 found there were systemic failures across the Intelligence Community and, in particular, that the NCTC was inadequately organized and resourced for its missions. In addition, the committee concluded that intelligence analysts (not only those in NCTC) tended to focus more on threats to U.S. interests in Yemen than on domestic threats. |
H.Res. 6 renamed five committees. The name of the Committee on Education and the Workforce was changed to the Committee on Education and Labor. The name of the Committee on International Relations was changed to the Committee on Foreign Affairs. The name of the Committee on Resources was changed to the Committee on Natural Resources. The name of the Committee on Government Reform was changed to the Committee on Oversight and Government Reform. The name of the Committee on Science was changed to the Committee on Science and Technology. The Rule X, clause 11 jurisdiction of the Permanent Select Committee on Intelligence was updated to reflect the overhaul of the intelligence community, including the creation of the director of national intelligence. Pursuant to a statement inserted in the Congressional Record by Rules Committee Chairwoman Louise Slaughter during the debate on H.Res. 6 , the jurisdiction of the Committee on Small Business was reaffirmed to include the Small Business Administration and its programs, as well as small business matters related to the Regulatory Flexibility Act and the Paperwork Reduction Act. Other programs and initiatives that address small businesses outside the confines of those acts were referenced as well. Also inserted in the Congressional Record during debate on H.Res. 6 was a memorandum of understanding between the Committee on Homeland Security and the Committee on Transportation and Infrastructure detailing the jurisdictional agreement related to the Federal Emergency Management Agency and to port security. House Rule X, clause 5(d), which generally limits committees to five subcommittees was waived for three committees. The Armed Services Committee was permitted to have seven subcommittees; the Foreign Affairs Committee was permitted to have seven subcommittees; and the Transportation and Infrastructure Committee was permitted to have six subcommittees. The Committee on Oversight and Government Reform was authorized to adopt a committee rule that authorized and regulated the taking of depositions by a Member or counsel of the committee, including depositions in response to a subpoena. The rules resolution permitted the new committee rule to require those being deposed to subscribe to an oath. It also required the committee rule to provide the minority with equitable treatment, by providing notice of such a proceeding and a reasonable opportunity to participate. The Rules Committee was allowed to publish the record votes taken during committee consideration in committee reports and through other means such as the Internet. The Rules Committee report was shielded from a point of order if the report was filed without a complete list of record votes taken during consideration of a special rule. Committees of jurisdiction were required to publish lists of earmarks, limited tax benefits, and limited tariff benefits contained in any reported bill, unreported bill, manager's amendment, or conference report that comes to the House floor. | This report details changes in the committee system contained in H.Res. 6 , the Rules of the House for the 110 th Congress, agreed to by the House January 4, 2007. The report will not be updated unless further rules changes for the 110 th Congress are adopted. |
Concern about shareholder value, corporate governance, and the economic and social impact of escalating pay for corporate executives has led to a controversy regarding the practices of paying these executives. In a stated attempt "to provide investors with a clearer and more complete picture of compensation to principal executive officers, principal financial officers [and] the other highest paid executive officers and directors," the Securities and Exchange Commission (SEC or Commission) issued rules in 2006 concerning the disclosure of executive compensation. The rules, however, have created a controversy of their own. Separate from the SEC, Congress has also examined ways to address concerns relating to executive compensation. Both the 110 th and 111 th Congresses enacted significant legislation with executive compensation provisions. On July 26, 2006, the SEC voted to adopt revisions to its rules concerning disclosure of executive compensation. These compensation disclosure rules were particularly focused upon companies' providing investors with details about executives' stock-option grants and corporate stock-option programs. The rules required companies to prepare a principles-based Compensation Discussion and Analysis section in their proxy statements, annual reports, and registration statements. In these July 26 rules, the Commission required companies "to make tabular and narrative disclosure about all aspects of stock option grants and ... provid[e] additional guidance about the disclosure of company stock-option practices." The tables would have to contain such information as the grant date fair value, the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards Rule No. 123 (FAS 123R) grant date, the closing market price on the grant date if the closing market price is greater than the exercise price of the award, and the date on which the board of directors or the compensation committee took action to grant the award if the action date is different from the grant date. On December 22, 2006, the Commission announced that it had adopted changes to its July 26 executive and director compensation disclosure rules "to more closely conform the reporting of stock and option awards to Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS 123R)." The amendment was made in the form of interim final rules that would become effective upon publication in the Federal Register. The Commission went on to state that FAS 123R requires recognition of the costs of equity awards over the period in which an employee is required to provide service in exchange for the award. Using this same approach in the executive compensation disclosure will give investors a better idea of the compensation earned by an executive or director during a particular reporting period, consistent with the principles underlying the financial disclosure statement. The SEC briefly summarized some of the important provisions of the amendment as follows: The dollar values required to be reported in the Stock Awards and Option Awards columns of the Summary Compensation Table and the Director Compensation Table are revised to disclose the compensation cost of those awards, before reflecting forfeitures, over the requisite service period, as described in FAS 123R. Forfeitures are required to be described in accompanying footnotes. The Grants of Plan-Based Awards Table is revised to require disclosure of the grant date fair value of each individual equity award, computed in accordance with FAS 123R, and the Director Compensation Table required under Item 402 of Regulation S-K is revised to require footnote disclosure of the same information. The Grants of Plan-Based Awards Table is revised to require disclosure of any option or stock appreciation right that was re-priced or otherwise materially modified during the last completed fiscal year, including the incremental fair value, computed as of the re-pricing or modification date in accordance with FAS 123R, and the Director Compensation Table required under Item 402 of Regulation S-K is revised to require footnote disclosure of the same incremental fair value information. These December 22 amendments have resulted in criticism by some investor groups. Investor groups' criticism has focused on what they believe to be the obfuscation of executive pay packages. An example given is the following: Say the chief executive of American Widget gets a $24 million option grant on December 1 of this year, with the options vesting—meaning they may be exercised—over four years. He is not eligible for retirement, perhaps because he joined the company only a few years ago, or perhaps because he has not reached the company's minimum retirement age of 60. In the summary table, the value of that option will be shown as $500,000. That is because he has worked just one month of the 48 months needed for the option to become fully exercisable. Over at National Widget, American's main competitor, the chief executive gets an inferior options package on the same day. It is worth $5 million, with the same four-year schedule. But that executive is eligible to retire, although he has no intention of doing so. The compensation summary will show he got a $5 million option. The reality is that one man received options worth nearly five times what the other one was awarded. The appearance is very different. On the other hand, some business groups claimed that the executive compensation disclosure requirements as originally proposed by the SEC needed to be revised because they did not provide a completely accurate picture of actual annual executive compensation. In the 110 th Congress, two laws containing executive compensation provisions applicable to executives of specific types of businesses were enacted: P.L. 110-289 , the Housing and Economic Recovery Act of 2008, and P.L. 110-343 , the Emergency Economic Stabilization Act of 2008. Sections of P.L. 110-289 concern restrictions on compensation for executives of federal home loan banks, Fannie Mae, and Freddie Mac. Section 1117 allows the Secretary of the Treasury, in exercising temporary authority to purchase obligations issued by any federal home loan bank, Fannie Mae, and Freddie Mac, to consider limitations on the payment of executive compensation. Sections 1113 and 1114 allow the Director of the Federal Housing Finance Agency to prohibit and withhold executive compensation from executives of federal home loan banks, Fannie Mae, and Freddie Mac if wrongdoing has occurred. There is also authority for limiting golden parachute payments to these executives. Section 111 of P.L. 110-343 allowed the Secretary of the Treasury to require that financial institutions whose troubled assets are purchased meet appropriate standards for executive compensation. These standards were required to include limits on incentive-based compensation for unnecessary and excessive risks, recovery of bonuses and incentive compensation based on criteria later proven to be materially inaccurate, and a prohibition on golden parachutes. In the 111 th Congress, Title VII of P.L. 111-5 , the American Recovery and Reinvestment Act of 2009, amended Section 111 of P.L. 110-343 to set forth somewhat different and more detailed restrictions on the compensation of executives of companies during the period in which any obligation arising from financial assistance provided under the Troubled Assets Relief Program (TARP) remains outstanding. The Secretary of the Treasury is required to develop appropriate standards for executive compensation. The standards must include the following: Limits on compensation that exclude incentives for the five highest paid executives of the TARP recipient to take unnecessary and excessive risks. A provision for the recovery by the TARP recipient of any bonus, retention award, or incentive compensation paid to the five highest paid executives and the next 20 most highly compensated employees of the TARP recipient, based upon criteria that are later found to be materially inaccurate. A prohibition on the TARP recipient's making any golden parachute payment to the five highest paid executives or any of the next five highest paid employees of the TARP recipient. A prohibition on a TARP recipient's paying a bonus, retention award, or incentive compensation, except that the prohibition shall not apply to paying long-term restricted stock, so long as this stock does not fully vest during the period in which the TARP recipient has outstanding financial assistance, has a value not greater than one-third of the total amount of the annual compensation of the employee receiving the stock, and is subject to other conditions that the Secretary of the Treasury may determine to be in the public interest. The prohibition is not to be construed to apply to a bonus payment required to be paid according to a written employment contract executed on or before February 11, 2009. Application of the prohibition is dependent upon the amount of assistance received. The prohibition applies as follows: to the highest paid person of a financial institution receiving less than $25 million in financial assistance, to at least the five highest paid employees of a financial institution receiving at least $25 million but less than $250 million in financial assistance, to the five highest paid executive officers and at least the next 10 highest paid employees of a financial institution receiving at least $250 million but less than $500 million, and for a financial institution receiving financial assistance of $500 million or more, to the five highest paid officers and at least the next 20 highest paid employees. A prohibition on any compensation plan encouraging manipulation of the reported earnings of a TARP recipient to enhance the compensation of any of its employees. A requirement for the establishment of a Board Compensation Committee. The chief executive officer and the chief financial officer of each TARP recipient must certify that the TARP recipient has complied with the standards issued by the Secretary of the Treasury and file the certification with the Securities and Exchange Commission if the company's securities are publicly traded or with the Secretary of the Treasury if the company's securities are not publicly traded. The Board Compensation Committee which each TARP recipient is required to establish must be made up of independent directors and must review employee compensation plans. The Board must meet at least semiannually to discuss and evaluate employee compensation plans. If the TARP recipient's stock is not registered with the SEC and it has received $25 million or less of TARP assistance, the Board Compensation Committee's duties shall be performed by the recipient's board of directors. The board of directors of each TARP recipient must have a policy concerning excessive or luxury expenses, including entertainment, office renovations, transportation services, and other unreasonable expenditures. Any annual or other meeting of the shareholders of a TARP recipient must permit a separate shareholder vote to approve the compensation of executives. The vote shall be nonbinding and cannot be construed to overrule a decision by the board of directors. The Secretary of the Treasury is required to review bonuses, retention awards, and other compensation paid to the five highest paid executives and the next 20 highest paid employees of each company that received TARP assistance before February 17, 2009 (the act's date of enactment), to determine whether any payments were inconsistent with the purposes of TARP or contrary to the public interest. Payments determined to be excessive shall be reimbursed to the federal government. In consultation with the appropriate federal banking agency, the Secretary of the Treasury shall permit a TARP recipient to repay any assistance provided to the financial institution, without regard to whether the financial institution has replaced the funds from any other source or to any waiting period. When the assistance is repaid, the Secretary of the Treasury shall liquidate warrants associated with the assistance at the current market price. In tax law, executive compensation is limited by either denying the payer a deduction for a payment to an executive or by imposing a tax on either the payer or the payee. The former is used as a means of limiting salary deductions. Both are used to limit "golden parachutes." Provisions to limit executive compensation, including golden parachute payments, have existed within the Internal Revenue Code (IRC) for many years; however, new provisions affecting entities receiving funds from the Troubled Assets Relief Program (TARP) were introduced in the 110 th Congress by the Emergency Economic Stabilization Act of 2008 (EESA). These provisions have some similarities to the earlier provisions in the code, but differ sufficiently that the EESA provisions will be described separately from the earlier provisions, which are still in effect for publicly held corporations that have not received TARP funds. EESA and the American Recovery and Reinvestment Act of 2009 (ARRA) also introduced restrictions outside of the IRC on golden parachute payments. These are discussed in the corporate governance section of this report. In 1993, subsection 162(m) was introduced into the IRC. Effective for tax years beginning after December 31, 1993, the provision applied only to publicly held corporations and not to closely held corporations or non-corporate employers. With the exception of employers receiving TARP funds, the § 162(m) limitations on deductibility continue to apply only to publicly held corporations and limit deductions for an employee's compensation to $1 million in a taxable year. The subsection did not include a provision for inflation adjustments to the $1 million limit, and that amount has not been statutorily increased. In calculating compensation, neither commissions based on income earned through the personal effort of the employee nor compensation based on achievement of one or more performance goals is to be included; however, other compensation such as retention pay and severance pay is included in the calculation of compensation subject to the deduction limit. The $1 million limitation on deductibility applies only to compensation paid to covered employees. Who is a covered employee is determined at the end of the taxable year. A covered employee is the CEO (or someone acting in that capacity) or someone who is among the four most highly compensated employees (other than the CEO) for the taxable year and whose compensation for the taxable year must be reported to shareholders under the Securities Exchange Act of 1934. In October 2008, EESA introduced a new paragraph to § 162(m) that is specifically applicable to recipients of TARP funding. For these entities, deduction for employee compensation to "covered executives" is limited to $500,000. The definition of "covered executive" is similar to the definition of "covered employee" found in § 162(m)(3). However, it is expanded to include explicitly anyone who is or who acted as the chief financial officer (CFO). The three most highly compensated officers (other than those who are or act as CEO and CFO) are also considered covered executives. Determination of who is a covered executive is made based on the individual's position at any time during the taxable year when the authority under EESA § 101(a) is in effect. Thus, if more than one person was or acted as either the CEO or CFO during the applicable portion of the first taxable year in which this provision applies, there would be more than five "covered executives" for whom the deduction limit would apply. In future years the limitation could apply to even more executives because, once an executive has qualified as a covered executive, that designation continues in all subsequent years so long as EESA's authority remains in effect. In calculating the remuneration of a covered executive, entities receiving TARP funds may not use the exclusions available to those not receiving TARP funds. Both commissions and compensation based on achievement of performance goals must be used in the calculation of the covered employee's remuneration. Golden parachute payments are limited by denying the payers a tax deduction for "excess parachute payments" and by imposing upon the recipients a 20% excise tax on the excess parachute payments. EESA has expanded the context in which excess parachute payments may exist. Whenever an excess parachute payment exists, whether under the new EESA provisions or under otherwise existing law, the recipient of the payment will be liable for the 20% excise tax on the excess payment as imposed by IRC § 4999. The excise tax is assessed in addition to the income tax on the amount received. When the recipient is an employee, the employer must withhold 20% of the payment for the excise tax in addition to regular income tax withholdings on the payment. Introduced into law in 1984, IRC § 280G addressed only corporate entities prior to EESA. However, unlike § 162(m), there was no requirement that the corporation be publicly held, although there is an exemption for certain small business corporations. The section's applicability to corporations comes from its definition of parachute payments. To be parachute payments, payments made by an entity not receiving TARP funds must be contingent upon a change in either the ownership of a substantial portion of the corporation's assets or the ownership or control of the corporation. Thus, if no TARP funds have been received, a non-corporate entity cannot be deemed to have made parachute payments. Additionally, parachute payments must be "in the nature of compensation to (or for the benefit of) a disqualified individual." A "disqualified individual" is defined as being an officer, shareholder, or highly compensated individual who performs personal services for any corporation and is an employee, independent contractor, or other person specified in the Treasury regulations. To be a parachute payment, the aggregate present value of the payment must be three times the base amount. To the extent that the payment exceeds the allocable base amount, there is an "excess parachute payment" that cannot be deducted by the corporation. The base amount is generally the employee's average compensation for the five most recent tax years ending prior to the change of ownership or control. Subsection 280G(e) extends the provisions of § 280G to entities receiving TARP funds even when they are not corporations. The small business exemption does not apply to entities receiving TARP funds. For purposes of determining whether TARP recipients have excess parachute payments that cannot be deducted, covered executives are considered "disqualified individuals." A covered executive's severance from employment is treated as a change in ownership or control of a corporation if that severance is due to involuntary termination by the employer or related to the employer's bankruptcy, liquidation, or receivership. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Although many of its most publicized changes involved consumer bankruptcies, BAPCPA also made changes to business bankruptcies. Among the changes was a new subsection that limited the extent to which "key employee retention plans" (KERPs) could be paid as administrative expenses of the debtor. This restriction generally is more applicable in chapter 11 reorganizations than in chapter 7 liquidations, but is not limited to chapter 11. Chapter 11 reorganizations are designed to allow the debtor to remain in possession of the business and continue to operate the business while negotiations are conducted with creditors. Generally, a trustee is not appointed. The legislative history of the Bankruptcy Act of 1978 indicates that chapter 11 presumes that reorganization is apt to be more successful if the debtor's management leads it through the reorganization and that the continuity of business operations will benefit both the creditors and the public. Prior to BAPCPA, KERPs were used to provide retention bonuses and severance pay to management employees who remained with the debtor business to manage it through its reorganization. However, there was a perception that KERPs were being abused to favor insiders. This perception of abuse led to BAPCPA's restrictions on retention pay and bonuses as administrative expenses in a bankruptcy. Administrative expenses have a high statutory priority in bankruptcy and generally must be paid before other priority claims as well as non-priority unsecured claims. As a result of BAPCPA, administrative expenses generally cannot include either allowances or payments of inducements to remain with the debtor company if those inducements are transfers to an insider of the debtor or obligations incurred for the benefit of the insider. The Bankruptcy Code does establish standards under which such inducements may be allowed or paid. However, there is some question as to whether the standards can realistically be met within the context of a pending bankruptcy. To be allowed, the court must find, based on evidence in the record, that (1) the inducement "is essential to retention of the person because the individual has a bona fide job offer from another business at the same or greater rate of compensation" and (2) the person's services are "essential to the survival of the business." In addition, the court must compare the amount of the inducement to other similar transfers or obligations to nonmanagement employees, for any purpose, within the same calendar year. To be allowed, the inducement to the insider may be no more than 10 times the mean of the nonmanagement transfers or obligations. In the case where there have been no similar transfers or obligations to nonmanagement employees within the calendar year, the amount of the insider's inducement must be no more than 25% of any similar transfer or obligation, for any purpose, benefiting the insider during the previous calendar year. Severance payments to insiders may be allowed as administrative expenses in a post-BAPCPA bankruptcy only if "the payment is part of a program that is generally applicable to all full-time employees." Such a payment will not be allowed if it is more than 10 times the mean severance pay for nonmanagement employees during the same calendar year. BAPCPA further prohibited other transfers and obligations benefitting officers, managers, or consultants who were hired post-petition if made "outside of the ordinary course of business and not justified by the facts and circumstances of the case." Since BAPCPA's passage, there has been a move toward paying managers incentive payments, which are not restricted. Though some of these incentive pay schemes have been rejected by the courts as actually being retention bonuses that did not meet BAPCPA's requirements, others have been upheld as incentive bonuses and, therefore, not subject to the restrictions imposed by the post-BAPCPA Bankruptcy Code. Recent Congresses have offered a number of proposals concerning executive compensation. Some of these involve additional disclosure of executive compensation to shareholders. Recently, several proposals have been made involving TARP recipients. Other areas in which bills involving executive compensation have been introduced include tax and bankruptcy. Bills introduced in the 111 th Congress on executive compensation include S. 1074 , which would apply a say-on-pay rule to all publicly traded companies, and S. 1006 , which would require 60% of shareholders to give their approval to pay packages larger than 100 times the average annual compensation of a company's employees. The House Committee on Financial Services circulated a discussion draft of H.R. 3269 , the Corporate and Financial Institution Compensation Fairness Act of 2009. The draft had four major parts: Say-on-Pay, Independent Compensation Committee, Incentive Based Compensation Disclosure, and Compensation Standards for Financial Institutions. On July 31, 2009, the House passed an amended version of the bill. Section 2 of the House-passed bill, concerning shareholder votes on executive compensation disclosures, would amend section 14 of the Securities Exchange Act by adding subsection (i), which would require every annual shareholder meeting to have a separate shareholder vote to approve the compensation of executives. The shareholder vote would not be binding and could not be construed as overruling a decision made by the board of directors. In addition, any proxy or consent solicitation material in which shareholders are asked to approve an acquisition, merger, consolidation, or proposed sale of an issuer would have to disclose any agreements or understandings that executive officers have concerning compensation based upon the acquisition, merger, consolidation, or sale of the issuer, so-called golden parachute agreements. There would have to be a nonbinding shareholder vote on this compensation. Every institutional investment manager would be required to disclose how it voted on executive compensation and golden parachutes. The SEC could exempt certain categories of issuers from the shareholder vote requirements and, in determining these exemptions, would need to take into account the potential impact upon smaller companies. Section 3 of the House-passed bill would require that every national securities exchange or association prohibit the listing of equity securities of an issuer not having a compensation committee of the board of directors. Every member of the compensation committee would have to be independent, meaning that he or she could not accept any consulting, advisory, or other compensatory fee from the issuer. A compensation committee would have the authority to retain a compensation consultant and independent counsel. A compensation consultant or other adviser to an issuer's compensation committee would have to meet the independence standards established by the SEC by regulation. Section 4 of the House-passed bill would require federal regulators to issue regulations requiring covered financial institutions to disclose the structures of all incentive-based compensation arrangements offered by the institutions so as to determine whether the structures are aligned with sound risk management, structured to consider risks over time, and meet other criteria to reduce unreasonable incentives offered to employees to take excessive risks that could threaten the safety and soundness of financial institutions or could have adverse effects upon economic conditions or financial stability. The federal regulators covered are the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, the National Credit Union Administration Board, the Securities and Exchange Commission, and the Federal Housing Finance Agency. Covered financial institutions are a depository institution or depository institution holding company, a broker-dealer, a credit union, an investment adviser, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and any other financial institution that the federal regulators determine should be treated as a covered financial institution. The Comptroller General would be required to carry out a study to determine whether there is a connection between compensation structures and excessive risk taking. Bills concerning executive compensation limits have been introduced in the 111 th Congress. Among these bills are H.R. 851 , which would require any institution provided with assistance under the Emergency Economic Stabilization Act of 2008 to meet standards for executive compensation and corporate governance, and H.R. 857 and S. 360 , which would prohibit any officer or employee of an entity receiving funds under TARP from being compensated more than the President of the United States. With the acknowledgment by AIG of the payment of bonuses to a number of its employees, bills have been introduced to recover at least some of the bonuses paid. These bills would use different ways of recovering the bonuses. For example, H.R. 1575 would authorize the Attorney General to recover excessive compensation paid by entities which have received federal financial assistance on or after September 1, 2008. H.R. 1664 , passed by the House, would amend the Emergency Economic Stabilization Act of 2008 to prohibit unreasonable and excessive compensation and compensation not based on performance standards paid by companies receiving direct capital investments of taxpayer money. A bill that would limit the deductibility of employee compensation for all employers, corporate or noncorporate, was introduced in the 111 th Congress. H.R. 1594 proposed limiting the deduction for compensation paid to an employee in excess of the greater of $500,000 or "an amount equal to 25 times the lowest compensation for services performed by any other full-time employee during such taxable year." Since it applies to all employers and is not limited to a few top executives, the provision is broader than either the § 162(m) provisions in EESA or the provisions that pre-date EESA. Following AIG's bonus announcement in 2009, both the House and Senate introduced bills that would have imposed high taxes both retrospectively and prospectively on bonuses paid by entities receiving TARP funds or other federal emergency economic assistance after December 31, 2007. H.R. 1586 , which was passed by the House, would have imposed a 90% income tax on the bonuses to the extent that the bonuses increased the recipient's adjusted gross income to more than $250,000. The 90% rate would have been instead of, rather than in addition to, the taxpayer's regular income tax rate. Other taxable income would be taxed at the regular tax rates. S. 651 proposed imposing an excise tax on "excessive bonuses." The 35% excise tax would be imposed on both the payer and the recipient resulting in a total 70% of the bonuses being paid as excise tax. The excise tax would have been in addition to, rather than instead of, the recipient taxpayer's normal income tax rate. In the 109 th Congress, H.R. 5113 and its companion S. 2556 proposed expanding the prohibition on retention payments introduced by BAPCPA as 11 U.S.C. § 503(c). The bills would have included performance and incentive payments and other bonuses as well as "any other compensation enhancement." The bills would also have extended the reach of 11 U.S.C. § 503(c)(3) to include payments made within the ordinary course of business as well as those outside of the ordinary course of business. In the 110 th Congress, H.R. 3652 and its companion S. 2092 also proposed expanding the general restrictions on retention payments to include both performance and incentive payments, but went on to include "bonus[es] of any kind, or other financial returns designed to replace or enhance incentive, stock, or other compensation in effect" before the bankruptcy petition was filed. The proposed modifications to § 503(c) of the Bankruptcy Code also extended paragraph 503(c)(3) to payments made within the ordinary course of business. The bills also proposed restricting compensation to officers and directors of the reorganized debtor, making the compensation subject to court approval as reasonable when compared to compensation paid to others in the industry in similar positions at similar jobs. However, even if found reasonable, to be approved the compensation could not be disproportionate when compared to economic concessions from nonmanagement workforce during the bankruptcy case. The bills also included a number of provisions that would indirectly limit executive compensation by linking it to compensation provided to other employees. CRS anticipates that bills will be introduced in the 111 th Congress addressing further limitations on executive compensation for companies involved in chapter 11 bankruptcies, but, as of the date of this report, no such bills have been found. However, although it did not propose a change to the Bankruptcy Code, H.R. 1575 , discussed in the section on " Proposals to Impose Limitations on TARP Recipients ," incorporated language similar to that in § 548 of the Bankruptcy Code, which addresses fraudulent transfers. Table A-1 lists selected provisions in federal law that address executive compensation. Some of these provisions are not discussed in the body of the report, but are listed here for reference. Executive compensation is used broadly in the context of this table to describe various types of compensation including retention payments and "golden parachutes." The table focuses on limitations on executive compensation in four areas of law: bankruptcy, banking, securities, and tax, but it includes some provisions outside those areas. The table includes provisions from both the Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343 ) and the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). EESA's provisions are listed as originally enacted, but with a notation if they have been modified by ARRA. | Concern about shareholder value, corporate governance, and the economic and social impact of escalating pay for corporate executives has led to controversy regarding the practices of paying these executives. This report focuses on legal provisions related to tax, bankruptcy, and corporate governance that attempt to limit executive compensation. Many provisions have existed for a number of years, but some have a more recent origin in the 110th and 111th Congresses. In the 110th Congress, two laws containing executive compensation provisions were enacted: P.L. 110-289, the Housing and Economic Recovery Act of 2008 (HERA), and P.L. 110-343, the Emergency Economic Stabilization Act of 2008 (EESA). In the 111th Congress, H.R. 1, the American Recovery and Reinvestment Act of 2009 (ARRA), became law (P.L. 111-5). Title VII of ARRA sets forth restrictions on the compensation of executives of companies during the period in which any obligation arising from financial assistance provided under the Troubled Assets Relief Program (TARP) remains outstanding and requires standards and a review board to determine appropriate executive compensation, which must be voted on by shareholders of TARP recipients. In the wake of American International Group's (AIG's) bonus announcement, several bills (H.R. 1575, H.R. 1586, H.R. 1664, and S. 651) were introduced in the 111th Congress to recover, directly or indirectly, bonuses paid by TARP recipients and to discourage future bonus payments. Other bills have also been introduced in the recent Congresses concerning limiting executive compensation. These bills include proposals to modify the corporate governance provisions as well as the Bankruptcy and Internal Revenue Codes. This report includes, as an Appendix, Table A-1, which outlines a number of statutory provisions that limit executive compensation. |
In 1994, at the first Summit of the Americas, the leaders of the 34 countries in the WesternHemisphere agreed to negotiate a Free Trade Area of the Americas (FTAA). FTAA's statedobjective is to reduce and eliminate barriers to trade in goods (including agricultural commoditiesand food products) and services, and facilitate cross-border investment, allowing all countries totrade and invest with each other under the same rules. (1) At their second Summit in 1998, theyformally initiated negotiations to create a hemispheric free trade area by the year 2005. At the thirdSummit in Quebec City in April 2001, leaders assessed progress to date by nine negotiating groups,agreed to conclude the negotiations by January 2005, and to bring the FTAA into effect no later thanDecember 2005. Following the timetable agreed upon in Quebec City, FTAA countries during 2003 have exchanged detailed offers and counteroffers designed to reduce and eliminate tariffs and quotas ontraded goods. In November 2002, trade ministers released the second draft consolidated text of anFTAA agreement covering all issue areas. Substantial differences in viewpoints continue to bereflected in the FTAA's chapter on agriculture, particularly on the issue of domestic farm subsidies. Many note that negotiating free trade in agricultural products could prove to be one of severaldifficult issues in the FTAA talks, as was the case in the negotiations between the United States andMexico on the agricultural provisions of the North American Free Trade Agreement (NAFTA). Hemispheric trade liberalization would directly affect U.S. agricultural trade with the countrieslocated in South America, Central America, and the Caribbean (except Cuba). Trade in mostagricultural products with Canada and Mexico already is, or will within a few years become, freeunder NAFTA's terms. (2) Also, a large portion of theagricultural products imported from outside theNAFTA trade bloc already enter the United States duty free under various trade preference programs. Imports from the Caribbean and Central American countries arrive under the Caribbean BasinInitiative. Those from Bolivia, Colombia, Ecuador, and Peru enter under the Andean TradePreference Act. Imports of certain agricultural products from other countries in the hemisphere areeligible to enter free under the Generalized System of Preferences (GSP). Countries that takeadvantage of these programs, though, are not required to offer tariff concessions on agricultural orother products imported from the United States. The United States in 2002 recorded a $2.8 billion deficit in agricultural trade with the non-NAFTA countries of the Western Hemisphere. Deficits occurred in two-way trade with theSouth American and Central American countries. Agricultural trade with the Caribbean nationsgenerated a noticeable surplus (Table 1). Table 1. U.S. Agricultural Trade Balance with FTAA Countries, by Region, 2002 Source: Derived from Tables 2 and 3 U.S. agricultural exports to the FTAA countries in the hemisphere (excluding Canada and Mexico) totaled $4.2 billion last year (Table 2). These sales represented 8% of worldwide U.S.agricultural exports, or 21% of farm exports to the region. Farm and food exports to both NAFTApartners totaled $15.9 billion (accounting for 30% of worldwide sales, or 79% of exports to the other33 FTAA countries). U.S. agricultural imports from FTAA countries (excluding NAFTA partners) totaled $7.0 billion in 2002 (Table 3). Entries accounted for 17% of all U.S. agricultural imports, or 31% ofimports from the region. Food imports from Canada and Mexico totaled $15.9 billion (representing38% of worldwide purchases, or 69% of such imports from the other 33 FTAA countries). Table 2. U.S. Agricultural Exports to FTAA Countries, 2002 Source: USDA Imports of agricultural products from the hemisphere that compete with the output of U.S. domestic producers accounted for 80% of the total. Non-competitive products not produceddomestically (such as bananas and coffee) represented 20% of these imports. Table 3. U.S. Agricultural Imports from FTAA Countries, 2002 Source: USDA Discussions on how to proceed to eliminate border protection and other barriers to agriculturaltrade have occurred primarily in two of the nine formal negotiating groups created for FTAAnegotiations. These are the Negotiating Group on Agriculture (NGAG), and the Negotiating Groupon Market Access (NGMA). Their focus has been on identifying the key issues and formulating therules to be followed in negotiating hemispheric free trade in agricultural and food products. Theirwork resulted in the consolidation by the end of 2000 of the first "bracketed" FTAA draftagreement. (3) Two chapters laid out text onagricultural provisions and guidelines on how marketaccess for agricultural products should be negotiated, respectively. Trade ministers released a secondconsolidated draft text in November 2002. (4) Itsagriculture chapter reportedly differs little from thetext in the first draft, continuing to reflect the wide range of positions between individual countries,or groups of countries. Seeking to keep to the timetable adopted at the April 2001, Quebec City summit, trade ministers in August 2002 reached agreement on the "methods and modalities" (the procedures, formulas,targets, rules, and timetables used to put negotiating objectives into practical terms) to be followedto make tariff reductions (see Market Access below for background). This provided the basisforeach country to prepare for the process of exchanging tariff and other market access concessions ona product- or sector-specific basis. Trade ministers agreed that all countries (except CARICOMmembers -- comprising most Caribbean islands, Belize in Central America, and Guyana andSuriname in South America) could start tariff cuts from current applied rates rather than from thehigher bound rates that all WTO members adopted in the last multilateral negotiating round. (5) CARICOM countries will be allowed to identify those agricultural and other products where themaximum bound rate could be used as the reference point for reducing tariffs. The November 1,2002, meeting of trade ministers in Ecuador finalized the negotiating pace and process to be followedover the 2003-2004 period. These final stages of the FTAA negotiations are being co-chaired byBrazil and the United States. All FTAA countries met the February 15, 2003 deadline for presentingtheir initial tariff reduction offers (see U.S. Market Access Offer for information on what U.S.negotiators tabled). Each country was expected to respond to these in the form of market accessrequests, due by June 15, 2003. The schedule then called for revised offers to follow this"request-offer" process by July 15, 2003. For the United States, the Office of the U.S. Trade Representative (USTR) is the lead agency involved in negotiating the FTAA. Other departments, particularly the agencies of the U.S.Department of Agriculture (USDA), provide input to USTR and have assigned staff to serve asexperts to lead negotiators. USDA representatives have also been actively involved in developingthe U.S. positions in relevant areas. FTAA trade ministers in 1998 agreed on several objectives to be followed in negotiatinghemispheric free trade in agricultural products. These have guided the work of the NGAG and theNGMA. The pertinent objectives call for: eliminating those measures that countries use to restrict the entry of agricultural products into their markets, developing disciplines on the use of export subsidies and other mechanisms that can distort trade in agricultural products, and ensuring that rules to protect food safety and plant and animal health will be based on science, and not applied on a discriminatory basis or as a disguised trade restriction. FTAA negotiators were also instructed to incorporate progress made in the current multilateral negotiations on agriculture sponsored by the World Trade Organization (WTO), (6) and the results ofthe review of WTO's multilateral agreement on the application of food safety and agricultural healthrules in international trade. These FTAA objectives are elaborated on below, with relevant background. For each issue, the U.S. position, and the positions or views of other countries when known, are summarized. (7) TheUSTR noted in 2001 that "U.S. agricultural negotiators [participating in the NGAG] will continueto work with the agricultural community to address appropriately import sensitivities and exportinterests." These positions are reflected in USTR's October 2002 notification to congressionalleaders of the U.S. negotiating objectives in the FTAA negotiations. (8) Countries use tariffs and tariff-rate quotas (TRQs) to protect certain economic sectors or specific products against import competition. [TRQs allow zero or low-duty access for specifiedamounts of a commodity or product. Imports above the quota amount may still enter, but face a veryhigh tariff rate.] To address this type of border protection, one major FTAA objective is "toprogressively eliminate, tariffs, and non tariff barriers, as well as other measures with equivalenteffects, which restrict [agricultural] trade between participating countries." Trade ministers agreedthat "all tariffs will be subject to negotiation," but allow for flexibility in negotiating "different tradeliberalization timetables." Further, negotiations on market access for agricultural products are to beconducted "to facilitate the integration of smaller economies [i.e., the Caribbean and CentralAmerican nations] and their full participation in the FTAA negotiations." The U.S. proposal called for formulating market access rules that apply similarly to both agricultural and non-agricultural products. In other words, trade in agriculture is not to be treatedany differently than trade in manufactured goods. The U.S. position is reported to advocateprocedures that "ensure that the benefits of free trade are broadly distributed," and proposed thatmost tariffs be rapidly reduced. USTR stated, with likely implications for agricultural trade, that thedetails of the U.S. position take into account "product sensitivities in a framework that is fullyconsistent" with WTO disciplines. Average Agricultural Tariffs in FTAA Area. Average tariffs on agricultural imports are lower in the Western Hemisphere compared to many otherregions around the world. The global average tariff on such imports is 62%, compared to the U.S.average (12%). For regions covered by the FTAA, the average bound tariff is 25% for NorthAmerica, 39% for South America, 54% for Central America, and 86% for the Caribbean Islands. (9) However, applied tariffs can be considerably lower than bound rates. For example, applied tariffsfor agricultural products averaged between 11% and 17% for Central and South America during the1995-99 period. These regional averages mask the range of protection between commodities in anycountry, and do not fully reflect the use of TRQs by many countries in the Western Hemisphere(including the United States), many of which apply prohibitive tariffs on above-quota imports. Reflecting FTAA's objective, the target would be to reduce tariff levels to zero and to eliminateTRQs by the end of the agreed-upon transition period, likely to be about 2020. This part of thenegotiating process will be a difficult process, as some countries seek exceptions for specificcommodities or products that currently receive protection under restrictive TRQs. Transition Periods. The U.S. proposal on FTAA's timetable and pace of tariff elimination is based in part on WTO rules, which requirecountries in a free trade area to eliminate tariffs and other forms of protection on most of their tradewithin 10 years. Some FTAA participants, though, acknowledge that some politically-sensitiveagricultural products may need to be allowed a transition of up to 20 years to adjust to competitionbefore tariffs or quotas disappear. They refer to the precedent set in NAFTA, which provided fora 15 year transition to free trade on the most sensitive agricultural products scheduled to enterMexico and the United States (i.e., frozen concentrated orange juice, peanuts, and sugar importedinto the United States from Mexico; and corn, dry beans, milk powder, and sugar imported byMexico from the United States). U.S. Market Access Offer. USTR's Ambassador Robert Zoellick, on February 11, 2003, laid out the scope of the U.S. tariff reduction offer onagricultural and other products. In unveiling this offer, he said that the United States is prepared togrant immediate duty-free access on 56% of the agricultural products that enter from non-NAFTAcountries once the agreement takes effect. On politically-sensitive farm products, AmbassadorZoellick stated that the United States proposes to eliminate tariffs with specific timetables that woulddiffer between countries or regional groups. Transition periods could be 5 or 10 years, or evenlonger, depending upon a country's size and its level of economic development, and on the type ofagricultural product. He indicated all agricultural products are on the table and subject to negotiation(i.e., no exclusions), and that the United States will move forward with other countries willing totake the same position. Governments use various mechanisms to support their farm sectors and to facilitate agricultural exports. The Uruguay Round's Agreement on Agriculture (URAA) lists those determined to distortagricultural trade, and requires that countries now follow some disciplines on their use. TheAgreement, among other things, spelled out commitments and a timetable for governments to reduceexport subsidies and domestic support. Other mechanisms (i.e., export credits, activities of statetrading enterprises) claimed to distort trade were identified for future trade talks, are on the agendaof the WTO multilateral negotiations now underway, and have surfaced in the FTAA debate. Export Subsidies. Though the WTO Agreement introduced some discipline on the use of export subsidies, WTO rules still allow countries tosubsidize exports of commodity surpluses. As a result, export subsidies continue to distortinternational trade in agricultural and food products by giving a price advantage to the exporter. Though subsidized sales reduce the price an importing country pays, the price that other exportingcountries receive for the same product sold into other markets frequently is less than would beotherwise. Two FTAA negotiating objectives agreed to by hemispheric trade ministers in their 1998 San Jose Declaration address this issue. One calls for the elimination of "agricultural export subsidiesaffecting trade in the Hemisphere." The other requires agricultural negotiators "to identify othertrade-distorting practices for agricultural products, including those that have an effect equivalent toagriculture export subsidies, and bring them under greater discipline." The U.S. position reaffirms the FTAA's goal of eliminating the use of export subsidies within the hemisphere, and proposes that the FTAA countries at the same time "establish mechanisms toprevent agricultural products from being exported to the FTAA by non-FTAA countries with the aidof export subsidies." This is likely aimed at the European Union, which heavily subsidizes itsagricultural exports and actively promotes such sales to Latin American markets. The initial U.S.proposal states that the United States does not consider export credits, credit guarantees, insuranceprograms, and international food aid "to constitute an export subsidy." The U.S. position reflectsthe use of the same definition of agricultural export subsidies (i.e., direct subsidies) as is used in theURAA. Domestic Support. Some South American countries have placed the issue of domestic farm support on the FTAA negotiating agenda. Thisrefers to government program spending to support commodity prices and raise incomes ofagricultural producers. These countries argue, with the United States and enactment of the 2002farm bill in mind, that such spending encourages farmers to produce commodity surpluses, that whenexported into world markets, depress the price that their producers receive for the same products. They view some forms of domestic support as more distorting of agricultural trade than tariffs orother border measures, and want to include this issue in the negotiations. The impetus behind theircall appears to be concern that the access they gain to the U.S. market under FTAA liberalization willnot result in much benefit to them, since the level of U.S. protection on agricultural imports isalready quite low. Therefore, these countries' strategy appears to be to offer to lower their higherlevel of border protection on agricultural products only if the United States agrees to reduce its levelof domestic farm support. U.S. negotiators continue to reject this linkage. The U.S. position is to seek a recognition by other FTAA countries that commitments to reduce domestic support levels can only be achieved inthe WTO multilateral negotiations. The U.S. proposal calls for a hemispheric agreement to worktogether in the WTO arena to substantially reduce and more tightly discipline trade-distortingdomestic support. In recent months, the United States and Brazil (now serving as FTAA co-chairs) have differed on how to address the issue of domestic farm subsidies in seeking a common position on the FTAA'send-game negotiating agenda. In responding to the U.S. market access offer, which Brazil views asdiscriminatory in the scope of duty-free access it would receive compared to other country groupsin the hemisphere, Brazil formulated a counter-proposal that has called into question what FTAA'sscope should be. It calls for: (1) the United States to negotiate market access with Mercosur (Brazil,Argentina, Uruguay, and Paraguay) as a trading bloc rather than with them as individual countries,and (2) shifting investment, government procurement, and intellectual property rights (IPR) issues,along with agricultural subsidies and antidumping rules (advocated by the U.S.) to the Doha WTOround. The United States, though, wants to include investment, procurement and IPR in acomprehensive FTAA agreement, while Brazil (seeing its priorities not being addressed) proposesto scale back the agenda to instead negotiate a "FTAA lite." State Trading Enterprises (STEs). The United States "calls for the staged elimination of exclusive export rights granted to state trading enterprisesengaged" in agricultural exports. The aim is to "permit private traders to participate in, compete for,and transact for" exports in countries where they exist. This position appears to be aimed atchanging the character of, for example, the Canadian Wheat Board, which is that country's soleexporter of wheat to several Latin American countries. If the United States persuades other countriesto include its position in the FTAA, U.S. agribusiness and commodity exporting firms would havethe opportunity to expand operations in countries where STEs exist to compete with them in sellingagricultural commodities for export. One FTAA agricultural negotiating objective adopts the WTO's SPS Agreement's principle that SPS measures not be applied "in order to prevent protectionist trade practices and facilitate trade inthe hemisphere." It declares that the use of such measures (consistent with this Agreement) toprotect "human, animal or plant life or health, will be based on scientific principles, and will not bemaintained without sufficient scientific evidence." The objective further calls for negotiations tofollow this Agreement to identify and develop measures "needed to facilitate trade." As background, most countries have policies to ensure food safety for humans and to protect animals and plants from diseases, pests, or contaminants. The WTO agreement referred to in theFTAA objective is the WTO "Agreement on the Application of Sanitary and PhytosanitaryMeasures." It includes understandings or disciplines on how countries will establish and use thesemeasures, taking into account their direct or indirect impact on trade in agricultural products. TheAgreement requires countries to base their SPS standards on science, and encourages countries touse standards set by international organizations to guide their actions. It seeks to ensure thatcountries will not use SPS measures to arbitrarily or unjustifiably discriminate against the trade ofother WTO members or to adopt them to disguise trade restrictions. The U.S. position calls for FTAA countries to agree to strengthen hemispheric collaboration on matters covered by WTO's SPS Committee and to work together to develop internationalstandards, guidelines or recommendations in relevant international bodies. The U.S. objective is toaccept and apply the work and findings of this WTO Committee, rather than create a separatehemispheric organization, in how FTAA countries formulate and apply SPS measures. FTAA trade ministers agreed to assign to the NGMA responsibility for addressing the rules of origin, customs procedures, and technical trade barriers that apply to agricultural products. ThisGroup is also charged to develop rules for safeguards, an issue that will be monitored carefully bythose countries with import-sensitive agricultural products. (10) The United States views the rules and disciplines that FTAA negotiators develop in these areas"critical in determining conditions for market access in agricultural products." The objective of thedetailed U.S. proposals on these issues is to ensure that sensitive products receive differentialconsideration during the transition to free trade, and that the benefits of free trade accrue to producersin the hemisphere and not to exporters outside the FTAA bloc who might seek to take advantage ofthe openings created by the new hemispheric free trade environment. Environmental and labor issues continue to be of concern in the wider context of the FTAAnegotiations generally, as well as to U.S. agricultural interests. Environment and labor provisionshave been included in some trade agreements, notably NAFTA and the U.S.-Jordan Free TradeAgreement, and in side agreements and decisions made relative to these agreements. However, theseissues remain contentious, with some in Congress expressing the need to include such provisions inthe FTAA. Others, though, argue that these issues do not belong in trade agreements and should beaddressed in environmental or other agreements. With regard to agriculture, some U.S. farm groups have expressed concern about the level of environmental, health, and labor standards found in the agricultural sectors of Latin Americancountries. U.S. farmers that produce import-sensitive commodities refer to these countries' lowerproduction costs, and their minimal safety and health requirements. For this reason, theirrepresentatives are concerned that complete trade liberalization would place them in a difficultcompetitive position, due to increased imports from countries where farm workers are paid muchlower wages and environmental regulations are lax. (11) Other farm groups, though, are opposed toincluding labor and environmental provisions (such as trade sanctions to enforce such rules) in tradeagreements. They support liberalizing trade in a way that promotes sustainable agriculturaldevelopment and improves working conditions. U.S. agriculture would benefit to some degree from U.S. participation in an FTAA thateliminates tariffs throughout the Western Hemisphere, according to a USDA analysis. (12) It found thaton an annual basis U.S. farm income (in 1992 dollars) would be $180 million higher (0.08%), totalagricultural exports would increase by $580 million (1%), and total agricultural imports would riseby $830 million (3%). This study found that the impact would vary among commodities. Assuming that the United States and Canada resolve the dispute surrounding Brazil's application of restrictive phytosanitaryrules to their wheat, both countries would see their wheat market share increase in Brazil -- the U.S.share would likely increase more than Canada's given lower U.S. shipping costs to Northeast Brazil. Gains are also expected in U.S. exports of corn, soybeans, and cotton to the hemisphere. Littleimpact is seen on sales of U.S. rice, meat, and dairy products. According to this analysis, completetrade liberalization under an FTAA would mean increased competition for U.S. sugar and orangejuice. It shows that U.S. sugar prices, production, and exports "could decline significantly, andimports could increase" from lower-cost producers like Brazil and Guatemala. The study also notesthat the removal of U.S. tariffs "may create incentives to import less-expensive Brazilian orangejuice," a development that "may displace some Florida juice." Congress will take up any agreement that results from the FTAA negotiations under fast trackprocedures found in Bipartisan Trade Promotion Authority Act of 2002 (Section 2105 of P.L.107-210 ). This details the process that Congress must follow to consider legislation sent to the Hillby the Executive Branch to implement signed trade agreements. Other provisions state broadobjectives for U.S. negotiators to follow in negotiating agricultural provisions in trade agreements,including those included in the FTAA. (13) In themeantime, the Administration is required to consultwith Congress on specific agricultural issues as negotiations on the FTAA and other tradeagreements proceed. Interaction during the period of consultation on negotiating positions andstrategies is intended to lay the groundwork for later congressional consideration of an FTAAagreement. Detailed provisions require the Executive Branch to follow special consultation procedures with Congress before engaging in, and during, trade negotiations that affect certain agricultural products. Section 2104 provides for extensive consultations on agricultural trade negotiations between theExecutive Branch and the House and Senate Agriculture Committees (among other congressionalcommittees and the Congressional Oversight Group). Section 2104 (b)(2) further prescribes specialconsultation procedures and a process for USTR to follow beforeundertaking agricultural tariffreduction negotiations in the FTAA and in negotiations on other trade agreements, on over 200"import-sensitive" agricultural commodities and food products. (14) It requires USTR to: consult with the House Agriculture and Ways and Means Committees, and the Senate Agriculture and Finance Committees, on whether any further tariff reductions on anyidentified product "should be appropriate, taking into account the impact of any such tariff reductionon the United States industry producing the product," on whether any covered product faces"unjustified sanitary or phytosanitary restrictions, including those not based on scientific principlesin contravention of the Uruguay Round Agreements," and on whether countries in the negotiationsuse export subsidies or other trade-distorting measures on products that affect U.S. producers of suchproducts, request the International Trade Commission to "prepare an assessment of the probable economic effects of any such tariff reduction on the U.S. industry producing the productconcerned and on the U.S. economy as a whole," and upon completing these steps, notify the four above-identified congressional committees of those products identified in the first step "for which the Trade Representative intendsto seek tariff liberalization in the negotiations and the reasons for seeking such tariffreductions." After negotiations have begun, this provision requires that if USTR identifies any other"import-sensitive" agricultural products for tariff reduction, or if a country involved in thenegotiations requests a reduction in the tariff on any other "import-sensitive" agricultural product,the Trade Representative shall notify the four committees of those products and the reasons forseeking tariff reductions. Reflecting the structure of other free trade agreements, hemispheric free trade in agriculturalproducts could occur by about 2020, assuming negotiators reach agreement on an FTAA by January2005. The agricultural component of the FTAA negotiating process, however, could becomeproblematic once negotiators begin to apply negotiating parameters and timetables to specificcommodities and food products that each country historically has protected. Some Latin Americancountries, particularly Brazil, seek increased access to the U.S. market for products that wouldcompete directly with U.S. producers of citrus, sugar, and beef. U.S. commodity groups andagribusiness seek additional openings for their products in the growing Latin American market. They also seek legal assurances that all countries will abide by sanitary and phytosanitary rules withrespect to agricultural imports. Though the United States will emphasize eliminating tariffs and other barriers to agricultural trade, Brazil and other countries have signaled they want the negotiating agenda to also address theissue of domestic agricultural support (i.e., farm price and income support). They have suggestedlinking their reduction in their higher tariffs to a concession by the United States on the domesticsupport issue. The United States has countered that this issue is not one of the agreed-upon FTAAobjectives, and should instead be addressed jointly by all FTAA countries in the ongoing WTOagriculture negotiations. These differing views over how this issue should be addressed in thenegotiations, and/or whether a compromise emerges in the next three weeks, will be a significant partof the mix influencing the outcome of the Miami FTAA Ministerial held November 17-21. U.S. agricultural interests have had the opportunity through public comment to present their views and concerns on the FTAA negotiations to USTR officials. Some have participated in theprivate sector meetings scheduled alongside those for FTAA trade ministers. The U.S. agriculturalsector, though, appears either lukewarm about FTAA prospects or opposed to this initiative. Thereis a widely held view that U.S. agriculture expects to benefit more, or would have less to lose, froma comprehensive multilateral WTO agreement compared to an FTAA agreement, If an FTAA agreement is reached that reflects the objectives agreed to by trade ministers in 1998, U.S. farm policymakers may have to contend with the repercussions of opening the U.S.market to import-sensitive farm products. Though final agreement and implementation of an FTAAagreement would be many years off, this outcome could prompt interest in developing alternativesto the current sugar program. Some may also explore whether there might be a need to developmechanisms to help other commodities and products that have traditionally not received governmentsupport, such as vegetables, fruit, and orange juice, to offset the effects of increased importcompetition. | Leaders of Western Hemisphere countries have agreed to negotiate a Free Trade Area of the Americas (FTAA) agreement by 2005. FTAA's objective is to promote economic growth anddemocracy by eliminating barriers to trade in all goods (including agricultural and food products)and services, and to facilitate investment. If diplomats reach agreement, free trade in the hemispherecould occur by 2020. Negotiations on FTAA's agriculture component have become contentious. FTAA's negotiating objectives for agriculture call for removing tariffs and other barriers to agricultural imports in eachcountry, developing disciplines on the use of export subsidies and other mechanisms that distortagricultural trade, and ensuring that rules on food safety and animal and plant health are not used asdisguised trade barriers. Following an agreed-upon timetable, FTAA countries during 2003exchanged detailed offers and counteroffers designed to reduce and eliminate tariffs and quotas onall traded goods. The agriculture chapter in the second draft consolidated text of an FTAAagreement issued in November 2002 continues to reflect differences in viewpoints among countrieson substantive agricultural issues. Strong differences currently exist between the United States andBrazil over how to address in the FTAA the issue of domestic farm subsidies and agricultural exportsubsidies. This issue has become pivotal in efforts to reach an agreement on FTAA's scope(comprehensive or scaled back) in the period leading up to the FTAA Ministerial in Miami onNovember 17-21. Much of U.S. agricultural trade with Canada and Mexico already occurs free of barriers under the North American Free Trade Agreement. Accordingly, an FTAA would primarily affect U.S.agricultural trade with the countries of South America, Central America, and the Caribbean. Salesto these three markets currently account for a small share (8%) of U.S. farm product exports. Agricultural imports from these three regions, by contrast, account for 17% of all such U.S. imports. A 1998 U.S. Department of Agriculture analysis finds that U.S. agriculture would benefit to some degree with U.S. participation in an FTAA that eliminates all tariffs throughout the region. According to this analysis, U.S. farm income would be $180 million (1%) higher than without anagreement, U.S. agricultural exports would increase by $580 million (1%), and U.S. agriculturalimports would rise by $830 million (3%). Some agricultural product sectors expecting to gain from increased sales are supportive of the FTAA initiative. Others appear to be ambivalent, preferring instead that the Bush Administrationplace more emphasis on liberalizing agricultural trade on a multilateral basis under the WTO. Producers of import-sensitive food products (i.e., sugar and orange juice) are concerned aboutincreased competition. They seek to be excluded from FTAA coverage or be covered by the longesttransition periods possible. Under trade law, the Executive Branch must follow special consultationprocedures with Congress on import-sensitive agricultural products covered by the FTAA agreement. This report will be updated periodically . |
Over the last two decades, contractors have played a critical role in U.S. military operations, making up more than half of Department of Defense's (DOD) total workforce in Iraq, Afghanistan, and the Balkans. With the end of combat operations in Iraq and the drawdown of forces in Afghanistan, DOD is turning its attention to preparing for future military operations. As reflected in recent defense strategic planning guidance, the United States must prepare for a diverse range of security challenges. Although future contingency operations may differ from those of the past decade, many analysts and defense officials believe that contractors will continue to play a central role in military operations. These observers believe that, in order to meet the challenges of future operations, DOD should be prepared to effectively award and manage contracts at a moment's notice, anywhere in the world, in unknown environments, and on a scale that may exceed the total contract obligations of any other federal agency. This report provides background information and identifies issues for Congress on the use of contractors to support military operations. DOD's extensive use of contractors poses several potential policy and oversight issues for Congress and has been the focus of numerous hearings. Congress' decisions on these issues could substantially affect the extent to which DOD relies on contractors in and is capable of planning for and overseeing contractors in future operations. Related CRS reports include CRS Report R42084, Wartime Contracting in Afghanistan: Analysis and Issues for Congress , by [author name scrubbed], which focuses on the challenges of contract support in Afghanistan, and CRS Report R41820, Department of Defense Trends in Overseas Contract Obligations , by [author name scrubbed] and [author name scrubbed], which focuses on trends in DOD contract obligations around the world. DOD has long relied on contractors to support overseas military operations. Post-Cold War defense budget reductions resulted in significant cuts to military logistics and other support capabilities, requiring DOD to hire contractors to "fill the gap." Recent operations in Iraq and Afghanistan, and before that in the Balkans, have reflected this increased reliance on contractors supporting U.S. troops—both in terms of the number of contractors and the type of work being performed. According to DOD data, contractors, on average, represented just over half of the force in the Balkans, Afghanistan, and Iraq (see Figure 1 ). Source: Balkans: Congressional Budget Office. Contractors' Support of U.S. Operations in Iraq. August 2008. p. 13; Afghanistan: CRS analysis of DOD data, calculated as an average for the period September 2007–March 2013; Iraq: CRS analysis of DOD data, calculated as an average for the period September 2007–March 2011. Note: DOD did not begin releasing data on contractors in U.S. Central Command until the second half of 2007. As of March 2013, there were approximately 108,000 DOD contractor personnel in Afghanistan, representing 62% of the total force (see Appendix A ). Of this total, there were nearly 18,000 private security contractors, compared to 65,700 U.S. troops. Over the last six fiscal years, DOD obligations for contracts performed in the Iraq and Afghanistan areas of operation were approximately $160 billion and exceeded total contract obligations of any other U.S. federal agency (see Appendix B ). According to government officials and analysts, the military is unable to effectively execute many operations, particularly those that are large-scale and long-term in nature, without extensive operational contract support. Even in short-term operations, contractors can play a variety of critical roles. For example, the first fragmentary order for Operation Tomodachi —DOD's response to the earthquake and tsunami that struck Japan in 2011—involved contract support. Given the extensive role of contractors in military operations, many DOD officials and analysts consider contract management a mission-essential task. DOD has recognized the role contractors are likely to play in future operations. As stated in its Budget Request for FY2013, operational contract support is a critical function in support of military operations, natural disasters, and unanticipated calamities. Contractors can provide significant operational benefits to DOD, including freeing up uniformed personnel to conduct combat operations; providing expertise in specialized fields, such as linguistics or weapon systems maintenance; and providing a surge capability, quickly delivering critical support capabilities tailored to specific military needs. Contractors are often responsible for such critical tasks as providing armed security to convoys and installations, providing life support to forward deployed warfighters, conducting intelligence analysis, and training local security forces. Because contractors can be hired when a particular need arises and released when their services are no longer needed, contractors can be less expensive in the long run than maintaining a permanent in-house capability. And when a decision is made to limit the number of troops on the ground, contractors can fulfill critical manpower needs. Just as the effective use of contractors can augment military capabilities, the ineffective use of contractors can prevent troops from receiving what they need, when they need it, and can lead to the wasteful spending of billions of dollars—dollars that could have been used to fund other operational requirements. Contractors can also compromise the credibility and effectiveness of the U.S. military and undermine operations, as many analysts believe happened in Iraq and Afghanistan. Improved planning for and management of contractors may not eliminate all problems, but it could mitigate the risks of relying on contractors during overseas operations. DOD acknowledges that it was inadequately prepared to execute large-scale operational contract support in Iraq and Afghanistan. Military commanders and service members have indicated that they were not prepared for the extent of contractor support in Iraq and did not receive enough training to prepare them to manage or work with contractors. Some stated that they did not receive enough exposure to the role of contractors in military operations in the curriculum at professional military educational institutions. An Army commission found that Contracting Officer's Representatives responsible for managing contractors are generally drawn from combat units and receive little, if any, training on how to work with contractors. Many analysts and officials believe that the military did not have enough trained oversight personnel or an adequate infrastructure to effectively execute and manage contractors in Iraq and Afghanistan. In January 2009, Secretary of Defense Robert Gates acknowledged DOD's failure to adequately prepare for the use of contractors when he testified that the use of contractors occurred without any supervision or without any coherent strategy on how we were going to do it and without conscious decisions about what we will allow contractors to do and what we won't allow contractors to do... We have not thought holistically or coherently about our use of contractors, particularly when it comes to combat environments or combat training. DOD acknowledges that there was no comprehensive plan for how to use contractors, and to what extent. As a result, the use of contractors was done on an ad-hoc basis, without significant consideration of implications for foreign policy and without putting in place the necessary oversight. Observers believe insufficient resources were dedicated to oversight, often resulting in poor performance, billions of dollars of waste, and failure to achieve mission goals. The Commission on Wartime Contracting found that, "too often using contractors [was] the default mechanism, driven by considerations other than whether they provide the best solution, and without consideration for the resources needed to manage them." Contract support in operational environments is different, and often more complex, than contract support in peacetime. In peacetime, the goal of contracting is generally to obtain the good or service that is required. The measurements of success are generally getting the right good or service, on schedule, and at a fair price. During operations, however—and particularly in an expeditionary or counterinsurgency environment—cost, schedule, and performance are often secondary to the larger strategic goals of achieving military objectives or denying popular support for the insurgency. For example, in peacetime, the primary purpose of building a road is often to have the road built to specification in the most efficient and least expensive way. Other policy considerations may be factored in (such as small business or environmental concerns), but if the road is built on time, on schedule, and to the required specifications, the contract is usually deemed a success. During operations, however, these may not be the right measures, as other goals may be equally or more important. In a counterinsurgency, winning the support of the local village is often more important than staying on schedule; in responding to a humanitarian crisis, rapidly providing critical supplies may be more important than an increase in cost or meeting some technical specifications. Contract risks can also differ greatly between peacetime and operational environments. Peacetime risks generally include cost overruns, schedule slips, and poor performance. Additional risks must be considered when awarding a contract in an operational environment. As then-Commander, International Security Assistance Force, Afghanistan, General John Allen, stated in his contracting guidance to commanders in Afghanistan, it is important to look beyond cost, schedule, and performance. Evaluate the success of a contract by the degree to which it supports the Afghan people and economy and our campaign objectives. Include operational criteria in decisions to award contracts, such as the effect of the contract on security, local power dynamics, and the enemy. For these reasons, contract support in an operational environment is often far more complex to execute and difficult to evaluate than contract support in peacetime. The goods and services DOD buys during peacetime are very different from those during operations. In FY2012, 49% of all DOD contract obligations were for goods, 41% for services, and 10% for research and development (R&D). By contrast, in Afghanistan, nearly 80% of DOD contract obligations in FY2012 were for services, 16% for goods, and 5% for R&D (See Figure 2 ). Most analysts believe that buying services is more complex than buying goods, adding further complexity to using contractors to support operations. Some of the weaknesses of the current federal government acquisition process can be exacerbated by, and exploited in, an operational environment, making it more difficult to adhere to best practices. These weaknesses include inadequate acquisition planning, poorly written requirements, use of the wrong type of contract, and an insufficient number of qualified and capable acquisition and contract oversight personnel. For example, in an expeditionary environment, it is more difficult to write a good contract that incorporates the sometimes competing goals of counterinsurgency contracting, more difficult to research and evaluate companies bidding on a contract, and more difficult to conduct oversight of projects being built in dangerous locations. It is also more difficult to protect against contracting fraud and corruption in countries that have weak law enforcement and judicial systems. Corrupt officials and warlords can exploit these weaknesses to divert contracting funds to their own coffers. Many of the differences between using contractors in peacetime versus in expeditionary operations were not readily apparent prior to military operations in Iraq and Afghanistan. One DOD analysis stated that standard acquisition funding procedures and regulations hindered effective execution of contract support in Iraq and Afghanistan. The report went on to state that, over time, virtually all leaders came to realize how different expeditionary operations are from business as usual in the United States. Given the unique needs of DOD during an operation, peacetime contracting may not adequately prepare government personnel for the use of operational contract support. This has led many analysts and DOD officials to believe that the military needs to change the way it thinks about operational contract support, transforming it from an afterthought to a core competency. A number of analysts have attempted to quantify the extent of fraud, waste, and abuse in U.S. government contracts in Iraq and Afghanistan. The Special Inspector for Iraq Reconstruction estimated that waste associated with Iraq relief and reconstruction efforts totaled at least $8 billion. The Commission on Wartime Contracting estimated that between $31 billion and $60 billion was lost to contract waste and fraud in contingency operations in Iraq and Afghanistan. While the total cost of contract fraud, waste, and abuse may never be known, there is general agreement that the billions of dollars squandered by numerous federal agencies as a result of insufficient planning, management, and oversight could have been used to achieve other operational priorities. Abuses committed by contractors, including contractors working for both DOD and U.S. civilian agencies, can also strengthen anti-American insurgents. There have been published reports of local nationals being abused and mistreated by DOD contractors in such incidents as the summary shooting by a private security contractor of an Afghan who was handcuffed, the shooting of Iraqi civilians, and the abuse of prisoners at Abu Ghraib prison in Iraq. Insufficient contractor oversight can also undermine military operations. U.S. government investigations found that U.S. money for contracts in Afghanistan has been used to pay the Taliban in exchange for security. The Office of the Inspector General for the U.S. Agency for International Development found "indications that Afghan subcontractors... had paid insurgents for protection in remote and insecure areas of Afghanistan." The majority report issued by the House Committee on Oversight and Government Reform's Subcommittee on National Security and Foreign Affairs similarly found evidence that U.S. contractors made protection payments to local warlords to secure safe passage of supply convoys. The investigation further found that protection payments may even have gone to the Taliban. A Senate Armed Services Committee report found evidence of U.S.-funded prime contractors supporting the Taliban and subcontracting to warlords. According to many analysts, these events undermined the U.S. mission in Afghanistan and Iraq. In light of experiences in Afghanistan and Iraq, and in response to legislation and the findings of numerous Government Accountability Office and Inspectors General studies, DOD has taken a number of steps to improve how it uses contractors during operations. DOD made significant organizational changes aimed at improving the current use of contractors, including establishing the Joint Theater Support Contracting Command; the Army Contracting Command (and its subordinate, the Expeditionary Contracting Command); Task Force 2010; the vendor vetting cell; and the Joint Contingency Acquisition Support Office. DOD also upgraded or expanded existing organizations, such as the Joint Staff's Operational Contract Support Services Division and the U.S. Army Corps of Engineers Transatlantic Division. DOD established a Functional Capabilities Integration Board, co-chaired by the Deputy Assistant Secretary of Defense for Program Support and the Joint Staff Vice Director of Logistics. This board is a forum for senior leaders to come together to address critical operational contract support issues. Many officials from across DOD and the Services have credited the Functional Capabilities Integration Board with improving coordination and implementation of operational contract support policies. DOD has also significantly expanded regulation, policy, and doctrine related to operational contract support, including the following examples: In 2009, DOD released a directive entitled, Orchestrating, Synchronizing, and Integrating Program Management of Contingency Acquisition Planning and its Operational Execution. In 2010, DOD updated its Policy and Procedures for Determining Workforce Mix, which addressed contractor personnel as part of the total force. In 2011, a major update to the Instruction Operational Contract Support was released, which established roles and responsibilities for managing operational contract support. In 2012, DOD updated its joint planning and execution policy to include operational contract support in many non-logistical functional areas, such as intelligence, personnel, and engineering. In 2013, DOD developed standards for using private security contractors. DOD is updating its Joint doctrine, Operational Contract Support (originally issued in 2008), which is due for release in early 2014. DOD has published various reference materials to assist deploying personnel. In addition, DOD is improving the business systems that support overseas operations. For example, in an effort to combat contract fraud, DOD took cash off of the battlefield by introducing an electronic payment system. According to a 2012 report, total in-theater cash payments to vendors in Afghanistan were down to 1% of all payments in FY 2012, compared to 39% in 2008. Since 2008, DOD has increased its total acquisition workforce by 21% to a total of over 150,000 acquisition personnel, which includes more than 30,000 contracting professionals. DOD has also increased the number of Defense Contract Management Agency professionals supporting overseas missions. To the extent that DOD improves its overall acquisition workforce, operational contract support may also improve. While acknowledging that much still needs to be done, many analysts and DOD officials generally agree that DOD has significantly improved operational contract support, with most of its progress occurring since 2010. Understanding what enabled this progress could help DOD more effectively prepare for the use of contractors in the future. As discussed above, military commanders and service members were not prepared for the extent of contractor support and did not receive enough training to prepare them to manage or work with contractors. However, their experiences on the ground quickly highlighted the critical role of contractors in military operations. These experiences, including the abuse of prisoners at Abu Ghraib prison in Iraq and the summary shooting by a private security contractor of an Afghan who was handcuffed, led to numerous internal efforts to examine contractor support, such as the report of the Commission on Army Acquisition and Program Management in Expeditionary Operations (known as the Gansler report). The experiences of the operational force also contributed to bringing the issue to the attention of senior leaders. Senior officials have made a concerted effort to elevate the importance of operational contract support and consider the role of contractors during contingency operations. In September 2010, then Commander, International Security Assistance Force, General David Petraeus, issued contracting guidance. The guidance articulated the importance of contracting in the overall mission, stating that contracting is "commander's business." The guidance also articulated clear and specific goals for contracting, including an emphasis on improving contract oversight and making contracting decisions that support overall mission objectives. In September 2011, within three months of assuming command, General John Allen updated the contracting guidance, with the intent of reinforcing the message that contracting plays a critical role in the overall mission. In 2012, the Chairman of the Joint Chiefs of Staff stated, "we should acknowledge that [operational contract support] is no longer a niche capability.… Contractors are part of our total military forces." This statement is consistent with those of other senior leaders, including the Secretary of Defense's 2011 memorandum on "Strategic and Operational Planning for Operational Contract Support (OCS) and Workforce Mix," which reinforced DOD-wide responsibilities for determining force mix, integrating contract support, as well as associated planning and resourcing. Many analysts and DOD officials have stated that assigning general/flag officers to key positions has been critical to improving operational contract support. This effort began in 2008, when the Army established five new general officer positions with responsibility for acquisition. In 2009, Congress authorized five general/flag officer billets for acquisition. In addition to these ten new positions, DOD appointed general/flag officers to key operational contract support-related positions, such as Task Force 2010, Task Force Shafafiyat , and the Afghanistan Operational Contract Support Drawdown Cell. Some of these officers came from the operational and logistics communities, helping to break down the barriers between contracting and operations. DOD has expanded its training and exercises to address the role of contractors, and is continuing to incorporate operational contract support into Professional Military Education. In late 2012, DOD completed an Operational Contract Support Curriculum Guide, which captures specific learning objectives that will be used to inform Joint Professional Military Education at all levels. In 2009, the Army launched a tactical-level Operational Contract Support course, which seeks to provide students a fundamental understanding of operational contract support planning, requirements development, and contract management. Over the last five years, over 1,500 DOD personnel have graduated from this course. Based on the Army's training model, DOD is developing a Joint Operational Contract Support Planning and Execution Course for operational planners. In January 2013, the Army held its fourth annual Joint Contracting Readiness Exercise (JCRX), which was attended by over three hundred contracting professionals from the Army Contracting Command, to include Expeditionary Contracting Command, Mission and Installation Contracting Command, Contacting Support Brigades, and representatives from other Services. According to officials, planning is underway for next year's exercise, to be held with U.S. Northern Command, making it the first such exercise conducted with a combatant command. Many analysts and senior DOD officials have stated that without the efforts of Congress, DOD would not have been as successful at improving operational contract support. Examples of Congressional action that are often cited as having contributed to improving operational contract support include: legislation that led to establishment of the office of the Deputy Assistant Secretary of Defense (Program Support), legislation establishing general/flag officer billets for acquisition, legislation establishing the Defense Acquisition Workforce Development Fund, and oversight hearings that raised awareness of contractor abuses and led to the creation of Task Force 2010. In addition, the establishment of the Special Inspector General for Iraq, the Special Inspector General for Afghanistan, and the Commission on Wartime Contracting in Iraq and Afghanistan elevated the importance of the use of contractors and generated recommendations that were adopted by both DOD and Congress (see Appendix C for an expanded legislative history). Despite the progress made to date, observers believe DOD still faces significant challenges in effectively utilizing and managing contractors to support current contractor support and prepare for future operations. The 2010 Quadrennial Defense Review stated that the military's ability to effectively and efficiently use contractors to provide operational support "is an enduring priority and an area where continued improvements must be made." Secretary of Defense Chuck Hagel reiterated this point when he stated I believe that investments made over the last few years... have vastly improved the Department's ability to effectively manage contractors on the battlefield. If confirmed, I will continue to improve our capabilities in this critical area. DOD officials in 2013 stated that it could take four to five more years to fully institutionalize operational contract support. In light of future budget constraints, some observers are concerned that DOD may not sufficiently fund the efforts to effectively institutionalize operational contract support and prepare for the use of contractors in future operations. DOD officials, however, believe that modest funding of education, training, and exercises in the near-term will likely save billions of dollars, and enable greater likelihood of operational success in the future. For example, the cost to hold the JCRX exercise is estimated to be less than $1.5 million annually. Many analysts and senior DOD officials believe that Congress will play a pivotal role in determining the extent to which DOD funds and continues to implement its current initiatives. A number of analysts have argued that one of the reasons DOD did a poor job planning for and managing contractors in Iraq and Afghanistan is that contracting was not valued within the culture of the military. Contractors were often an afterthought in planning and execution, frequently viewed by the operational force as someone else's problem and not as a warfighter's responsibility. Because contract oversight is often a lower priority, it was frequently assigned to people who did not have the necessary management skills or subject matter expertise. Many talented DOD officials did not consider acquisition a viable career path. According to the Commission on Wartime Contracting, GAO, Army reports, and others, such a transformation can only occur when there is widespread acceptance of the notion that that contractors are an integral part of the total force and that operational success may hinge on the ability to define requirements, efficiently allocate limited resources, and effectively manage tens of thousands of contractors. Many analysts suggest that changing the culture of the military is a prerequisite for creating lasting systemic change and improving operational contract support. As discussed above, DOD has taken a number of steps to change its culture to appreciate the role of contractors in operations, including establishing operational contract support-related general/flag officer positions and expanding the education curriculum. Three common recommendations aim to continue to elevate the role of operational contract support within the culture of DOD: 1. Senior leadership must maintain its focus on articulating the importance of contract support in a sustained and consistent manner. 2. The Professional Military Education curriculum must fully incorporate courses on operational contract support throughout its various efforts. 3. Training exercises must be expanded and incorporate contractors playing the role that they would play on the battlefield. Observers believe these efforts will become increasingly important after the drawdown in Afghanistan, when the operational force no longer experiences firsthand the critical role of contract support. GAO and others have reported that the first step in improving contractor support at the strategic level is for senior leadership to consistently articulate its importance. Many analysts argue that without active and sustained support from senior leadership, the culture of the military is unlikely to change. According to these analysts, when management establishes priorities, articulates a vision, and aligns incentives and organizational structures to match these priorities, the foundation will be set for real change. As discussed above, senior leaders have increasingly articulated the importance of contract support. According to analysts and government officials, actions such as the contracting guidance issued by Generals Petraeus and Allen have raised awareness of the importance of contracting and the impact that contracting can have, both positive and negative, on operations. A number of military personnel believe that this contracting guidance represented a philosophical shift, requiring operational commanders to be more actively involved in contracting decisions and ensuring that contracting is more integrated with logistics, operations, intelligence, and strategy. A number of analysts argue that senior leadership must maintain focus on and continue to articulate the importance of operational contract support to ensure that cultural change is institutionalized and lasts beyond the current conflicts, beyond the tenure of current leadership. Further, given the new leadership in the Department of Defense, these analysts believe there is an increased need for senior leaders to reinforce the message that operational contract support is an enduring defense priority. A number of analysts have argued that one key to reinforcing cultural change and improving operational contract support is better education. They believe that increased education for non-acquisition personnel is critical to institutionalizing how the military approaches the use of contractors, both before and during overseas operations. The Gansler report and numerous other officials and analysts argue that DOD needs to train warfighters, including operational commanders, on the central role contractors play in contingency operations and on their responsibilities in the process. These observers assert that operational contract support should be included in advanced officer courses, at command schools (e.g., senior service colleges and Sergeant Majors Academy), general/flag officer preparation courses, and in non-commissioned officer courses. While observers argue that failure to integrate contractor support into Professional Military Education can leave the military unprepared to manage contractors; GAO concluded that, "[T]he lack of contract training for commanders, senior personnel, and some contracting officers' representatives can adversely affect the effectiveness of the use of contractors in deployed locations. Without training, many commanders, senior military personnel, and contracting officers' representatives are not aware of their roles and responsibilities in dealing with contractors." While observers believe that DOD has made progress in developing and implementing courses on operational contract support, some analysts contend these courses have not been sufficiently expanded and incorporated into the Professional Military Education curriculum. A 2012 GAO report found that a number of commanders in Afghanistan reportedly did not always receive training on their contract management and oversight responsibilities. A frequently stated guideline in the military is to 'train as you fight and fight as you train.' Given the extent to which contractors may be relied upon in future operations, conducting exercises without contractors could be akin to training without half of the force present. A number of analysts have called for incorporating contractors and contractor scenarios into appropriate military exercises to better prepare military planners and operational commanders for future operations. Despite increased inclusion of operational contract support in some exercises (such as Southern Command's PANAMAX 2012, Africa Command's Judicious Response 2012, and the Army's JCRX 2013), a number of reports have suggested that DOD has not sufficiently included contractor roles in battlefield exercises. Some analysts have also argued that including contractors in field exercises could increase warfighter awareness of the presence of contractors on the battlefield and improve military-contractor coordination in actual operations. While changing the culture to embrace the importance of contract support may be an important step in improving operational contract support, many analysts argue that additional steps are needed: effective and efficient operational contract support, they argue, will not occur until an effective infrastructure is built to facilitate good contracting decisions. In 2011, the then-Senior Contracting Official-Afghanistan stated that a key to improving contracting is to identify the most glaring weaknesses in the acquisition process and build the infrastructure and support to overcome those weaknesses. Fundamental systemic weaknesses of contractor support that analysts frequently cite include poor or insufficient planning, lack of reliable data upon which to make strategic decisions, and lack of a sufficiently large and technically capable workforce to manage and oversee contractors and plan for their use. While acknowledging that building infrastructure capable of addressing these weaknesses requires significant, systemic change in the way DOD approaches and executes operational contract support, many analysts argue that without such systemic change, acquisition processes will not meet the needs of the military. Failure to include contractors in planning and strategy can put DOD at risk of being unable to get the capabilities it needs, when it needs them, and at an acceptable cost. For example, had DOD understood the extent to which it would rely on private security contractors in Afghanistan and Iraq, it might have put in place a more robust oversight and coordination mechanism earlier. In addition, a number of military bases in Iraq were not large enough to house contractors because DOD did not anticipate how many contractors would be deployed with the military. As a result, officials say DOD had to quickly find alternative housing for these contractors, which resulted in increased costs. Despite a requirement that contract support be integrated into the operational plans of certain combatant commands, GAO concluded that such integration does not always occur. The Commission on Wartime Contracting found that "DOD has not adequately planned for using contractors for contingency support." Some analysts have argued that a lack of planning is one of the reasons why DOD's current approach to managing service contracts tends to be reactive and not part of a well-conceived and planned strategic approach. Some DOD officials have indicated that more planners are still required to adequately include contracted support in future plans. Data reliability is generally considered to be a critical element in making informed policy decisions. If data is lacking or is unreliable, there may not be an appropriate basis for measuring or assessing the effectiveness of contracting, making policy decisions, or providing transparency into government operations. In some circumstances, a lack of reliable data could lead analysts and decision makers to draw incorrect or misleading conclusions. The result could be policies that squander resources, waste taxpayer dollars, and/or threaten the success of the mission. DOD officials state that the International Security Assistance Force and the U.S. government have not accurately or sufficiently tracked data upon which to make strategic contracting decisions in Afghanistan. Current databases are not sufficiently customized to track important contract data. Even when information is tracked, questions remain as to the reliability of the information. Given current concerns over the reliability of contracting data, the information in the central database may not be sufficiently reliable for decision making at the strategic level. This lack of data makes it difficult to determine to what extent the billions of dollars spent on reconstruction have contributed to achieving the mission. DOD officials have acknowledged data shortcomings and have stated that they are working to improve the reliability and appropriateness of the data gathered. In a 2011 memorandum, General David Petraeus sought to establish and adequately support an Acquisition Accountability Office in Afghanistan to collect and manage data from all U.S. contracting and development agencies, furnish senior leadership, battlefield commanders, the U.S. Embassy, and the international community with information on what is being spent, with whom, and where, and build a more complete contracting operating picture. Looking beyond operations in Afghanistan, GAO concluded that data analysis from recent operations could help the development of a strategic plan to define contractor involvement in future operations. Such data could help to more effectively determine future contractor support requirements. Putting in place data systems that can be used in future operations can provide commanders and policy makers with timely access to critical information to help them better gauge their needs, judge performance, and adapt to rapidly changing circumstances. Section 844 of the National Defense Authorization Act for Fiscal Year 2013 (P.L. 112-239) requires DOD, Department of State, and the U.S. Agency for International Development to issue guidance regarding data collection on contract support for future operations. According to analysts and some government officials, there were simply not enough resources or personnel in theater to conduct adequate contractor oversight in Iraq and Afghanistan, leading to poor contract performance. Insufficient resources or shortages in the numbers of oversight personnel can increase the risk of poor contract performance, which in turn can lead to waste, fraud, and abuse. DOD has documented how a lack of oversight has resulted in contracts not being performed to required specifications and to the theft of tens of millions of dollars' worth of equipment, repair parts, and supplies. The Army Audit Agency reported in an audit of a particular contract that the inadequacies in contracting practices occurred primarily because... contracting offices didn't have enough personnel to conduct the needed contracting actions to ensure the Army received quality goods and services at the best attainable value. DOD has recognized the need to dedicate sufficient resources to provide effective oversight. According to the 2010 Quadrennial Defense Review, "to operate effectively, the acquisition system must be supported by an appropriately sized cadre of acquisition professionals with the right skills and training to successfully perform their jobs.... We will continue to significantly enhance training and retention programs in order to bolster the capability and size of the acquisition workforce." The role contractors are expected to play in future operations raises a number of questions for Congress, including the following: As discussed in this report, post-Cold War budget cuts resulted in an increased reliance on contractors. A number of analysts argue that DOD was over-reliant on contractors in Iraq and Afghanistan. Many analysts also argue that contractors were assigned responsibilities that should have been performed by government personnel. However, most analysts agree that DOD did not have the manpower to perform its mission without using contractors. A potential question for Congress is: To what extent will budget cuts, the imposition of personnel caps, or a restructuring of the force lead to an increased reliance on contractors? Planning can be critical to effective contractor management. DOD faces a number of challenges in planning for the use of contractors in future operations, including identifying the role contractors will play in future operations, anticipating the nature of future military operations, and accounting for possible budget cuts and changes to force structure. In light of these and other challenges, potential questions for Congress include: To what extent is DOD identifying the role of contractors in future operations? To what extent is the development of the future force structure being informed by a well-thought-out plan for how contractors will be used in future operations? To what extent is DOD integrating the use of contractors into future operational planning? To what extent are lessons learned in contractor management and oversight being incorporated into doctrine and strategy? Observers believe education and training are critical elements in preparing for future operations. Richard Ginman, Director, Defense Procurement and Acquisition Policy, Department of Defense, recently testified before Congress that "the curriculum for each phase of joint and Service-specific Professional Military Education should include [Operational Contract Support] content appropriate for each phase of an officer's professional development." Potential questions for Congress include: To what extent is DOD adapting what is taught in military educational institutions to address operational contract support? To what extent is DOD including contractor scenarios in post- and field-exercises? Are DOD efforts sufficient to prepare the operational force for how contractors will be used in future operations? Most analysts believe that effective use of contractors to support military operations requires dedicating sufficient resources to plan for, manage, and oversee the use of contractors. Yet many analysts have argued that insufficient resources are dedicated to operational contract support. This raises a number of potential questions for Congress: Does DOD have sufficient numbers of planners to effectively prepare for the integration of contractors into future operations? Does DOD have an appropriately sized and capable acquisition workforce? What steps are being taken to ensure that the infrastructure is in place to better track contractor data and measure contractor performance so that commanders and decisions makers will have necessary information upon which to make more informed decisions? Does DOD have the information technology capabilities necessary to support operational contract support planning and execution? In light of potential budget constraints, will DOD sufficiently fund efforts needed to institutionalize operational contract support and prepare for the use of contractors in future military operations? Appendix A. Number of Contractors vs. Number of Troops in Iraq and Afghanistan Appendix B. DOD Contract Obligations Appendix C. Select Legislative History Concerned over DOD's use of contractors in Iraq and Afghanistan, Congress has held oversight hearings and enacted legislation aimed at improving operational contract support. This Appendix summarizes legislation affecting operational contract support in recent years. National Defense Authorization Act for FY2007 (P.L. 109–364) Section 854 directed DOD to develop joint policies for requirements definition, contingency program management, and contingency contracting during combat operations and post-conflict operations. National Defense Authorization Act for FY2008 (P.L. 110–181) Section 841 established the Commission on Wartime Contracting to investigate federal agency contracting for: the reconstruction of Iraq and Afghanistan; the logistical support of coalition forces operating in Iraq and Afghanistan; and the performance of security functions in such operations. Section 1129 established the Special Inspector for Afghanistan Reconstruction to provide independent and objective: audits and investigations relating to programs and operations supported with U.S. reconstruction dollars; recommendations to promote economy, efficiency, and effectiveness; leadership on policies to prevent and detect waste, fraud, and abuse; and communication with the Secretary of State and the Secretary of Defense to keep them informed about problems and deficiencies relating to the reconstruction, the need for corrective actions, and progress on implementing corrective actions. Section 842 directed the inspectors general with jurisdiction over the relevant contracts to conduct a series of audits to identify potential waste, fraud, abuse, or mismanagement in the performance of federal contracts for support to coalition forces in Iraq and Afghanistan, as well security and reconstruction efforts. Section 861 directed DOD, the Department of State, and the U.S. Agency for International Development to enter into a memorandum of understanding regarding matters relating to contracts in Iraq or Afghanistan. The agencies subsequently entered into an agreement that designates DOD's Synchronized Predeployment and Operational Tracker (SPOT) as a common database for associated contract information. Section 849 required contingency contracting training for non-acquisition DOD personnel. Section 851 required DOD to develop a strategic human capital plan for the acquisition workforce. Section 852 established the Defense Acquisition Workforce Development Fund for the recruitment, training, and retention of acquisition personnel. Section 862 directed DOD to prescribe regulations on the selection, training, equipping, and conduct of personnel performing private security functions under a covered contract in an area of combat operations. National Defense Authorization Act for FY2009 (P.L. 110–417) Section 503 authorized five billets for Joint General Officer/Flag Officers to serve in acquisition positions. Section 834 required DOD to establish policy and guidance to ensure proper development, assignment, and employment of military personnel in the acquisition field. Section 870 established a government-wide contingency contracting corps to an emergency, major disaster, or contingency operation. National Defense Authorization Act for FY2011 (P.L. 111–383) Section 873 required DOD to establish policies and issue guidance to ensure the proper development, assignment, and employment of civilian members of the acquisition workforce. Section 831 established oversight and accountability mechanisms for contactors performing private security functions in areas of combat operations. Section 832 extended regulations on contractors performing private security functions to areas of other significant military operations. Section 833 required DOD to review standards and certification for private security contractors. National Defense Authorization Act for FY2012 (P.L. 112–81) Section 515 amended the definition of contingency operation. Section 820 required DOD to address contractor support in the Quadrennial Review and other Defense planning documents. Section 841 directed DOD to amend the Defense Federal Acquisition Regulation Supplement to allow for the prohibition of contracting with the enemy in the United States Central Command theater of operations. Section 842. Directed DOD to amend the Defense Federal Acquisition Regulation Supplement to allow additional access to contractor and subcontractor records in the United States Central Command theater of operations. Section 843 authorized DOD to designate a single contracting authority that uses domestic 'reachback' capabilities in support of overseas contracting. This activity may use increased micro-purchase threshold and the overseas increased simplified acquisition threshold for contracts providing support to Operation Enduring Freedom and Operation Joint Dawn. Section 844 required an annual review of omnibus contracts providing support to contingency operations, to include the Logistics Civil Augmentation Program, be performed by a DOD competition advocate. National Defense Authorization Act for FY2013 (P.L. 112–239) Section 846 required combatant commanders to develop a contractor reliance risk assessment and risk mitigation strategy for all operational or contingency plans. Section 861 required DOD (to include each military services and the Defense Logistics Agency), Department of State, and the U.S. Agency for International Development to have an independent suspension and debarment official. Section 1273 assigned sustainability requirements for certain capital projects in connection with overseas contingency operations. Section 843 required DOD to develop and issue guidance on responsibility and authority for operational contract support policy, planning, and execution. Section 848 described responsibilities of inspectors general for overseas contingency operations. Section 849 updates the responsibility of the Chief Acquisition Personnel within DOD, Department of State, and U.S. Agency for International Development for oversight of contracts and contracting activities for overseas contingency. Section 952 enhanced the responsibilities of the Chairman of the Joint Chiefs of Staff regarding the inclusion of operational contract support in national military strategy. Section 803 extended expedited hiring authority to fill shortages in the defense acquisition workforce through 2017. Section 845 mandated the inclusion of operational contract support in certain requirements for Department of Defense planning, joint professional military education, and management structure. Section 844 required DOD, Department of State, and the U.S. Agency for International Development to issue guidance regarding data collection on contract support for future operations outside of the United States that involve combat. Section 847 extended and modified reports on contracting in Iraq and Afghanistan through 2015. Section 851 required agencies to establish and maintain a database on price trends of items and services under Federal contracts. Section 862 stipulated uniform contract writing system requirements. | Throughout its history, the Department of Defense (DOD) has relied on contractors to support a wide range of military operations. Operations over the last thirty years have highlighted the critical role that contractors play in supporting U.S. troops—both in terms of the number of contractors and the type of work being performed. Over the last decade in Iraq and Afghanistan, and before that, in the Balkans, contractors accounted for 50% or more of the total military force. Regardless of whether future operations are similar to−or significantly different from− those of the past decade most analysts and defense officials believe that contractors will continue to play a central role in overseas military operations. Consequently, these observers believe that DOD should be prepared to effectively award and manage contracts at a moment's notice, anywhere in the world, in unknown environments, and on a scale that may exceed the total contract obligations of any other federal agency. Contractors provide a wide range of services, from transportation, construction, and base support, to intelligence analysis and private security. The benefits of using contractors include freeing up uniformed personnel to conduct combat operations; providing expertise in specialized fields, such as linguistics or weapon systems maintenance; and providing a surge capability, quickly delivering critical support capabilities tailored to specific military needs. Because contractors can be hired when a particular need arises and released when their services are no longer needed, contractors can be less expensive in the long run than maintaining a permanent in-house capability. Just as the effective use of contractors can augment military capabilities, the ineffective use of contractors can prevent troops from receiving what they need, when they need it, and can lead to the wasteful spending of billions of dollars. Contractors can also compromise the credibility and effectiveness of the U.S. military and undermine operations, as many analysts believe have occurred in recent operations in Iraq and Afghanistan. Improved planning for and management of contractors may not eliminate all problems, but it could mitigate the risks of relying on contractors during overseas operations. DOD's use of contractors has been a significant oversight issue for Congress in recent years. With the help of Congress, DOD has made substantial progress to improve its use of operational contract support; however, many observers believe the military is not yet sufficiently prepared to use contractors in future operations. In their view, better planning, expanded educating and training, ensuring sufficient resources to effectively manage and oversee contractors, and providing operational commanders with more reliable data can help build the foundation for the more effective use of contractors. In light of current and future budget constraints, some observers are concerned that DOD may not be able to sufficiently fund efforts underway to effectively prepare for the use of contractors in future operations. DOD's extensive use of contractors poses several potential policy and oversight issues for the 113th Congress, including 1. To what extent will potential budget cuts or force structure changes impact DOD reliance on contractors? 2. To what extent is DOD preparing for the role of contractors in future military operations? 3. To what extent is the use of contractors being incorporated into DOD education, training, and exercises? 4. What steps is DOD taking to ensure that sufficient resources will be dedicated to create and maintain the capabilities to ensure effective operational contract support in the future? Congress' decisions on these issues could substantially affect the extent to which DOD relies on contractors and is capable of planning for and overseeing contractors in future operations. |
The 108th Congress did not complete action on legislation to reauthorize the block grant ofTemporary Assistance for Needy Families (TANF). Instead it and its predecessor, the 107thCongress, adopted short-term funding extensions since the original funding authority for TANFexpired on September 30, 2002. The latest short-term extension funds the program through March31, 2005. The House of Representatives did pass a bill in February 2003 ( H.R. 4 ), and the Senate Finance Committee reported an amended version of the legislation in October 2003. Thoughthe full Senate took up the bill in late March 2004, the measure was set-aside in that chamber aftera motion to limit debate on the bill failed to receive the required 60 votes on April 1. The lack of final action in the 108th Congress means that welfare reauthorization is likely to again be a topic in the 109th Congress. This report describes both the House-passed and SenateFinance Committee-approved versions of welfare reauthorization legislation in the 108th Congress. The differences in the two bills highlight some of the contentious issues in the reauthorizationdebate. Before the bill was pulled from the Senate floor, the Senate did approve one amendment tothe bill which would have added $6 billion over five years for child care funding (to a total of $7billion in child care funds above current law levels for the five years). There were no approvedamendments to the Senate Finance Committee bill's TANF provisions. The bills had many similarities, with both extending basic funding at current levels throughFY2008 and incorporating President Bush's proposal to provide categorical "marriage promotion"grants. They both also raised TANF work participation standards, though the two bills differed interms of how much more work would be required and what activities count toward the participationstandards. This report provides a comparison of the TANF provisions of H.R. 4 as itpassed the House and was reported from the Senate Finance Committee. It does not addressnon-TANF provisions of both bills, such as revisions to the Child Care and Development Fund,Child Support Enforcement, Abstinence Education, and transitional Medicaid. The House-passed and Senate Finance Committee bills had very similar funding provisions. The major difference in the funding provision between the two bills was that the Senate FinanceCommittee bill would have completely revamped the TANF contingency (recession) funds, whilethe House-passed bill would have made relatively minor revisions to the fund. Basic Funding. The 1996 welfare reform law entitled states to a basic TANF block grant equal to peak expenditures in the pre-1996 welfareprograms during the FY1992 to FY1995 period. It also established a maintenance of effort (MOE)requirement that states continue to spend at least 75% (80% if a state failed TANF work participationrequirements) of what they spent in these programs in FY1994. The mid-1990s were the period whencash welfare caseloads were at their peak. Both the basic TANF grant and the MOE are legislativelyfixed: they did not change when cash welfare caseloads declined in the mid- and late-1990s, nor didthey increase when caseloads in some states increased during the recent economic slump. Neitherthe basic TANF block grant nor the MOE have been adjusted for inflation. Both the House-passed and Senate Finance Committee versions of H.R. 4 would have continued both the basic block grant and the MOE at their current funding levels (withoutinflation or caseload adjustment) through FY2008. Supplemental Grants. During the consideration of legislation that led to the 1996 welfare law, fixed funding based on historical expenditures wasthought to disadvantage two groups of states: (1) those that experience relatively high populationgrowth; and (2) states that had historically low grant levels relative to poverty in the state. Therefore,additional funding in the form of supplemental grants was provided to states that met criteria of highpopulation growth and/or low historic grants per poor person. Supplemental grants have beenprovided to 17 states: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho,Louisiana, Mississippi, Montana, New Mexico, Nevada, North Carolina, Tennessee, Texas, andUtah. In FY2003, supplemental grants totaled $319 million. Both the House-passed and Senate Finance Committee bills would have continued supplemental grants for the same 17 states at theFY2003 funding level through FY2007 (unlike other grants, which expire in FY2008). Contingency Funds. The fixed basic grant under TANF also led to concerns of inadequate funding during economic downturns. TANF includes acontingency fund, which is designed to provide extra matching grants to states that meet criteria ofeconomic need (based on unemployment rates and food stamp caseloads) and have stateexpenditures in excess of their FY1994 level. The two bills differed substantially in their revisions to the TANF contingency fund. The House-passed version of H.R. 4 essentially would have continued the fund on existingrules, with some relatively minor modifications: allowing some additional state spending to counttoward meeting the FY1994 funding level threshold and modifications to increase grants for statesthat qualify for funds for only part of the year. The Senate Finance Committee bill fully revamped the contingency fund. It would have eliminated the requirement that states increase expenditures from their own funds above the regularTANF MOE level and eliminated the matching requirements. It added a new financial requirementthat unspent TANF balances be below a certain threshold to qualify for contingency funds. TheFinance Committee proposal would have based contingency grants on a portion of the estimated costof increased cash assistance caseloads. The Senate Finance Committee bill would have also revisedthe criteria of economic need for a state. Uses of Grants and Program Requirements. Federal TANF grants and MOE funds can be used for a wide range of benefits, services, andactivities to assist low income families with children and to further TANF goals of reducingout-of-wedlock births and promoting two-parent families. TANF grants can also be transferred toother block grant programs: up to 30% of the grant can be transferred to the Child Care andDevelopment Fund (CCDF) and to the Social Services Block Grant, though the limit on transfers toSSBG is set at 4.25% (though annual appropriations have restored the SSBG transfer limit to itsoriginal limit set in the 1996 welfare law of 10%). Within the overall 30% limit, federal TANFfunds may also be used as the state match for federal reverse commuter grants if the program benefitswelfare families. Both bills would have set the SSBG transfer limit permanently at 10%. However, the Housebill would have raised the overall transfer limit to 50%. The Senate Finance Committee bill wouldhave retained the current law 30% transfer limit. Both bills included provisions to ease some rules regarding use of TANF funds. Both the House-passed and Senate Finance Committee versions of H.R. 4 would have: Allowed states to use carryover TANF funds for any TANF benefit and service. Current law restricts the use of carryover funds for the provision of"assistance." Narrowed the definition of "assistance" to exclude all child care andtransportation aid. TANF funds spent on assistance trigger certain program requirements, such aswork requirement, time limits, assignment of child support payments, and data reportingrequirements. Under current regulations, child care and transportation aid for nonworking familiesis counted as assistance and triggers these requirements. The bills would have eliminated such aidfrom the definition of assistance, freeing nonworking families who receiving only child care ortransportation aid from these requirements. Both the House-passed and Senate Finance Committee bills substantially revised TANF workparticipation requirements that apply to both the states and to individuals. They both raised workparticipation rates that states must meet from the current law's standard of 50% to 70%, raised therequired hours of working to receive full credit and provided partial credit for participating familiesthat do not meet the full credit standard, and revised the list of activities. However, the bills differedin how they did these three things. Both bills also incorporated the Bush Administration's "universal engagement" proposal, which requires states to develop a self-sufficiency plan for all TANF adult recipient to monitor progresstoward that plan. The House -passed bill also required states to end benefits ("full family sanction")for families that fail to comply with work participation rules. Participation Rate Standards. Current law requires states to have a specified percentage of their families with an adult recipient (or minor headof household) participating in creditable work activities. The current participation standard is 50%. States are subject to an additional participation rate standard for two-parent families, currently 90%. The participation rate standards may be reduced for caseload reduction (not attributable to policychanges) that have occurred since before enactment of welfare reform (FY1995). This "caseloadreduction credit" has had a large effect on participation standards, reducing the standardconsiderably from its statutory rate. In FY2002, the standard was reduced to 0% for 21 states. Both the House-passed and Senate Finance Committee bills raised the work participation standard for all families to 70% by FY2008 and eliminated the separate standard for two-parentfamilies. Both bills also would have revised the credits that reduce these standards from theirstatutory rate (i.e., reduce the 70% standard to a lower rate), but they did so in different ways. The House-passed bill revised the current caseload reduction credit so that caseload change is measured from a more recent year (rather than the pre-welfare reform caseload level of 1995). Ultimately, caseload reduction would have been measured based on the most recent four years. TheHouse bill also included a provision to give an additional credit to states that achieved a caseloadreduction of 60% of more from FY1995 to FY2001. The Senate Finance Committee bill retained the current caseload reduction credit for FY2004 and FY2005, but beginning in FY2006 would have replaced the caseload reduction credit with acredit for employed welfare leavers. The bill would have also capped all credits against theparticipation standard, so that the minimum effective rate standard would have been 10% in FY2004,20% in FY2005, 30% in FY2006, 40% in FY2007, and 50% in FY2008. Hours Standards. Current law requires that a family be considered participating only if it participates for a minimum number of hours per weekin a month. Under current law, 20 hours is required for single parents with a pre-school child (underthe age of six), and 30 hours is required for other families. Higher hours are set for the purposes ofthe two-parent work participation rate. Both the House-passed and Senate Finance Committee bills raised the hours standards. TheHouse-passed bill incorporated a 40-hour workweek standard for full credit, but would also haveprovided "partial" credit for families with at least 24 hours of participation. No special lower hourstandard would have been provided for single parents with preschoolers. The Senate Finance Committee bill also raised the hours standard for full credit, but by less than proposed in the House-passed bill. Single parents with a pre-school child would have been givenfull credit for participation at 24 hours per week, and other single parent families would have beengiven full credit at 34 hours per week. Partial credit for single parent families would have beenprovided at 20 hours per week. Higher hours requirements would apply to two-parent families. Creditable Activities. Current law lists 12 activities that may be counted toward TANF work participation standards. The bulk of countableparticipation is in a subset of "core" activities focused on work, time-limited job search (countablefor six weeks in a fiscal year, 12 weeks if criteria of economic need is met), time-limited vocationaleducational training (12 months in a lifetime), and community service and work experience. Inmeeting the general 30-hour-per-week standard, hours in educational activities are countable onlyfor families who are also participating in at least 20 hours per week of "core" activities. Post-secondary education, other than that considered "vocational educational training," does notcount toward current law federal TANF work participation standards. Both bills would have revised the list of countable activities, but in very different ways. TheHouse-passed bill would have narrowed what counts as "core" activity by removing job search andvocational educational training from that list. Except for a limited period of time (see below), theHouse bill would have required that families participate for at least 24 hours per week in work,community service, or work experience programs to be counted toward the state's standard. Forthree months in a 24-month period (four months in the case of an educational program), states wouldhave been allowed to define activities that count toward the standards. These activities would haveincluded job search and vocational educational training or other types of activities (e.g., English forSpeakers of Other Languages classes, substance abuse treatment or treatment for victims of domesticviolence). States would also have been allowed to determine the activities for which hours wouldcount above the 24-hour-per-week standard. The Senate Finance Committee bill retained the current law list of activities, including keeping time-limited job search and vocational educational training as "core" activities. However, itprovided states with options to allow recipients to participate in an additional set of activities forthree months in a 24-month period. In the case where that participation is in a rehabilitative activity,another three months of rehabilitation would have been allowable if combined with a core workactivity. The Senate Finance Committee bill would also have allowed these additional activities (andjob search and vocational educational training to count without regard to their usual time limits) tocount for hours above 24 hours per week spent in core activities. The Senate Finance Committee bill also allowed states to have up to 10% of their caseload enrolled in a special program of two- or four-year undergraduate education or vocational educationaltraining. This program is modeled after the "Parents as Scholars" program that has operated inMaine using TANF MOE funds. Current law allows states to use TANF funds for any activity "reasonably calculated" to achievea TANF purpose. One of the statutory purposes of TANF is to end dependency of needy parents ongovernment benefits, and one of the stated means to end such dependency is "marriage." Anotherof the statutory purposes of TANF is to promote the formation and maintenance of two-parentfamilies. "Promoting marriage" is a currently allowable use of TANF funds. Both the House-passed and Senate Finance Committee versions of H.R. 4 would have carved out special "marriage promotion grants" from existing TANF funding. Both billsincluded $100 million in competitively awarded matching funds for states, territories, and tribes formarriage promotion activities. The bills would have allowed states to use other federal TANF fundsor state funds as the match for these new marriage promotion grants. Both bills also would have provided an additional $100 million for research and demonstrations. The House-passed bill required that these funds be used "primarily" for marriagepromotion; the Senate Finance Committee bill required that 80% of these funds be used for marriagepromotion. Marriage promotion activities listed in both bills were: public advertising campaigns on the value of marriage and skills needed to increase marital stability and health; education in high schoolson the value of marriage; marriage education and marriage and relationship skills programs fornonmarried parents or expectant parents; pre-marital education on marriage for engaged couples;marriage enhancement and marriage skills training for married couples; divorce education programs;and marriage mentoring programs. Programs to reduce the disincentives to marriage in need-basedprograms could only have been funded from these grants if offered in conjunction with othermarriage activities. The language of the two bills was similar, though the Finance Committee billhad additional language requiring that organizations familiar with domestic violence issues beconsulted in developing marriage promotion projects and language to clarify that marriage promotionactivities are to be voluntary. Both the House-passed bill and Senate Finance Committee bill would have made additional amendments to TANF provisions regarding state plans, data reporting, tribal TANF programs, andother provisions of TANF law. These provisions are included in the detailed bill comparison tableshown below. The House-passed and Senate Finance Committee versions of H.R. 4 also included amendments to the Child Care and Development Fund, child support enforcement, theabstinence education program, and transitional Medicaid. These provisions are not addressed in thisreport. Table 1 provides a detailed comparison of the TANF programs of theHouse-passed and SenateFinance Committee reported versions of H.R. 4 . The table provides references towhere current law provisions are found in the Social Security Act (SSA). It also denotes the sectionnumber in each of the bills in which the provision is found. Table 1. Comparison of Current Law with H.R.4, as Passed by the House andas Reported by the SenateFinance Committee (TANF Provisions) Return to CONTENTS section of this Long Report. | The 108th Congress did not complete action on legislation to reauthorize the block grant ofTemporary Assistance for Needy Families (TANF), instead adopting short-term extensions. Thelatest extension funds the program through March 31, 2005. Though welfare reauthorization failedto receive final action, a bill ( H.R. 4 ) did pass the House and a substitute measure wasreported from the Senate Finance Committee. The differences in the two bills highlight some of thecontentious issues in the reauthorization debate. The House-passed and Senate Finance Committee bills were very similar in terms of how they would continue funding under the TANF program. Both bills would have extended basic TANFfunding at current levels ($16.6 billion for the 50 states, the District of Columbia, and the territories)through FY2008 and extended supplemental grants provided to 17 states through FY2007. Both billsalso would have provided new, categorical grants for marriage promotion activities. The majordifference in the funding provisions of the two bills was how they provided extra contingency(recession-related) funding to the states. The House bill essentially extended the current law fundthat provides matching grants to states that experience high and increased unemployment rates andfood stamp caseloads. The Senate Finance Committee bill eliminated the requirements that statesexpend additional money to access contingency funds, and instead based extra funding on the costof increased caseloads for states that meet revised unemployment or food stamp caseload criteria. The two bills would have substantially revised TANF work participation standards that states must meet or be subject to a financial penalty. Under current law, 50% of TANF families with anadult or minor household head must participate, though the 50% rate is reduced by caseloadreductions that have occurred since welfare reform. Both versions of H.R. 4 wouldhave raised this standard to 70%, though under both bills the standard could have been reducedthrough credits (though the credits differ between the two bills). They also both eliminated aseparate 90% participation rate requirement for two-parent families. Both bills would have raisedthe minimum hours required of family members to be considered full participants, though the Houseraised them more than did the Senate Finance Committee bill. The bills also differed in the activitiescountable toward the participation standards: the House narrowed the list of activities countable,requiring recipients to spend at least 24 hours in work, community service, or work experienceprograms except for a short (usually three month) period when states may define what counts asactivities themselves. The Senate Finance Committee bill kept all activities on the current law list,and also allowed states to count activities on an expanded list for three months (six months in somecircumstances). Both bills included non-TANF provisions relating to child support enforcement, responsible "fatherhood" programs, and transitional medical assistance (not addressed herein). This report willnot be updated. |
Prior to the September 11, 2001 terrorist attacks, insurance covering terrorism losses wasnormally included in general insurance policies without a specific premium being paid. Essentiallymost policyholders received this coverage for free. The attacks, and the more than $30 billion ininsured losses that resulted from them, caused a rethinking of the possibilities of future terroristattacks. In response to the new appreciation of the threat and the perceived inability to calculate theprobability and loss data critical for pricing insurance, both primary insurers and reinsurers pulledback from offering terrorism coverage. Many argued that terrorism risk is essentially uninsurableby the private market due to the uncertainty and potentially massive losses involved. Becauseinsurance is required for a variety of economic transactions, many feared that a lack of insuranceagainst terrorism loss would have wider economic impact, particularly on large-scale developmentsin urban areas that would be tempting targets for terrorism. Congress responded to the disruption in the insurance market by passing the Terrorism RiskInsurance Act of 2002 (1) (TRIA), which was signed by the President in November 2002. TRIA created the Terrorism RiskInsurance Program, which was enacted as a temporary program, expiring at the end of 2005, to calmthe insurance markets through a government backstop for terrorism losses and give the privateindustry time to gather the data and create the structures and capacity necessary for private insuranceto cover terrorism risk. Terrorism insurance has become widely available under TRIA and the insurance industry hasgreatly expanded its financial capacity in the past three years. It appears, however, that less progresshas been made on creating terrorism models that are sufficiently robust for insurers to return tooffering widespread terrorism coverage without a government backstop, and that practically noprogress has been made on a private pooling mechanism to cover terrorism risk. Some see the pastthree years as proof of the argument that the private market will never be able to offer insurance tocover terrorism risk and continue to see the possibility of wider economic consequences if terrorisminsurance again is unavailable. Others, notably the U.S. Treasury Department, respond that TRIAitself is retarding the growth of this private market and should be allowed to expire, or at least bereduced from its current form. Congress responded to the impending expiration of TRIA with two different bills thatinitially passed the respective houses. The Senate bill, Senator Christopher Dodd's S. 467 , was approved by the Senate on November, 18, 2005. The large majority of the language fromthe House bill, Representative Richard Baker's H.R. 4314 , was inserted into S.467 and passed by the House on December 7, 2005. S. 467 was entitled theTerrorism Risk Insurance Extension Act, whereas H.R. 4314 was entitled the TerrorismRisk Insurance Revision Act and the titles did reflect essential differences between the two bills. Senator Dodd introduced S. 467 on February 18, 2005. As introduced, it wasidentical to a bill, S. 2764 , introduced by Senator Dodd in the 108th Congress. S.467, as introduced, would have explicitly extended TRIA for two years, until the end of2007, and would have added a "soft landing" year by changing the definition of an insured loss sothat policies written in the second year and extending into a third year would be covered. Theindividual insurer deductible was to remain at 15% of earned premiums during the extension, whilethe insurance industry aggregate loss retention amount was to increase from the current $15 billionin 2005 to $17.5 billion for 2006 and finally $20 billion for 2007. S. 467 also would havedirected the Treasury to promulgate new rules including group life insurance under TRIA. On June 30, 2005, the Department of the Treasury released a report on TRIA accompaniedby a letter from Secretary Snow indicating that TRIA had achieved its goal of stabilizing theinsurance market and that the Administration would not support an extension without significantchanges reducing the taxpayer exposure from the program. On November 16, 2005, the SenateCommittee on Banking, Housing, and Urban Affairs marked up S. 467 and substitutedan amendment by Chairman Richard Shelby for the original text. It then reported the bill favorablyto the full Senate by voice vote. As amended, S. 467 would have extended the current program two years andfurther increased the private sector's exposure to terrorism risk over the life of the act, as did theoriginal legislation. During the three years covered by the initial act, insurance industry deductiblesand aggregate retention rose each year. S. 467 continued to increase these. It would havealso reduced the types of insurance covered by the program and increased the size of a terrorist eventnecessary to trigger the program. Specifically, it removed commercial auto, burglary and theft,surety, farm owners multiple peril, and professional liability (except for directors and officersliability), as covered lines; raised the insurer deductible to 17.5% in 2006 and 20% in 2007;decreased the federal share of insured losses from 10% to 15% for 2007; and raised the event triggerto $50 million in 2006 and $100 million in 2007. S. 467 was brought to the Senate floor and passed by unanimous consent onNovember 18, 2005. The House brought the bill to floor and amended it with most of the text of H.R. 4314 before passing it on December 7, 2005. H.R. 4314 was introduced by Representative Baker on November 14, 2005, andmarked up by the House Financial Services Committee on November 16. Three amendments, byChairman Michael Oxley and Representatives Barney Frank and Debbie Wasserman Schultz, wereadopted in committee by voice vote. (2) Chairman Oxley's amendment made a number of changes,including adjusting the exact deductibles for various insurance lines, reducing the program triggeramount in program years after the second year and striking language that would have preemptedsome state laws relating to rate and form filing. Representative Frank's amendment increased thesize needed by a company or municipality to be considered an "exempt commercial purchaser" ofinsurance. Representative Wasserman Schultz's amendment added the requirement that life insurersnot deny insurance coverage based on lawful overseas travel. The amended bill was favorablyreported to the full House by a vote of 64-3. In the 108th Congress, the committee had reportedfavorably a straightforward extension of TRIA with relatively minor changes. H.R. 4313 , however, went well beyond the previously reported House bill or the changes recommendedby Secretary Snow. H.R. 4314 as reported would have limited the types of insurance covered byremoving commercial auto insurance. However, it would have expanded the program to coverdomestic terrorist events and increased the covered types of insurance to include group life andspecific coverage for nuclear, biological, chemical, and radiological (NBCR) events. It would haveraised the event trigger to $50 million in 2006 and added an additional $50 million to this for everyfuture year the program is in effect. It also would have changed the insurer deductible but wouldhave done so differently for different lines of insurance, raising it to as high as 25% for casualtyinsurance but lowering it to 7.5% for NCBR events. H.R. 4314 would have lowered thefederal share of insured losses to 80% for events under $10 billion but raised it gradually to 95% forevents over $40 billion. In the case of a terrorist act, the deductibles and event triggers would havereset to lower levels, with deductibles possibly as low as 5% in the event of a large attack. It wouldhave removed the cap on the mandatory recoupment provision so that all money expended underTRIA would be recouped by the federal government through a surcharge on insurers in the yearsafter the attack. H.R. 4314 also would have created "TRIA Capital Reserve Funds (CRF),"to allow insurers to set aside untaxed reserves to tap in the case of a terrorist event. With a few changes, notably the addition of language striking Section 107 of the originalTRIA, the language of H.R. 4314 as it was reported was inserted into the Senate-passed S. 467 , and this amended version of S. 467 passed the House 371-49 onDecember 7, 2005. Shortly after passage, the House called for a conference committee to resolvedifferences with the Senate and appointed conferees. The Executive Office of the President issued a Statement of Administration Policy supporting S. 467 on November 17, 2005. It also indicated that the Administration would stronglyoppose "any efforts to add lines of coverage, including group life insurance." On December 7, 2005,a Statement of Administration Policy was issued that specifically opposed the House-passed versionof S. 467. Following the House appointment of conferees on December 7, 2005, the Senate did notappoint conferees. Instead, it took up and passed a further amendment ( S.Amdt. 2689 )to S. 467 by unanimous consent on December 16, 2005. The House followed this withpassage of this version of S. 467 by voice vote on December 17, 2005. S. 467 was signed by the President on December 22, 2005, becoming PublicLaw 109-144. P.L. 109-144 closely follows S. 467 as initially passed by the Senate onNovember 18, 2005. The significant difference is an increase in the aggregate retention amount from$17.5 billion and $20 billion to $25 billion and $27.5 billion for 2006 and 2007. Table 1. Side-by Side: Terrorism Risk Insurance Act of 2002, Initial Senate- and House-passed Legislation,andTerrorism Risk Insurance Extension Act of 2005 Notes: The initial House-passed S. 467 would strike essentially all of 15 U.S.C. 6701 note (which sets out sections 101-108 of P.L. 107-297 )and replaces it with a similar structure, including in some cases, identical language. The section numbers for this House-passed S. 467 citedin this side-by-side are, therefore, those that would appear in the Code if the bill were enacted, except for the provision entitled "Litigation Management." In contrast, both the initial S. 467 and P.L. 109-144 simply amend 15 U.S.C. 6701 note. The section numbers cited in this side-by-side are thusthose of the bill and law. | Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses wasnormally included in general insurance policies without cost to policyholders. Following the attacks,both primary insurers and reinsurers pulled back from offering terrorism coverage, citing particularlyan inability to calculate the probability and loss data critical for insurance pricing. Some argued thatterrorism risk would never be insurable by the private market due to the uncertainty and potentiallymassive losses involved. Because insurance is required for a variety of economic transactions, it wasfeared that a lack of insurance against terrorism loss would have wider economic impact. Congress responded to the disruption in the insurance market by passing the Terrorism RiskInsurance Act of 2002 (TRIA). TRIA created a temporary program, expiring at the end of 2005, tocalm the insurance markets through a government backstop for terrorism losses and to give theprivate industry time to gather the data and create the structures and capacity necessary for privateinsurance to cover terrorism risk. From 2002 to 2005, terrorism insurance became widely availableand largely affordable, and the insurance industry greatly expanded its financial capacity. There was,however, little apparent success on a longer term private solution and fears persisted about widereconomic consequences if insurance were not available. To a large degree, the same concerns andarguments that accompanied the initial passage of TRIA were before Congress as it considered TRIAextension legislation. Congress responded to the impending expiration of TRIA with the passage of two differentbills. The Senate bill, S. 467 , was approved by the Senate on November 18, 2005. Thelarge majority of the language from the House bill, H.R. 4314 , was inserted into S.467 and passed by the House on December 7, 2005. S. 467 was titled theTerrorism Risk Insurance Extension Act, whereas H.R. 4314 was titled the Terrorism RiskInsurance Revision Act. These titles did reflect essential differences between the two bills. S.467 extended the current program by two years and further increased the private sector'sexposure to terrorism risk, as did the original act. (During the three years covered by the initial act,insurance industry deductibles and aggregate retention rose each year.) S. 467 continuedto increase these and also reduced the types of insurance covered by the program and increased thesize of terrorist event necessary to trigger the program. H.R. 4314 extended the programfor two or possibly three years and substantially revised many aspects of it. Among the notablechanges, it excluded some lines of coverage and included others that were not covered before. Itsegmented lines of insurance, introducing different deductibles for different lines. It included theconcept of resetting the deductibles and the trigger amount to lower amounts if a terrorist attackoccurs in the future. The final version signed into law closely tracked the Senate legislation. This report briefly outlines the issues involved with terrorism insurance and includes aside-by-side of the initial TRIA, TRIA-extension legislation as considered in the House and Senate,and the final bill as signed by the President. It will not be updated. |
South Korea's shifting political landscape has had a significant impact in recent years on the nation's external relations, including its political and strategic relationship with the United States. Current South Korean President Lee Myung-bak, who belongs to the right-of-center Grand National Party (GNP), came to power in February 2008 pledging to boost domestic economic growth, improve alliance relations with the United States, and enhance South Korea's international status. A former business tycoon, Lee's promise of a "pragmatic," business-like approach to economic policy resonated with Korean voters hoping for more stable and sustained economic growth. Lee also promised to end the policy of unconditional engagement of North Korea practiced by his left-of-center predecessor, Roh Moo-hyun. The president has instead pursued a "reciprocal" relationship with the North Korean regime. But a series of political setbacks early in the Lee administration, including the contentious April 2008 agreement to lift a ban on most U.S. beef imports, have hampered momentum toward some of the president's key policy objectives, such as efforts to enhance the bilateral alliance with the United States. Although Lee's approval ratings have improved in recent months due to better-than-expected economic performance, his support rate is fragile and his plans for the bilateral alliance remain vulnerable to the polarized domestic political climate. Many believe that Lee's problems stem in part from his own handling of issues, but they are also symptomatic of the complexities of the South Korean political culture and system. South Korea's emergence from an authoritarian state to a democracy—in just over two decades—has unleashed an outburst of participatory democracy that is marked by a burgeoning civil society, a generally free and highly critical mass media, a fluid political party system, and a sophisticated use of the Internet to galvanize and mobilize massive anti-government public demonstrations. After decades of authoritarian rule that ended in the late 1980s, South Korean leaders are now exposed to intense public scrutiny and are more dependent on public support to implement their policy agendas. Yet for all its accomplishments, South Korea's democratic development is still considered by many to be a work in progress. The legislative branch of government, comprising the 299-member unicameral National Assembly, is structurally weak compared to the presidency and the central bureaucracy. Limited to a single, five-year term, Korean leaders nonetheless risk becoming lame-ducks soon after taking office. South Korean political parties form, disband, and merge regularly, in part because they tend to be regionally-based and centered around charismatic personalities rather than substantive issues. The fractious nature of the South Korean political system complicates policymaking in Seoul, particularly over politically-charged issues involving North Korea and the United States. Concerns about the current political system have spurred a growing movement in South Korea to revise the constitution in order to allow further structural and institutional improvements to the domestic political system. (For more on the current South Korean political system see the Appendix .) All of these factors exist in the backdrop of South Korea's evolution from a developing, authoritarian state to the world's 13 th -largest economy and rapidly maturing democracy—a transition that has not yet reconciled traditional insecurities about South Korea's position vis-à-vis surrounding great powers and growing aspirations to become an advanced nation in its own right. This tension has immediate consequences for South Korean foreign policy and relations with the United States, which has been South Korea's most important partner since helping to found the nation in 1948. At times resentful of U.S. influence, South Korean public attitudes toward the United States have been on an upswing of late amid ongoing bilateral efforts to work out sensitive alliance management issues. Lee's shift toward a conditional relationship with North Korea also has reshaped Seoul's regional diplomacy. In particular, the move has realigned South Korea with the United States and Japan in their attempt to pressure Pyongyang to abandon its nuclear weapons program, while diverging somewhat from pro-engagement China. Public support for this approach, along with Lee's vision of a "Global Korea" and efforts to strengthen the bilateral U.S.-South Korea alliance, may be lost if the president fails to maintain his political standing until his term ends in February 2013. A year and a half into his five-year, single term presidency, President Lee has encountered multiple political challenges that have damaged his popularity throughout much of his administration. The president's early political troubles destroyed much of his political "honeymoon" period and made it difficult for him to navigate attacks from both his left and right flanks. This has hampered many of Lee's policy priorities, including the revitalization of alliance ties with the United States. One of the initial signs of trouble in the Lee administration was the massive anti-government protests that followed the April 2008 U.S.-Korea beef deal. The protests dropped Lee's approval ratings to the 20%-30% level, compared with the 49% of the vote the former mayor of Seoul and Hyundai businessman captured in the five-candidate presidential election on December 19, 2007. Many analysts believe that Lee also took a political hit as a result of the Lee government's initial response to external economic shocks, particularly the global financial crisis, which contributed to a slowdown in Korea's economic performance. Some polls indicate that Lee's approval ratings in the early fall of 2009 climbed back into the high 40% range, principally due to slightly improved economic forecasts for South Korea. The 2008 beef protests, which for weeks virtually paralyzed policy-making in Seoul, appear to have been fueled by a coalescing of several factors, including a perception that the beef deal symbolized Lee's allegedly "arrogant" decision-making style; a feeling that the avowedly pro-American Lee was too willing to concede to the United States on an issue of public safety; increased angst over South Korea's deteriorating economic situation, caused in part by rising inflation and global financial disruptions; and a desire by the main opposition party, the Democratic Party, to reverse electoral setbacks that had deprived its predecessor party of the presidency (in a December 2007 election) and control of the National Assembly (in April 2008 parliamentary elections). The beef agreement also tapped into many South Koreans' widespread resentment of what they perceive to be an unequal relationship with the United States. Although the protests dwindled considerably after the announcement of a renegotiated U.S.-South Korean deal on beef on June 21, 2008, they significantly eroded Lee's ability to take political risks and promote his policy agenda at the very start of his administration. Throughout 2008 and much of 2009, Lee has had to back off many of the ambitious policy initiatives he either campaigned on or launched after assuming office, including a plan to link Seoul to Pusan by water by digging a "grand canal." Perhaps most significantly for the United States, Lee's weakened position has meant that he has had less political capital—let alone political will—to spend on measures to achieve his goal of upgrading the U.S.-South Korean alliance, including overcoming opposition to relocating U.S. bases in South Korea. Lee's signature campaign pledge—promoting economic growth—has been hurt, first by soaring energy prices in early 2008 and then by the global economic slowdown. Lee had touted a ten-year "747 target" of raising South Korea's annual GDP growth to 7.0%, doubling its per capita income to $40,000, and stepping from the world's 13 th largest economy to its seventh largest. However, South Korea's economy has been buffeted by the global financial crisis. GDP growth plunged into negative territory in the last quarter of 2008 and unemployment rose to nearly 4% in May 2009, considered high by Korean standards and nearly a percentage point increase since late 2008. Because South Korean banks—collectively among the industrialized world's most leveraged—are heavily reliant upon foreign borrowing for their financing needs, the squeezing of international credit markets led to severe shortages of credit in South Korea in late 2008. South Korean trade with the outside world plummeted and the South Korean won plunged in value in the fall of 2008 and early 2009. In response to the economic dislocation, the Bank of Korea has reduced interest rates to a record low of 2% and the Lee government has unveiled a series of large-scale stimulus packages, negotiated a multi-billion dollar line of credit with the U.S. Federal Reserve, and fired his oft-criticized Finance Minister. Since the spring of 2009 there have been signs that the downturn in the Korean economy has bottomed out. Quarterly growth of 2.3% in the second quarter of 2009 suggests that South Korea's economy may be contracting at a slower rate than anticipated, leading to forecasts of 2% real GDP growth for 2010. Improved economic prospects may account for a 10-percentage-point increase in Lee's recent approval ratings, according to some polls. The South Korean president's wavering popularity has not helped to unite his deeply divided party. Last year, his Grand National Party (GNP) merged with a smaller conservative group to increase its parliamentary majority in the unicameral National Assembly. Before the merger, the GNP had a razor-thin majority of 152 out of a total 292 seats following a worse-than-expected performance in parliamentary elections in April 2008. Coming less than two months after Lee's inauguration, these results were widely interpreted as an early sign of Lee's shaky political fortunes. The GNP currently has 167 seats in the National Assembly. (See Figure 1 below.) However, the conservatives' numerical strength masks significant divisions and highlights Lee's weakened position. The merger brought into the GNP a faction loyal to Park Geun-hye, the popular daughter of Korea's former military ruler Park Chung-hee, whom Lee only narrowly defeated in the GNP's presidential primary in 2007. Lee had tried to marginalize Park's influence, an effort he had to abandon with the merger. Also, Lee's relationship with the Liberty Forward Party has been contentious, as its leader ran a bitter campaign against Lee in the presidential election. The Park camp and the LFP generally are more conservative than Lee, so he has been under pressure from his conservative flank. If Lee is unable to reconcile with Park, she and her 50 supporters in the GNP could defect from the party and significantly undermine the president's support in the National Assembly. In August 2009, Lee appointed Park to be special envoy to Europe in an apparent effort to mend fences with his political rival. The gesture, combined with Park's inability in June 2009 to succeed in her public effort to defeat a media reform bill the Lee government was pushing, appears to have reduced intra-party tensions for the time-being, although significant divisions within the GNP persist. The beef controversy marked just the beginning of Lee's domestic political problems. In May of this year, former South Korean president Roh Moo-hyun committed suicide after his family was investigated by prosecutors for possible corruption charges. Roh himself was not the initial target of the investigation but many South Koreans believed that the investigation was politically motivated. A nationwide tribute to Roh on May 29 brought out 5 million mourners, many of whom blamed Lee for his predecessor's suicide. Since then, Lee has been criticized for appearing aloof amid what many Koreans believe to be a national tragedy. Adding to Lee's problems is mounting public concern that he is undermining freedom of speech in an attempt to shield his administration from intense media scrutiny. In July, the ruling GNP pushed through a controversial amendment to a broadcasting law that allows major businesses and newspapers to own stakes in South Korea's television network companies, which many consider to favor left-of-center policies. The main opposition Democratic Party (DP) fiercely opposed the amendment, including an attempt to physically prevent a vote from occurring on the floor of the National Assembly. In response to the bill's passage, the DP leader launched a hunger strike and dozens of its legislators tendered their resignations. The DP has argued that the bill would give conservative supporters of Lee (many of whom own the nation's largest corporations and newspapers) a monopoly on news coverage. Despite the DP's dramatic opposition to the communications bill, the party has of late failed to coalesce into a unified political force. The political left in South Korea has been in the parliamentary minority at least since 2005. Since then, no clear leader appears to have emerged to rally the liberals into a unified political force. The death of former president Kim Dae-jung in August 2009 leaves the Left without a progressive leader in the southwestern Cholla region, one of South Korea's three major political regions (the others being Chung-chong in the center and Kyongsang in the southeast). Without a clear successor to unite the progressive factions, it appears unlikely that the Left will mobilize a challenge to Lee in the foreseeable future. The left wing faces structural obstacles as well. Under South Korea's parliamentary system opposition parties have relatively little influence in shaping legislation, further marginalizing the liberals in the current Assembly. Since the fall of 2008, relations between the United States and South Korea (known officially as the Republic of Korea, or ROK) arguably have been at their best state in nearly a decade. This is largely due to three main factors: President Lee's emphasis on enhancing cooperation with Washington at the official level; a recent improvement—however tenuous—in favorable attitudes toward the United States among South Koreans; and Lee's hard-line stance toward North Korea. Among President Lee's initial goals as he entered into office was to shore up relations with the United States, which despite many bilateral accomplishments often were strained under former President Roh Moo-hyun. Lee also adopted a more hard-line policy toward North Korea by insisting on greater reciprocity in North-South relations and by linking South Korean inducements to progress on denuclearization. The increase in North Korea's belligerent actions in 2008 and 2009 have helped to harmonize the U.S. and South Korean policies toward Pyongyang and have intensified U.S.-ROK strategic and tactical coordination. The closeness of the relationship was symbolized by the June 16, 2009 summit between Presidents Obama and Lee that most analysts consider to have been highly successful. At the summit, the two sides signed a "Joint Vision" statement that foresees the transformation of the alliance's purpose, from one of primarily defending against a North Korean attack to a regional and even global alliance, in which Washington and Seoul cooperate on myriad issues, including climate change, energy security, terrorism, development, human rights promotion, as well as peacekeeping and the stabilization of post-conflict situations. However, even as this broader vision is pursued and the alliance's fundamentals appear to be solid, a number of items may cause disagreements or even more serious tensions between the United States and South Korea. On North Korea, Seoul and Washington have had different priorities in the past, with South Koreans generally putting more emphasis on stability than on countering nuclear proliferation, the top U.S. priority. Throughout the spring and summer of 2009, unity in the face of North Korea's belligerence masked these differences, but they could re-surface if North Korea softens its stance over a sustained period. Lee's political vulnerabilities could make it politically difficult for Lee to push unpopular initiatives that the United States may desire, particularly in working out the structural and budgetary details of the alliance's transformation. A major area of contention between the two governments could be over the Korea-U.S. Free Trade Agreement (KORUS FTA). Enacting the agreement is one of Lee's major foreign and domestic policy goals. The Obama Administration, however, has signaled that it does not plan to take action on the KORUS FTA in the foreseeable future and until ways are found to redress "imbalances," particularly in the auto sector. It is widely believed that the agreement as it currently stands does not have sufficient support in Congress to be passed. The recent upturn in South Korean public perceptions of the United States has helped to improve the overall atmosphere in bilateral relations of late. Public opinion toward the United States, and in particular anti-Americanism, have long colored U.S.-ROK relations. Anti-American sentiments pervaded segments of South Korean society during the 1970s and 1980s, when pro-democracy protesters blamed the United States for backing Seoul's authoritarian regimes. After the end of military rule, anti-American sentiments were largely confined to highly ideological groups, particularly student organizations, that generally operated on the political margins in Korea. In the late 1990s, however, criticism of U.S. policies moved into the mainstream, a shift that also has made anti-Americanism less ideological and more issue-specific. The criticisms range widely and include accusations that the U.S. government is hampering rapprochement between North and South Korea, that U.S. forces in South Korea are not sufficiently accountable for crimes they commit in South Korea, and that governments in Seoul too often cater to U.S. interests. This latter issue, experts argue, was the main point of contention that sparked the mass protests against U.S. beef imports last year. Since the end of the beef protests, there has been a marked improvement in public attitudes toward the United States, providing President Lee with an opportunity to pursue closer ties with Washington under a somewhat less polarized atmosphere than existed last year. According to a recent global opinion survey, the United States currently has a 78% favorability rating in South Korea—the highest of any surveyed nation in Asia—owing in part to increased confidence in President Obama's leadership and his "multilateral" approach to foreign policy. Likewise, appreciation for the importance of the U.S.-ROK alliance, although generally high, has climbed to 87% in correlation with rising threat perceptions of North Korea. Another trend is that South Koreans increasingly view the United States (62%) as the most "beneficial political and diplomatic partner" in comparison to other key regional powers such as China (19%) and Japan (10%). Despite these statistics, South Korean public opinion can change rapidly and the currently favorable outlook toward the United States is likely to be temporal. For the time being, however, the relatively positive public outlook toward the United States has helped to diminish the politically charged atmosphere that has often overshadowed U.S.-ROK relations. The stationing of U.S. forward deployed forces in South Korea is a particularly sensitive issue for the Korean public and has become an issue that Pentagon planners have increasingly had to contend with in their calculations of U.S. force levels on the Peninsula. In 2002, two Korean schoolgirls were accidentally killed by a U.S. military vehicle, leading to large-scale public protests against the U.S. troop presence, which is concentrated in densely populated civilian areas. The protests compelled then-Secretary of Defense Donald Rumsfeld to consider a reduction of the U.S. troop level in Korea from 37,000 to 25,000 by September 2008. However, current Secretary of Defense Robert Gates announced in June 2008 that the drawdown would halt at 28,500 troops for the foreseeable future. The Rumsfeld plan also called for the withdrawal of one of the two combat brigades of the Second Infantry Division and sending them to Iraq (carried out in 2004), the pull back of the remainder of the Second Division from the demilitarized zone (DMZ) separating North and South Korea, and relocation of the Second Division and the 9,000 U.S. military personnel stationed at the Yongsan base in Seoul to a new base complex at Pyongtaek, 75 miles south of the DMZ. The relocations were scheduled for 2008, but they have been postponed to 2013 and possibly 2014 or beyond. U.S. and South Korean officials explain the delays as due to financial costs and delays in the construction of new facilities at Pyongtaek. Another complicating factor is the announcement by Secretary Gates that family members of U.S. military personnel will be allowed to live in South Korea, which is estimated eventually to add 35,000 to 40,000 to the American military community in South Korea. In December 2008, the Pentagon and the South Korean Defense Ministry reached agreement on South Korea's share of the cost of stationing U.S. troops in South Korea. South Korea will pay 760 billion won (about U.S. $570 million) for the stationing of 28,500 American troops in 2009. Its financial support is to increase each year on the basis of the inflation rate until the agreement expires in 2013. Another key issue is implementation of a bilateral agreement to transfer wartime operational control (commonly referred to as OPCON) of military forces from U.S. to South Korean command—part of a South Korean proposal to abolish the U.S.-ROK Combined Forces Command and create separate U.S. and South Korean military commands. The agreement calls for the separate commands to be in place by 2012. The South Korean public has been divided on the plan since it was proposed in 2006, with sizeable percentages of Koreans concerned about the impact the move might have on the U.S.-ROK alliance. The public seems to have grown more comfortable with the OPCON transfer of late. According to polls, 50% of the public believe the OPCON transfer should be carried out as planned by 2012, while 35% believe it should be delayed indefinitely. South Korean President Lee, who took office after the agreement was concluded, has held out the possibility of seeking a re-negotiation of the agreement before 2012. The Pentagon continues to support the plan, but a number of American experts believe that a re-negotiation could take place. In 2007, South Korea withdrew 200 non-combat military personnel from Afghanistan, and the government has not responded to the appeals of U.S. commanders for U.S. allies to send ground combat troops to Afghanistan to help deal with the resurgent Taliban. According to South Korean officials, President Obama asked President Lee to send ROK troops to Afghanistan during their summit meeting in June 2009. Press organs have reported that the Pentagon has urged South Korea to send military engineering units. South Korea withdrew its 520 troops from Iraq at the end of 2008. The South Korean government agreed in 2009 to construct facilities at a U.S. military base in Afghanistan and provide ambulances and police patrol motorcycles, at a cost of $200 million. President Lee said on June 20, 2009, that his government would consider deploying "peace-keeping troops" to Afghanistan. According to recent polls, just 30% of South Koreans who were surveyed support deploying Korean troops to Afghanistan, while nearly 80% prefer providing medical and humanitarian aid to help in reconstruction efforts. The dominant economic issue on the bilateral agenda is the fate of the KORUS FTA, which the Bush and Roh Moo-hyun governments signed in June 2007. If approved, the KORUS FTA would be the largest FTA that South Korea has signed to date and would be the second largest in which the United States participates (next to North American Free Trade Agreement, NAFTA). South Korea is the seventh-largest trading partner of the United States, and the United States is South Korea's third largest trading partner (after China and Japan). Various studies conclude that the agreement would increase bilateral trade and investment flows. The Lee and Roh governments have argued that the KORUS FTA will help transform the South Korean economy by making it more open, transparent, and competitive. Although the South Korean public was initially apprehensive about the KORUS FTA, polls indicate that the agreement has over time gained broad public support. Additionally, many of the agreement's proponents have touted the KORUS FTA's strategic implications, arguing that it will help deepen the U.S.-South Korean alliance, and will boost the U.S. presence in East Asia, where most countries—including China—are negotiating numerous free trade agreements. The agreement will not enter into force unless Congress approves implementation legislation. The Obama Administration has not indicated if or when it will send the draft implementing bill to Congress. The Administration has stated that it is developing "benchmarks for progress" on resolving "concerns" it has with the KORUS FTA, particularly over market access for U.S. car exports. While U.S. Trade Representative Ron Kirk has called attention to the economic opportunities that the KORUS FTA presents, he also has said that if the Administration's concerns are not resolved, "we'll be prepared to step away.... " When Presidents Obama and Lee met on June 16, 2009, in Washington, D.C., the two presidents remained publically noncommittal toward establishing a timeframe for acting to approve the agreement, although Lee has on his own repeatedly stressed the importance of ratifying the agreement. In South Korea the politics of the KORUS FTA likely will make it difficult for the Lee government to appear to accede to new U.S. demands. This is particularly due to memories of the 2008 beef protests. The South Korean National Assembly has yet to vote on the KORUS FTA—though it has been approved by the Foreign Affairs, Trade and Unification Committee—and is debating whether or not to do so before the U.S. Congress acts. It is expected that the Assembly would pass the agreement, at least in its current version. Many experts warn that South Korea would suffer a deep sense of humiliation if the U.S. Congress were to reject the KORUS FTA after its potential ratification in the National Assembly—an outcome that could have broader political and possibly even strategic consequences for the U.S.-ROK relationship. South Korea has signed and is negotiating a number of other FTAs, including one with the European Union that was signed in July 2009. South Korea's diplomatic approach toward neighboring Northeast Asian nations has changed significantly since President Lee succeeded Roh Moo-hyun in 2008. This is, in part, a corollary of the shift both in Seoul's policy toward North Korea and the United States after the change of administrations in South Korea in 2008. The Roh administration's generally unconditional engagement of Pyongyang often put it at odds with the harder line advocated by Japan and the United States, while aligning South Korea more closely with pro-engagement China in the Six-Party Talks aimed at resolving the North Korea nuclear crisis. Roh described South Korea as a "strategic balancer" between what he saw as the pro-engagement camp (China and Russia) and the hard-line camp (the United States and Japan) that sought to pressure Pyongyang into dismantling its nuclear weapons program. The balancer role seemed to diminish the solidarity of the U.S.-ROK alliance which, along with Roh's calls for greater independence from Washington, severely strained Seoul's ties with the Bush Administration. Over time, as South Korean threat perceptions of North Korea increased throughout the decade, so did South Koreans' public approval ratings of the United States, weakening support for key aspects of Roh's overall foreign policy. President Lee entered office in 2008 pledging to restore alliance relations with the United States and demanding a "reciprocal" relationship with Pyongyang. His tougher stance toward the regime repositions South Korea in the U.S.-led camp, as Seoul seeks to enhance coordination with Tokyo and Washington in presenting a unified front against North Korean provocations. Although this shift in policy has strained inter-Korean relations, it has arguably led to a net, if modest, improvement in South Korea's overall diplomatic outlook in the region. Lee's focus on an alliance-oriented approach to North Korea has, at least, eased tensions with Washington and provided a pretext for closer political and strategic cooperation with Japan. The closer coordination between Seoul, Tokyo and Washington has not noticeably damaged South Korean diplomatic ties with China. Lee's active diplomatic outreach since coming to office may have helped to ease potential concerns in Beijing about South Korea's strategic direction. Indeed, Beijing has not taken explicit steps to discourage Lee from repositioning his nation outside the pro-engagement camp. Over the past year, a flurry of diplomatic activity between Seoul and Beijing leaves little doubt that smooth relations with China remain a priority for South Korea, despite rising competition between the two countries over export markets and natural resources. Seoul has also enhanced its leadership role in multilateral institutions and regional fora as it seeks to carve out a higher profile in a region dominated by China, Japan and the United States. In September 2009, Lee announced that South Korea would chair and host the November 2010 G-20 meeting, a gathering that will showcase South Korea's leadership in the global financial crisis. In May/June 2009, President Lee hosted a summit with the ten-member nations of the Association of Southeast Asian Nations (ASEAN). In addition to signing an investment-protection treaty as part of the concluding terms of a free trade agreement (FTA) with ASEAN, South Korea offered to enhance development assistance, cooperation on clean energy initiatives, training and education, and other measures to deepen ties with the region. Analysts believe these steps are, in part, aimed at expanding and deepening South Korea's ties with key export markets and is a sign of increasingly assertive regional leadership from Seoul. Since entering office, Lee has made major changes to Seoul's policy toward North Korea. After ten years of Seoul's policy of largely unconditioned reconciliation with North Korea—often dubbed the "sunshine policy"—the Lee government entered office insisting on more reciprocity from and conditionality toward Pyongyang. Most importantly, initiating new large-scale inter-Korean projects, agreed to before Lee took office, would be reviewed and linked to progress in denuclearizing North Korea. Lee's administration also offered to continue humanitarian assistance—provided North Korea first requests such aid—and indicated that existing inter-Korean projects would be continued. Lee has been openly critical of human rights conditions in North Korea, reversing his predecessor's policy. Lee also has issued various iterations of his "3,000 Policy" pledge during the 2007 presidential campaign to help raise North Korea's per capita income to $3,000 over the next ten years. These initiatives appear to complement the "comprehensive" package the Obama Administration has indicated would be forthcoming if North Korea took positive steps on the nuclear front. North Korea reacted to Lee's policies by unleashing a wave of invective against Lee, adopting a more hostile stance toward official inter-Korean activities, and tightening restrictions on the North-South Kaesong Industrial Complex, which operates in North Korea. The result was the cessation or severe curtailment of most of the inter-Korean meetings, hotlines, tours, exchanges, and other programs that had been established over the past decade. Following the North's May 25, 2009 nuclear test, South Korea formally joined the Proliferation Security Initiative (PSI), a U.S.-led coalition group formed in 2003 aimed at stopping countries from proliferating weapons of mass destruction. Since Pyongyang's failed satellite launch on April 5, 2009, which used ballistic missile-related technology, Seoul has prohibited virtually all visits by South Koreans to North Korea, aside from trips made in conjunction with the Kaesong Industrial Complex. Since August 2009, there have been some indications of a slight thaw in inter-Korean relations. It is still uncertain whether North Korea's overtures are part of a gradual trend toward improved North-South relations or are merely temporary aberrations in the bilateral dynamic. Analysts point out that President Lee has tried to quell speculation of a possible North-South summit or any other "thaw" in relations between the two countries. Public opinion polls of South Koreans have tended to show mixed feelings on relations with North Korea. While a majority appear to favor Seoul adopting more reciprocity in inter-Korean relations than was true during the heyday of the "sunshine policy" of Lee's predecessors Kim Dae-jung and Roh Moo-hyun, most also appear to favor maintaining some form of diplomatic and economic engagement with North Korea. This ambivalence sets boundaries beyond which South Korean policy-makers are often loathe to cross. In the short term, public and elite opinion on North Korea policy appear to be affected by three main variables: the sense of threat from North Korea, the extent to which the United States is perceived to be ignoring Seoul in Washington-Pyongyang relations, and the perception that China is expanding its influence in North Korea at South Korea's expense. Ties between South Korea and Japan have improved markedly over the last year, although the pattern of bilateral behavior in the past shows that such trends can be short-lived. As South Korea and Japan are key U.S. allies in Northeast Asia, the health of their bilateral relationship is of direct importance to U.S. strategic interests in the region. Only a few years ago historical and territorial disputes threatened to spark a "diplomatic war" between the two countries. Major differences over these issues remain, particularly over the long disputed Dokdo/Takeshima islands. However, Seoul and Tokyo have recently chosen to focus on coordinating a united front against ongoing North Korean provocations rather than on lingering disagreements. In addition to diplomatic cooperation, Lee and former Japanese Prime Minister Taro Aso pledged to re-launch negotiations on a proposed bilateral Free Trade Agreement (FTA) during their bilateral summit meeting in Tokyo on June 28. Both sides have also signed a new agreement that would enhance military cooperation through increased defense exchanges, joint search-and-rescue operations, reciprocal port visits, and other confidence-building measures. The South Korean public, however, remains deeply wary of Japanese strategic intentions despite closer official ties between the two countries. Historical issues are likely to reemerge in 2010—the 100 th anniversary of Japan's annexation of Korea. This event may put to test newly elected Japanese Prime Minister Yukio Hatoyama's pledge to reconcile historical grievances with South Korea as well as Lee's promise of a "forward-looking" relationship with Japan. Hatoyama is reportedly planning to visit Seoul in early October to discuss bilateral issues with his counterpart, including a potential goodwill visit to South Korea by Japanese Emperor Akihito. The Japanese prime minister's pledge not to visit the controversial Yasukuni Shrine has been positively received in South Korea. South Korea's relations with China reflect the complex nature of the bilateral relationship as both economies become increasingly interdependent and as both nations seek a generally cooperative relationship despite their increasingly competitive rivalry in the global economy. Sino-Korea relations perhaps reached a high-point earlier this decade, as the Roh administration saw eye-to-eye with Beijing's engagement of North Korea. This was accompanied by unusually high public favorability toward China, whose rising global status was widely viewed in Korea as a commercial opportunity rather than a strategic concern. China has, in fact, replaced the United States as South Korea's leading trade partner, accounting for roughly 22% of its exports and 18% of its imports in 2008. South Koreans' somewhat sanguine perceptions of China started to change in 2004, when Beijing claimed that the ancient Korean kingdom of Koguryo was in fact a suzerain state of China. This sparked a nationalist backlash that shattered the idealized image of China shared by many South Koreans. Since then, the perception of China's rise as primarily an opportunity for expanded trade has changed to a more cautious outlook and growing awareness of economic competition between the two countries, particularly over energy resources, while still recognizing the commercial potential of Korean investments in China. Furthermore, China's increased economic penetration into North Korea has raised South Korean concerns that Seoul might "lose" North Korea to China. President Lee's diplomatic approach toward Beijing has been something of a balancing act. On one hand, Lee has sought a stable and cooperative strategic relationship with China, even as he has distanced South Korea from Beijing's engagement policy toward North Korea. In June 2008, South Korea and China agreed to a "strategic cooperative partnership" that is aimed at enhancing bilateral cooperation across a range of sectors, including diplomatic, economic and security issues. Although falling short of a formal alliance, the partnership may be one way for Seoul to allay Chinese concerns of strengthened alliance relations between South Korea and the United States. On the other hand, Lee has been wary of the increasingly direct competition between Korean and Chinese firms over global export markets, foreign oil reserves, and sources of food imports. A key challenge for Lee and his successors will likely be to strike the right balance between economic competition and political and strategic cooperation with China over the long-term. Another regional power that South Korea must contend with is Russia. Although two decades have passed since the normalization of ROK-Russia relations, economic and political ties between the two nations are still relatively underdeveloped. Russian and South Korean officials have worked in tandem in the context of the Six-Party Talks over North Korea, but bilateral cooperation even in that framework has been relatively limited. President Lee, however, has attempted to deepen ties with Moscow as part of his strategy of expanding Seoul's resource diplomacy. In September 2008, Lee made his first visit to Moscow to meet with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin. The bilateral meetings produced a set of ambitious proposals for joint Russian-South Korean commercial and energy projects, including a plan to construct a gas pipeline linking the two countries across the Korean Peninsula. The pipeline could ostensibly cross North Korean territory, an idea that has yet to be signed on to by Pyongyang. Presumably, though, some of the gas could be diverted to the North as an inducement to the regime for its cooperation in the project. Many analysts believe that the significant obstacles facing the gas pipeline project leave it unlikely to proceed in the foreseeable future. Nevertheless, the proposal demonstrates South Korea's increasingly ambitious efforts to secure energy resources beyond its borders. In many respects, U.S.-ROK relations are more stable today than they have been in years, yet experts warn that this stability is precarious at best and will need careful diplomacy to be sustained beyond the immediate future. For the United States, which has had a long and complicated history of involvement in Korea, policies toward either end of the Korean Peninsula tend to reverberate powerfully in South Korean sociopolitical spheres. As the United States pursues its own interests and priorities in Korea and the East Asian region, it will inevitably set off negative reactions in South Korea from time to time. Many believe that, without compromising key U.S. objectives, the United States can achieve more with South Korea if it is mindful of South Korean sensitivities that could morph into latent anti-Americanism. Of perhaps paramount importance is for U.S. policymakers to fully appreciate South Korea's ongoing transition, from a once client-like relationship with the United States to an increasingly important international power in its own right. This transition is not complete, either in terms of Korea's democratic development or in the collective psyche of the nation. But it is clear, as experts point out, that South Korea increasingly desires greater respect from Washington as it continues along this process. Indeed, in at least a tacit acknowledgement of South Korea's increased clout, the Bush Administration took a number of steps—such as negotiating the KORUS FTA, admitting South Korea into the U.S. Visa Waiver Program, and agreeing to move U.S. troops from the Yongsan base in Seoul—that were sought by South Korea. Over the near term, there are several areas that may test U.S. forbearance in the eyes of the South Korean public and policy elite. One fundamental concern is perceived U.S. involvement in South Korean domestic affairs. The election of President Lee in December 2007 brought to power an administration that promised closer ties with the United States than its predecessor. While there are certain advantages to this change, the outcome of the beef protests in 2008 highlights the political perils of a South Korean leader appearing to be too closely aligned with Washington. Experts stress that the perception of undue U.S. involvement in South Korean politics, or seemingly overt support for one political leader over another, can lead to a public backlash that ultimately harms bilateral relations. Given the relatively similar outlook shared by Korean conservatives and the U.S. government, some experts suggest that Washington should enhance efforts to cultivate ties with opposition lawmakers—thus lending greater credibility to the United States as a fair and impartial supporter of South Korean democracy. North Korea policy is another inherently sensitive issue that requires careful implementation by Washington. So far, both the Lee and Obama administrations have closely coordinated their approach toward Pyongyang—presenting a united front, along with Japan, against continued North Korean provocations. Yet signs that the Obama administration may be willing to negotiate bilaterally with North Korea to bring the regime back to the Six-Party Talks have raised some concern in Seoul that the close coordination with Washington may be in jeopardy. As the Obama Administration seeks to find a diplomatic solution to the North Korea crisis, experts advise that it will be critical for Washington to continue to consult closely with Seoul on any developments that may arise during bilateral talks with North Korea. This would likely go a long way toward demonstrating U.S. recognition of South Korea's stake in the stability of the Korean Peninsula. Another delicate bilateral issue relates to the implementation of planned changes to the U.S.-ROK alliance, including measures to realign U.S. military bases in Korea and to transfer wartime operational command (OPCON) from U.S. to South Korean forces. Both measures, which are aimed at giving the United States military a less dominant presence and role in South Korea, touch on anxieties within the Korean national security establishment about the sustainability of the U.S. strategic commitment. Yet it is likely that the U.S. military will move forward on these measures as scheduled, partly because North Korea's conventional military forces continue to deteriorate. As it proceeds with the implementation phase, some analysts believe the United States must take care to coordinate these changes in close cooperation with Korean policymakers and in a timetable and manner that is acceptable to Seoul. Failure to do so, analysts believe, could lead to a crisis in the bilateral alliance relationship. Other analysts argue that the timetable for transfer should be pushed to a later date, in part because they believe South Korea is not yet militarily ready and in part because the change is opposed by many South Korean conservatives. An issue that is of particular concern to Congress is the fate of the U.S.-ROK Free Trade Agreement (KORUS FTA), which both governments signed in June 2007. Should the KORUS FTA fail to be ratified by Congress, the implications for the U.S.-ROK relationship and for the political situation in Seoul could be significant. The potential rejection or prolonged delay of the KORUS agreement, as it currently exists, would likely require skillful diplomacy by U.S. officials to avoid significant political repercussions in South Korea. The damage could be magnified if, as expected, the Administration were to highlight or even exaggerate the KORUS FTA's strategic rather than economic value. While raising the stakes may increase the agreement's chances of passage in Congress, it also increases the symbolic costs to the alliance—particularly in South Korea—if the agreement is not ratified. Alternatively, the current agreement could be renegotiated or amended to give it a better chance of ratification by Congress. Experts warn that modifying the KORUS agreement would involve restarting a complex and delicate negotiating process with Seoul that could further deplete President Lee's political capital at home. The Lee Administration therefore may ask for some form of quid pro quo to provide political cover for any modification that appears to be a concession to the United States. Despite lingering challenges in U.S.-ROK relations the trajectory of bilateral ties appears generally promising over the long-run. South Korea's growing stature on the world stage creates increased opportunities for the bilateral relationship to evolve beyond its traditional scope of counterbalancing North Korea. Indeed, President Lee's plan to enhance his nation's international profile along the lines of a "Global Korea" complements the "Joint Vision" that he signed with President Obama in June 2009—an agreement that provides a conceptual roadmap for upgrading bilateral cooperation to the global level. Assuming that the challenges outlined above are adequately addressed, the next test in the U.S.-ROK relationship will be implementing aspects of the Joint Vision and determining further areas for bilateral cooperation on the world stage. Background For most of the first four decades after the country was founded in 1948, South Korea was ruled by authoritarian governments. Ever since the mid-1980s, when widespread anti-government protests forced the country's military rulers to enact sweeping democratic reforms, democratic institutions and traditions have deepened in South Korea. In 1997, long-time dissident and opposition politician Kim Dae-jung (commonly referred to as "DJ") was elected to the presidency, the first time an opposition party had prevailed in a South Korean presidential election. In December 2002, Kim was succeeded by a member of his left-of-center party, Roh Moo-hyun, a self-educated former human rights lawyer who emerged from relative obscurity to defeat establishment candidates in both the primary and general elections. Roh campaigned on a platform of reform—reform of Korean politics, economic policymaking, and U.S.-ROK relations. Lee Myung-bak's victory in the December 2007 election restored conservatives to the presidency. A striking feature of the election was how poorly the left-of-center candidates performed, after a decade in power, receiving only around 30% of the vote. A Structurally Weak Legislative Branch Nominally, power in South Korea is shared by the president, who is elected to one five-year term, and the 299-member unicameral National Assembly. Of these, 245 members represent single-member constituencies. The remaining 54 are selected on the basis of proportional voting. National Assembly members are elected to four-year terms. The next national legislative elections will be held in April 2012, which is also the year of South Korea's next presidential election (scheduled for December). Since the Assembly's powers were enhanced in the 1987 constitution, it has at times altered the political climate by providing opposition parties with a forum to freely criticize, inspect, and embarrass the executive branch. Indeed, one of the Assembly's major accomplishments since 1987 has been to institutionalize its oversight of the executive; executive branch officials regularly appear before committees, helping to make South Korean policy-making more transparent than before. Also, from time to time, opposition parties have used Assembly proceedings to successfully stymie presidential initiatives, usually by boycotting legislative sessions. In 2004, the conservative-dominated National Assembly voted to impeach then-President Roh Moo-hyun, a vote that was overturned by South Korea's Constitutional Court. In reality, however, the president and the state bureaucracy continue to be the dominant forces in South Korean policymaking, as formal and informal limitations prevent the National Assembly from initiating major pieces of legislation. For instance, by law the Assembly can only cut funds from the president's budget, not propose any increases or alter the executive's budgetary allocations. South Korean legislators suffer from numerous other limitations. The typical Seoul legislative office, for instance, is staffed by only three salaried, full-time workers. Even the prime minister, who has little power, is nominated by the president. The fact that parties in the Assembly repeatedly have resorted to the brinkmanship tactic of the boycott reflects the legislative branch's weakness. The most recent boycott occurred in June 2008, when the opposition Democratic Party refused to participate in the new Assembly's session. Institution-Building by the National Assembly In recent years, the National Assembly has sought to increase its resources through the creation of a National Assembly Budget Office (modeled on the U.S. Congressional Budget Office) and the National Assembly Research Service (modeled on the U.S. Congressional Research Service, and the Government Accountability Office). The Assembly's Other Powers A bill in the National Assembly may be introduced by members or by the executive branch. If passed, a bill is sent to the executive for presidential promulgation within 15 days. The president may veto the bill and send it back to the National Assembly for reconsideration. If the assembly overrides the veto with the concurrence of two-thirds or more of members present, the bill will become law. With respect to the judiciary, the consent of the National Assembly is also required for the presidential appointment of all Supreme Court justices. Also required is the ratification by the Assembly of treaties and agreements as well as international acts or conventions to which South Korea is a signatory. The declaration of war, the dispatch of troops abroad, or the stationing of foreign troops in South Korean territory requires the consent of the Assembly as well. Political Parties South Korean political parties form, disband, and merge regularly, in part because they tend to be regionally-based and centered around charismatic personalities rather than substantive issues. It is not uncommon for members of the National Assembly to jump from one party to another. Presently, there are three major political parties in South Korea: President Lee Myung-bak's conservative GNP; the opposition center-left Democratic Party; and the hard right Liberal Forward Party, which is primarily a platform for former GNP heavyweight Lee Hoi-chang. Both the GNP and the Democratic Party are riven by competing factions and ideological differences over major issues, particularly over the appropriate policies to take toward North Korea and the United States. Regionalism South Korean politics is highly regionalized. The GNP's base is in the southeastern and industrialized Kyongsang (also known as Yongnam) region, where Lee won over 60% of the vote in the 2007 election. (If LFP party head Lee Hoi-chang's total is added to Lee's, the conservative candidates won around 80% of the Yongnam vote) The DP's base lies in the southwestern and more rural Cholla region (also known as Honam), where its candidate Chung Dong-young won nearly 80% of the vote. Before Kim Dae-jung's victory in the 1997 presidential election, South Korea's military governments gave preferential treatment to the Kyongsang region, leading Cholla residents to accuse the government of discrimination. The greater Seoul area, which is the home of nearly half of the South Korean electorate, has emerged as the crucial swing vote in presidential elections. There has been discussion of combating regionalism by adopting multiple-seat constituencies in the National Assembly. NGOs Since the end of military rule, non-governmental organizations (NGOs) have increased dramatically in South Korea, particularly in the past ten years. The groups exist on both the local and national levels, range widely in size, and focus on a wide array of issues, including the environment, government and corporate corruption, disability rights, women's rights, crimes committed by U.S. forces in Korea, revising the U.S.-ROK Status of Forces Agreement (SOFA), and returning land used by U.S. forces. In contrast to the student-led, class-based groups of the 1980s that spent much of their time organizing militant anti-government and anti-U.S. protests, an increasing number of NGOs have hired permanent staff, held fundraisers, and opened research offices. As they have begun to professionalize their operations, they have had a greater impact on South Korean domestic and foreign policy. South Korean NGOs have been particularly adept at forming loose, temporary coalitions with one another to organize large-scale protests on a particular issue. Many of the most successful examples of citizen activism in South Korea involved the formation of umbrella organizations that pool the resources of member groups. The country's rapid adoption of the Internet—South Korea has one of the world's highest rates of Internet usage—has facilitated such networking by enabling groups to quickly establish linkages, coordinate activities, and spread the word about protest activities. The spring 2008 beef protests and anti-American protests in 2002 are two illustrations of this point. Decentralization The influence of Korean civil society groups has been possible in part because of the growing decentralization of power in South Korea. In the early and mid-1990s, new laws were passed creating local assemblies and establishing popular election of local officials for the first time since the 1950s. Increased local autonomy has encouraged political consciousness and activism, as South Koreans have come to expect local and national elected leaders to be more responsive and accountable to their constituents. Despite these changes, Seoul remains the locus of political power in South Korea, in part because local governments have little authority to impose their own taxes. Former President Roh attempted further decentralize political power by giving more autonomy to the provinces and by transferring certain executive offices to locations outside of Seoul. | South Korea's maturing democracy and rapid economic development have had a significant impact on its external relations, including the strategic and economic relationship with the United States. After decades of close strategic alignment with the United States under authoritarian governments, the past several democratically elected leaders in Seoul have sought their own brand of foreign policy and relations with the United States. Now the 13th largest global economy, South Korea is a major U.S. trade partner and host to some 37,000 forward deployed U.S. troops. President Lee Myung-bak entered office in 2008 planning to upgrade ties with the United States and carry out other ambitious proposals, but faced multiple political challenges early in his administration. One initial crisis was the massive anti-government protests against the April 2008 U.S.-Korea beef deal. Lee's approval ratings fell to the 20%-30% level, although his ratings had returned to the 40-50% range in the early fall of 2009 due to improved economic forecasts. Many experts agree his political support remains fragile, including within his Grand National Party (GNP), which controls South Korea's unicameral National Assembly. Lee's clout may be limited by his early "lame duck" status; by law, South Korean presidents are limited to one, five-year term. The next presidential election is scheduled for 2012, the same year as the next nationwide National Assembly elections. Although many argue that Lee's early problems were of his own making, South Korea's politically charged and fractious democratic system presents unique challenges for its leaders. Korean presidents operate under extremely intense media and voter scrutiny, and are occasional targets of activist groups that use the Internet to mobilize mass demonstrations like the 2008 beef protests. Civic demonstrations are a carryover from the pro-democracy movement that helped to end South Korea's authoritarian rule just two decades ago. South Korea's increased self-assurance has raised aspirations for greater international clout and respect from the United States as a more equal alliance partner. Over the past decade, Washington and Seoul have taken a number of steps to recognize South Korea's rise. President Lee's vision of a "Global Korea" reflects even greater ambitions for a higher profile on the world stage, including a more assertive role in regional diplomacy. Lee has also shifted his predecessor's policy of unconditional engagement of North Korea to a "reciprocal" policy toward Pyongyang. This move has reoriented South Korean diplomacy away from pro-engagement China and closer to the U.S. and Japanese position on pressuring the regime to give up its nuclear weapons program. Despite an upswing in South Korean attitudes toward the United States, several outstanding agenda items are affecting bilateral relations. These include relocating the U.S. Army base at Yongsan to Pyongtaek; transferring wartime operational control (OPCON) from U.S. to South Korean command; South Korea's contribution to allied efforts in Afghanistan and Pakistan; and the pending bilateral KORUS Free Trade Agreement. Congress has a decisive role to play in approving appropriations for the base relocation plan and the ratification of the KORUS FTA. Lee and President Obama nevertheless signed a "Joint Vision" statement during their bilateral summit in June 2009 that outlines a broad set of proposals for upgrading bilateral cooperation on global issues such as climate change and non-proliferation. But domestic political factors will likely set the parameters of Korea's efforts to become a greater stakeholder in the international community. A clearer understanding of these factors may help Congress and U.S. policymakers determine realistic goals for the U.S.-South Korean relationship over the mid to long term. |
Legislative branch revolving funds support the "business-type activities" of the House, Senate, and legislative branch agencies. The revolving funds generally fall into two categories: the first provides a means of accounting for services provided by one agency to other governmental entities, while the other covers services for the public. Although legislative branch revolving funds comprise a small portion of the total legislative branch operating budget, they have provided a means through which the House, Senate, and legislative branch agencies are able to account for these types of activities. Over time, Congress has revisited their use, structure, and solvency; conducted oversight through hearings and the review of audits; and considered legislation amending the revolving funds, either through proposals offered by Members or at the request of legislative branch agencies. Revolving funds must be established statutorily. They may be established for a number of reasons, including a desire (1) to provide separate accounting for transactions between agencies or business-type transactions, (2) to isolate and simplify accounting for a single activity, or (3) to increase flexibility and efficiency of operations. Receipts generated from revolving fund transactions are returned to the individual funds and may be expended without further congressional action, although expenditures are confined to authorized uses. While revolving funds may receive additional budget authority from the legislative branch appropriations bills, the appropriations measures are generally not the primary means of support. Revolving funds are generally intended to operate on a self-sustaining basis with funds retained in the account rather than returned to the U.S. Treasury. Authority to spend funds is provided for in law. The period of availability for amounts in revolving funds also differs depending upon the budget authority provided in the annual appropriations bills. While amounts in those bills are generally available for the fiscal year, unless otherwise specified, amounts in many of the funds are available without fiscal year limitation. The legislative branch currently has 27 revolving funds, including eight funds for the House of Representatives, nine for the Senate, five for the Architect of the Capitol, four for the Library of Congress, and one for the Government Publishing Office. Over time, the revolving funds have grown in number and size, undergone numerous reorganizations and legislative amendments, and been subject to the oversight of congressional committees and audits and investigations by the Government Accountability Office (GAO). This report traces the establishment, use, and recent development of these funds. Where applicable, the report refers to publications that provide further details on individual revolving funds. These publications may provide additional information, including the current status of the fund and recent revenues and expenditures. In recent years, legislation has been enacted (1) establishing, consolidating, and repealing legislative branch revolving funds; (2) modifying the use of the funds; (3) requiring the deposit of receipts associated with some activities while prohibiting expenses associated with others; (4) limiting obligational authority; (5) allowing a temporary transfer between accounts; and, in the case of the Government Publishing Office, (6) providing an appropriation to the fund. Provisions addressing the legislative branch revolving funds have been included in the annual and supplemental appropriations bills as well as authorizing legislation. While some of the revolving funds legislation has been focused primarily on financial management, revolving funds have also been amended in response to new programs or activities (for example, the Capitol Visitor Center Act) or broader changes in congressional organization (for example, the U.S. Capitol Police and Library of Congress Police Merger Implementation Act). The House of Representatives has operated revolving funds for decades. Table 1 provides a summary of the House revolving funds using available data from the Statements of Disbursements of the House as compiled by the Chief Administrative Officer of the House. Subsequent sections provide additional information on each fund. The House Recording Studio was established in 1956 to "assist Members of the House of Representatives in making disk, film, and tape recordings, and in performing such other functions and duties in connection with the making of such recordings as may be necessary." It was preceded by the " Joint Senate and House Recording Facility ." The House Recording Studio is currently operated by the House Chief Administrative Officer (CAO), who is responsible for setting the price of disk, film, or tape recordings and collecting associated fees. These fees are deposited in a revolving fund account in the Treasury of the United States and used for the "care, maintenance, operation, and other expenses of the studio." The Speaker may appoint three Members of the House to provide direction for the studio and issue rules and regulations relating to operation and expenditures. The House services revolving fund was established by the FY2005 Consolidated Appropriations Act. The act terminated three predecessor revolving funds—House barber shops revolving fund, House beauty shop revolving fund, and House restaurant revolving fund —and transferred remaining deposits in those funds into the new fund. The fund receives amounts relating to the operation of the barber shop, beauty shop, and restaurant system, as well as amounts received related to the provision of mail services to non-House entities. Funds may be expended by the CAO, subject to the approval of the House Appropriations Committee. The provision was amended in 2005 to include funds related to user fees for the House staff exercise facility. The FY2008 Consolidated Appropriations Act expanded the scope of the fund by authorizing the CAO to designate these funds, upon approval, for "purposes relating to energy and water conservation and environmental activities carried out in buildings, facilities, and grounds under the Chief Administrative Officer's jurisdiction." The FY2009 budget request included proposed language, which was included in the FY2009 Omnibus Appropriations Act, directing the CAO to "deposit all amounts received as promotional rebates and incentives on credit card purchases, balances, and payments" into this fund. A request for a revolving fund for telecommunications expenses was included in the FY2005 budget request. The FY2005 Consolidated Appropriations Act included language establishing the net expenses of telecommunications revolving fund for funds deposited by the CAO from "amounts provided by legislative branch offices to purchase, lease, obtain, and maintain the data and voice telecommunications services and equipment located in such offices." The CAO may expend the funds for these purposes without fiscal year limitation. The net expenses of equipment revolving fund was established in 2003 to contain funds deposited by the CAO from amounts provided by offices of the House to "purchase, lease, obtain, and maintain the equipment." The fund also includes Member offices' expenditures for furniture expenses in district offices. The CAO may use these funds to support these purposes without fiscal year limitation. The law was amended in 2004 with language stating that this fund does not cover items covered by the net expenses of telecommunications revolving fund. In 1983, Congress established the House page revolving fund to support the House page program. Although statutory authority for the page revolving fund still exists, House leaders discontinued the program in August 2011. The fund was established to contain amounts received by the CAO for lodging and meals provided to House pages. The CAO was authorized to disburse amounts in the fund for expenses related to the provision of these services, as determined by the Clerk of the House and subject to regulations of the House of Representatives Page Board. The House Inspector General examined the use of the revolving fund and proposed recommendations in 1999. The stationery revolving fund was established in 1947. The fund contains amounts received by the stationery room (renamed the Office Supply Service) for the sale of supplies to Members, officers, and committees. The House of Representatives revolving fund was established in the FY2004 Consolidated Appropriations Act. The fund may contain appropriated funds, donated funds, and interest on the balance of the fund. Funds may be expended by the CAO upon notification to the House Appropriations Committee. The House Child Care Center Revolving Fund was established by P.L. 111-248 , which was enacted on September 30, 2010. The revolving fund is administered by the CAO and contains all monies "received by the House of Representatives with respect to the operation of the center." Operating expenses are provided by student tuition fees. Prior to the establishment of the revolving fund, the annual legislative branch appropriations authorized the use of tuition for day care center expenses, and a justification was contained in the CAO's annual budget justification. The account established for the House of Representatives Child Care Center by the Legislative Branch Appropriations Act, 1992, is not a true revolving fund. As a result, the Chief Administrative Officer must every year seek approval to transfer the account's unobligated balances forward to the Center for use for the following year and work with the Treasury staff to effectuate what has become an annual ritual.… The Committee accepts the CAO's representation that converting the present account into a true revolving fund will streamline the accounting and recordkeeping process for the House and for the Treasury with no adverse effect on the Center's management, staff, or the children…. The Senate has used revolving funds for many years to support the operation of business-like activities. Table 2 provides information on the status of the Senate revolving funds from the Report of the Secretary of the Senate . A section on each revolving fund, including statutory history, follows. Data for the House and Senate tables are presented differently because the Secretary of the Senate provides data on a semi-annual period, whereas the House Chief Administrative Officer provides data quarterly. In addition, the Senate provides a summary of each revolving fund's revenues (net of expenditures). These data are not provided by the House. The Senate Computer Center revolving fund was established in 1976. Computer functions are operated by the Sergeant at Arms and Doorkeeper of the Senate (hereinafter Sergeant at Arms) as part of the office's technology support services (formerly the Computer Center). Pursuant to 2 U.S.C. §6636, the revolving fund is used for the deposit of funds received from computer contracts and for payment of associated personnel. The Sergeant at Arms "is authorized to enter into contracts with any agency or instrumentality of the legislative branch for the use of any available time on the Senate computer." All contracts established under this provision must be approved by the Committee on Rules and Administration and require full advance payment and a provision for refunds if all computer time is not utilized. Deposits from the revolving fund can be used for three purposes: (1) to pay the salaries of personnel, in addition to regular employees of the computer center, needed to fulfill contracts for computer time; (2) to pay "agency contributions" for retirement, health care, and other benefits for additional personnel; and (3) to provide refunds to entities that did not utilize all of the contracted computer time. Additionally, the Secretary of the Senate is required to withdraw all funds in excess of $100,000, other than amounts required to provide refunds (if any), within 90 days after the end of any fiscal year and deposit the funds in the U.S. Treasury as miscellaneous receipts. Established in 1992, the Senate Gift Shop revolving fund contains all proceeds collected or received by the Secretary of the Senate from the Senate Gift Shop. Pursuant to 2 U.S.C. §6576d(c), the Secretary can use the revolving fund for expenses related to operation of the gift shops, including supplies, equipment, and other supplies, and to "reimburse the Senate appropriations account, appropriated under the heading 'Salaries, Officers and Employees' and 'Office of the Secretary,' for amounts used from such account to pay the salaries of employees of the Senate Gift Shop." The initial capital, not to exceed $300,000, was transferred from the Senate stationery revolving fund. In 1994, the Senate authorized additional capitalization subject to the approval of the Senate Committee on Appropriations, through a transfer of up to $300,000 "from any Senate appropriations account with respect to which the Secretary has disbursing authority." The gift shop revolving fund has twice been amended to provide the Secretary with the authority to transfer gift shop funds to other sources. The FY2002 Legislative Branch Appropriations Act provided the Secretary with the authority to transfer to the Capitol Preservation Fund the "net profits (as determined by the Secretary) from sales of items by the Senate Gift Shop which are intended to benefit the Capitol Visitor Center." In 2007, the Senate further amended the Secretary's authority by allowing the transfer of proceeds from the sale of holiday ornaments to the Senate Employee Child Care Center. The Senate hair care revolving fund was established as part of the Legislative Branch Appropriations Act of 1999 to replace the Senate barber shops revolving fund. Pursuant to 2 U.S.C. §6634b-c, the fund is the depository for income and is used to meet hair service expenses. The Legislative Branch Appropriations Act of 2000 amended the hair care services revolving fund to provide an exemption from prohibitions against selling merchandise and advertising on Capitol Grounds. Subject to the approval of the Senate Committee on Rules and Administration, hair care services was allowed to sell and advertise in the Senate Office Buildings or on Capitol Grounds. The Consolidated Appropriations Act of 2001 further amended the statue by requiring that agency contributions for Senate hair care services' employees be "paid from the appropriations account for 'Salaries, Officers and Employees.'" At its inception in October 1998, the fund received a transfer of $480,814.10 from the former barber shop's revolving fund. The Office of Public Records "receives, processes, and maintains records, reports, and other documents filed with the Secretary of the Senate involving the Federal Election Campaign Act, as amended; the Lobbying Disclosure Act of 1995; the Senate Code of Official Conduct: Rule 34, Public Financial Disclosure; Rule 35, Senate Gift Rule Filings; Rule 40, Registration of Mass Mailing; Rule 41, Political Fund Designees; and Rule 41(6), Supervisor's Reports on Individuals Performing Senate Services; and Foreign Travel Reports." Created in 1989, the Office of Public Records revolving fund supports the Senate Office of Public Records and "[a]ll moneys received on and after October 1, 1989, by the Senate Office of Public Records from fees and other charges for services shall be deposited to the credit of the revolving fund." Initial money in the revolving fund was transferred in FY1990. At that time, the Secretary of the Senate was authorized to transfer up to $30,000 from the Senate "Miscellaneous Items" account to the revolving fund. GAO has also performed audits of the fund at the request of the chairman and ranking Member of the Senate Committee on Rules and Administration. Created in 1957 by the Supplemental Appropriations Act, the Senate revolving fund for stationery allowances supports the Senate stationery store and the purchase of Senate stationery. Funds for the revolving fund initially came from three sources, including (1) the unexpended balance of the appropriation "Contingent Expenses, Senate, Stationery, fiscal year 1957", (2) any amounts hereafter appropriated for stationery allowances of the President of the Senate and of Senators, and for stationery for use of committees and officers of the Senate, and (3) any undeposited amounts heretofore received, and any amounts hereafter received as proceeds of sales by the stationery room of the Senate. The Senate has twice amended the stationery revolving fund statute to authorize reversion to the U.S. Treasury of unexpended stationery funds of the Senate and the President of the Senate. The FY1969 Legislative Branch Appropriations Act provided that the Senate's unexpended stationery allowances at the end of FY1969, and subsequent years, would revert to the Treasury's general fund. The FY1970 Legislative Branch Appropriations Act provided for identical reversions for the President of the Senate's stationery funds. The FY1973 Supplemental Appropriations Act renumbered sections of the revolving fund statute and removed reference to stationery allowances appropriated to individual Senators as a source for the revolving fund. The FY1980 Supplemental Appropriations Act further amended 2 U.S.C. §6573 to remove references to Senate committees. The language was changed from "stationery for use of committees and officers of the Senate" to "officers of the Senate and the Conference of the Majority and the Conference of the Minority of the Senate." The FY1998 Legislative Branch Appropriations Act further amended the revolving fund statute to add the following sentence: "Disbursements from the fund shall be made upon vouchers approved by the Secretary of the Senate, or his designee." The law (2 U.S.C. §6573), however, also established requirements for the disposition of unexpended balances in the revolving fund. It required that all appropriations in the account be available until expended except for "(1) the balance of any amount appropriated for stationery for use of committees and officers of the Senate which remains unexpended at the end of any fiscal year and (2) allowances which are not available for obligation due to vacancies or waiver of entitlement thereto." Any unexpended appropriations from these two categories are withdrawn from the revolving fund and deposited in the general fund of the U.S. Treasury. The FY1999 Legislative Branch Appropriations Act authorized the Secretary of the Senate, subject to the approval of the Senate Appropriations Committee, to provide up to $1,000,000 for capitalization purposes to the revolving fund ... , by transferring to such revolving fund any funds available from any Senate appropriation account, with respect to which he has disbursement authority, for the fiscal year in which the transfer is made (or for any preceding fiscal year) or which have been made available until expended; and any moneys so transferred shall be available for use in like manner and to the same extent as the moneys in such revolving fund which were not transferred thereto pursuant to this section. The most recent change to the procurement of Senate stationery contracts occurred with the inclusion of an administrative provision within the FY2015 Consolidated and Further Continuing Appropriations Act. The act repealed provisions that had required the Secretary of the Senate to purchase newspaper space to advertise for bids from stationery product companies. The Senate Appropriations Committee suggested in its report accompanying the FY2015 legislative branch appropriations bill ( S.Rept. 113-196 ) that the process was outdated and possibly more expensive than other means, and the new language enabled the Secretary of the Senate to obtain stationery through the same competitive procurement process administered by the General Services Administration. GAO has also performed audits of the fund at the request of the chairman and ranking Member of the Senate Committee on Rules and Administration. The Senate Office of Heath Promotion was established in the FY1990 Legislative Branch Appropriations Act. This office, administered by the Sergeant at Arms, was charged with creating "exercise classes and other health serves and activities" to promote the health and well-being of Senate staff members. In performing these duties, the health promotion office can collect fees, assessments, and other charges to defray program costs. These funds are then deposited in the Senate Health Promotion revolving fund. Money in the revolving fund is available, without fiscal year limitation, for disbursement by the Secretary of the Senate in support of programs promoting the health of Members, officers, and employees of the Senate. As part of the Legislative Branch Appropriations Act for FY1992, the revolving fund statute was amended to require that each December, the Secretary "withdraw from the fund and deposit in the Treasury of the United States as miscellaneous receipts all moneys in excess of $5,000 in the fund at the close of the preceding fiscal year." A revolving fund for the Senate page program and residence hall was created in the 1995 Legislative Branch Appropriations Act. Named after Senator Daniel Webster (1782-1852), who has been credited with arranging for the appointment of the first Senate page, the revolving fund was designed to allow the page residence hall to be self-supporting. The revolving fund contains "all rental payments and other money collected or received by the Sergeant at Arms with regard to the Daniel Webster Senate Page Residence." This money, available without fiscal year limitation, can be used for the operation and maintenance "not normally performed by the Architect of the Capitol," including to purchase food and food-related items and to fund page activities. The Senate Recording Studio was created to assist Members and committees of the Senate in making disks, films, and tape recordings. Prior to 1956, the House and Senate jointly operated a recording facility and administered a joint revolving fund. Pursuant to Section 105(a) of the FY1957 Legislative Branch Appropriations Act, separate House and Senate recording studios were created. Simultaneously, Congress abolished the joint House and Senate recording facility revolving fund and created two distinct revolving funds, one for the House recording studio and one for the Senate recording studio. (i)(1) As soon as practicable after the date of enactment of this Distribution of Act but no later than September 30, 1956, the equity of the Joint Senate and House Recording Facility Revolving Fund shall be distributed equally to the Senate and House of Representatives on the basis of an audit to be made by the General Accounting Office. The Senate Recording Studio and the Senate Recording Studio revolving fund existed until 1980, when the Senate Recording Studio was renamed the Senate Recording and Photographic Studios. At that time, the revolving fund was also renamed to reflect the addition of the photographic studio. Pursuant to the FY1991 Legislative Branch Appropriations Act, the Senate Recording and Photographic Studios was abolished and separate recording and photographic studios were created. The entity, in the Senate, known (prior to April 1, 1991) as the "Senate Recording and Photographic Studios" is abolished, and there is established in its stead the following two entities: the "Senate Recording Studio", and the "Senate Photographic Studio"; and there are transferred, from the entity known (prior to April 1, 1991) as the "Senate Recording and Photographic Studios" to the Senate Recording Studio all personnel, equipment, supplies, and funds which are available for, relate to, or are utilized in connection with, recording, and to the Senate Photographic Studio all personnel, equipment, supplies, and funds which are available for, relate to, or are utilized in connection with photography. Since 1991, the Senate Recording Studio and the Senate Photographic Studio have operated independently. When the Senate Recording Studio was split from the Senate Photographic Studio, the newly established Senate Recording Studio revolving fund was provided all but $100,000 from the abolished Senate Recording and Photographic Studios revolving fund. All funds received by the recording studio are deposited in the recording studio revolving fund and money in the revolving fund is available for disbursement by the Senate Sergeant at Arms. When the Senate Photographic Studio was split from the Senate Recording Studio, the Senate Photographic Studio revolving fund was provided $100,000 from the abolished Senate Recording and Photographic Studios revolving fund. Since that time, all money received by the photographic studio is deposited in the revolving fund and is available for disbursement by the Sergeant at Arms. The Architect of the Capitol maintains five legislative branch statutory revolving funds: the House Member Gym revolving fund, the Senate Staff Health and Fitness Facility revolving fund, the Senate Restaurants Revolving Fund, the Capitol Visitor Center revolving fund, and the recycling revolving fund. In addition, the AOC operates the Judiciary Office Building Development and Operations revolving fund. In 1992, a revolving fund was established in the Treasury for the Architect to deposit dues paid by Members and other authorized users of the House Member gym. The Architect can obligate these funds for expenses related to the operation of the gym. The FY2001 Consolidated Appropriations Act established the Senate Staff Health and Fitness Facility revolving fund. Dues associated with membership in the Senate Staff Health and Fitness Facility and proceeds from the Architect's Senate recycling program are deposited into the revolving fund. The Architect, subject to the approval of the Senate Committee on Appropriations, may expend amounts in the fund for preservation and maintenance of the health and fitness facility. The Architect is directed to "withdraw from the revolving fund and deposit in the Treasury of the United States as miscellaneous receipts all moneys in the revolving fund that the Architect determines are in excess of the current and reasonably foreseeable needs of the Senate Staff Health and Fitness Center." In 1961, a revolving fund was established for the operations of the Senate restaurants by the Architect of the Capitol. In 2008, control of the Senate restaurants was transferred from the Architect of the Capitol to a private vendor. According to AOC's 2014 Performance and Accountability Report "the account still exists for activities resulting from the conversion and continuing maintenance of the restaurants. Upon approval by the Senate Committee on Rules and Administration, available balances may be increased via transfers in from the U.S. Senate to AOC, as needed." The Capitol Visitor Center (CVC) Act of 2008 established the Capitol Visitor Center revolving fund. The fund consists of two accounts: (1) the gift shop account, to contain money received from sales and other services provided by the Capitol Visitor Center Gift Shop, and (2) the miscellaneous receipts account, to contain net profits from food service operations and commissions from the contractor; coins collected from fountains around the grounds of the Capitol and Library of Congress; and any other receipts related to the operation of the CVC. The Architect may expend the sums from the first account, upon recommendation from the CVC chief executive officer, for "supplies, inventories, equipment, and other expenses" and reimburse applicable accounts for salaries of gift shop employees, without fiscal year limitations. Funds in the miscellaneous receipts account also may be disbursed, by the Architect upon recommendation of the CEO, and without fiscal year limitation, after consultation with the Senate Committee on Rules and Administration, the Committee on House Administration, and the House and Senate Committees on Appropriations. Section 1101(d) of the FY2009 Omnibus Appropriations Act established a recycling revolving fund in the U.S. Treasury to be administered by the Architect of the Capitol. The revolving fund is the central depository for all proceeds from the sale of recycled materials under a new recycling program (also created by the act) and any funds appropriated by law to the Architect for recycling. The funds are available without fiscal year limitation, subject to notification of the House and Senate Committees on Appropriations, to implement the new recycling program and to carry out authorized environmental and energy programs and activities of the Architect. The fund was originally established for fiscal years 2009 through 2013; the Consolidated Appropriations Act, 2014, amended this provision to extend the fund indefinitely. The Library of Congress has long administered funds associated with intra-governmental programs, special events and programs, and services to other libraries and the general public. While Congress has considered a number of changes to the laws governing the administration and use of the Library's revolving funds in recent years, these funds currently are operated under the authority of 2 U.S.C. §182 et seq. The annual legislative branch appropriations bills regularly place limits on the Library's obligational authority in connection with reimbursable and revolving fund activities not funded through appropriations. This language is pursuant to 2 U.S.C. §132a-1, which beginning with FY1995, has limited obligations for any reimbursable and revolving fund activities to the total amounts provided (1) in the annual regular appropriations act making appropriations for the legislative branch, or (2) in a supplemental appropriations act that makes appropriations for the legislative branch. The legislative branch acts have also, since FY2002, allowed the temporary transfer of funds from the "salaries and expenses" heading to the revolving fund for the FEDLINK program and for the Federal Research Program, with reimbursement to the former following payments for these services from federal agencies and libraries. The FY2015 Legislative Branch Appropriations Act, for example, contained language limiting the reimbursable and revolving fund activities not funded by appropriations to $203.1 million. A summary of the revolving funds, as well as requested obligational authority, is presented in the Library's annual budget justification and the annual budget requests. The Cooperative Acquisitions Program revolving fund was established in the FY1998 Legislative Branch Appropriations Act, although the program itself and its predecessors had been around for many years. The program is carried out by six overseas offices in New Delhi (India), Cairo (Egypt), Rio de Janeiro (Brazil), Jakarta (Indonesia), Nairobi (Kenya), and Islamabad (Pakistan) and the African/Asian Acquisitions and Overseas Operations Division. The Library has maintained overseas offices since 1962. The funds, which are available without fiscal year limitation, may be used by the Librarian to acquire foreign publications and research materials on behalf of institutions participating in this program. The charge to participants is to be estimated by the Librarian at a rate that recovers the full direct and indirect costs of the program. Excess amounts are deposited in the Treasury as miscellaneous receipts. The Library is required to submit a report to Congress each year that includes an audited financial statement of the revolving fund. The Library of Congress Fiscal Operations Improvement Act of 2000 established separate revolving funds for three categories of activities. These activities include (1) audio and video duplication and delivery services for the National Audio-Visual Conservation Center (NAVCC) in Culpeper, VA; (2) the operation of a gift shop and photocopy services; and (3) intragovernmental funds for services to other federal libraries and agencies. The act also made this fund—which in addition to fees received for these services, consists of any amounts appropriated and amounts attributed to the programs prior to the establishment of the fund—subject to audit by the Comptroller General. The law arose out of a number of hearings and discussions between the Library, the General Accounting Office (now Government Accountability Office), and the Library's oversight committees on the authority, operation, and reporting of these programs. A number of bills addressing the Library's revolving funds also were introduced in the decade prior to the enactment of this law. The law was amended the following year to include a fourth account for special events and programs, a section which was further amended in 2007 by the U.S. Capitol Police and Library of Congress Police Merger Implementation Act. The Library of Congress Fiscal Operations Improvement Act of 2000 established a revolving fund for duplication services associated with the National Audio-Visual Conservation Center (NAVCC) in Culpeper, VA. This action followed legislation enacted in 1997 which authorized the Architect of the Capitol to acquire the land for the center, although its purchase and refurbishment was supported primarily through an historic gift from the David and Lucile Packard Foundation. The Packard Humanities Institute formally transferred ownership to the U.S. government on July 26, 2007. The establishment of the center, which is 415,000 square feet and sits on a 45-acre campus, allowed for the consolidation of collections that had previously been in multiple locations. The Library of Congress Fiscal Operations Improvement Act of 2000 established a revolving fund for a number of programs and activities within the Library, including decimal classification development; the operation of a gift shop or other sales of items associated with collections, exhibits, performances, and special events of the Library of Congress; and document reproduction and microfilming services. In 2001, this section was amended to cover special events and programs, a section amended again a few years later to authorize the Librarian to transfer amounts in the revolving fund to the Capitol Police appropriations account for the services of the police in connection with certain special events and programs. This language was included as part of the merger between the Capitol Police and the Library of Congress Police. The Library of Congress Fiscal Operations Improvement Act of 2000 established an intra-governmental revolving fund to support the services the Library provides to other federal libraries and agencies through the Federal Library and Information Network (FEDLINK) and the Federal Research Program. Before the implementation of the revolving fund, both programs were operated under the Economy Act. Under the FEDLINK program, the Library of Congress provides commercial information, publications in any format, library support services, related accounting services, and related education, information, and support services, to participating federal libraries, federal information centers, other entities of the federal government, and the District of Columbia. As part of the Federal Research Program, the Library "provides research reports, translations, and analytical studies for entities of the Federal Government and the District of Columbia (not including the Congressional Research Service)." The Librarian is authorized to charge a fee for services provided under the programs, with the fees deposited into the revolving fund. The fund is required to maintain separate accounting for the two programs. The Federal Research Program and FEDLINK have been the subject of multiple GAO decisions. The Library of Congress Administrative Reform Act ( H.R. 4093 ) was introduced in the House on November 19, 2015, and referred to the Committee on House Administration and the Committee on Transportation and Infrastructure. Section 4 of the bill, as introduced, is entitled "Expanding Uses of Certain Revolving Funds," and would affect three of the Library's revolving funds: the revolving fund for the Duplication Services for the National Audio-Visual Conservation Center (NAVCC), for the Gift Shop and Related S ervices, and for FEDLINK. For NAVCC, the bill proposes striking the word "duplication" from the heading describing the fund, and changing the language "duplication and delivery services provided by the Librarian" in 2 U.S.C. §182a to read, the following programs and activities of the Librarian: (1) Services related to the duplication and preservation of audiovisual materials and associated collections. (2) Storage, inspection, and delivery of audiovisual materials and associated collections. H.R. 4093 proposes adding two categories of programs and activities to those covered by the fund established by 2 U.S.C. §182b(a) as the "Revolving fund for gift shop, decimal classification, photo duplication, and related services": "[t]raveling exhibitions and exhibition materials" and "[t]raining." It also would strike the words "gift shop" from the fund's heading and replace them with "sales and other services." Finally, H.R. 4093 would amend 2. U.S.C. §182c(f)(1) to authorize the Librarian to provide FEDLINK services to "tribal governments (as defined in section 502(c)(3)(B) of title 40, United States Code)." The Librarian can currently provide these services to "participating Federal libraries, Federal information centers, other entities of the Federal Government, and the District of Columbia." In 1953, a revolving fund was created for the operation and maintenance of the Government Printing Office (GPO). The agency was renamed the Government Publishing Office in 2014, and its revolving fund was renamed the GPO Business Operations Revolving Fund. The revolving fund, which is available without fiscal year limitation, was initially provided $1 million for [E]xpenses necessary for the operation and maintenance of the Government Printing Office (except the Office of the Superintendent of Documents) including rental of buildings; expenses of attendance at meetings, when authorized by the Joint Committee on Printing; maintenance and operation of the emergency room; purchase of uniforms for guards; boots, coats, and gloves; repairs and minor alterations to buildings; and expenses authorized in writing by the Joint Committee on Printing for inspection of Government printing activities. Since its enactment, the revolving fund language was amended on multiple occasions. The amendments prescribe the processes for adding capital to the original $1 million provided by Congress, reimbursement to the fund, auditing the fund, and reporting its finances to Congress. To provide additional money for the fund, the 1953 act provided that the Public Printer (now known as the Director of the GPO) "shall provide capital for the fund by capitalizing, at fair and reasonable values as jointly determined by him and the Comptroller General, the current inventories, plant, and building appurtenances, except building structures and land, equipment, and other assets of the Government Printing Office" [now Government Publishing Office]. The fund provides temporary financing for GPO operations pending the collection of funds for work performed. Costs associated with "printing, reprinting, wrapping, binding, and distributing the Federal Register and the Code of Federal Regulations" are initially charged to the revolving fund. The revolving fund is then reimbursed for these costs by the federal agencies. It is supported by three major sources, including (1) payments from federal customers, (2) sales of government publications to the general public, and (3) fund transfers from the GPO "Congressional Publishing" (formerly "Congressional Printing and Binding") and "Public Information Programs of the Superintendent of Documents (salaries and expenses)" (formerly "Salaries and Expenses") appropriations. Under 44 U.S.C. §309, the revolving fund is reimbursed for "services and supplies furnished, including those furnished other appropriations of the Government Publishing Office, at rates which include charges for overhead and related expenses, depreciation of plant and building appurtenances, except building structures and land, and equipment, and accrued leave." The revolving fund is also "credited with all receipts including sales of Government publications, waste, condemned, and surplus property and with payments received for losses or damage to property." According to GPO, it has traditionally interpreted this authority to allow for the recovery of an additional increment (approximately 2%) over its direct and indirect costs to generate funds for investment in new equipment and technology. GPO has also requested appropriations for the revolving fund to relieve pressures related to sizeable investments or shortfalls in the appropriations for congressional printing. Appropriations may be contained in the annual legislative branch appropriations acts in the last of GPO's three accounts, which include (1) congressional publishing, (2) Public Information Programs of the Superintendent of Documents (salaries and expenses), and (3) the Government Publishing Office Business Operations Revolving Fund. The GPO revolving fund has received additional funding in the following annual and supplemental appropriations acts: The FY2016 House-passed bill ( H.R. 2250 ) would not provide funds for the revolving fund, while the Senate-reported version would provide $8,764,000. The FY2015 Consolidated and Further Continuing Appropriations Act provided $8,757,000 "to remain available until expended, for information technology development and facilities repair." The FY2014 Consolidated Appropriations Act provided $8,064,000 for "information technology development and facilities repair." The FY2013 Consolidated and Further Continuing Appropriations Act provided $4,000,000 for the revolving fund (not including an across-the-board rescission or sequestration). The FY2012 Consolidated Appropriations Act provided $500,000 for "information technology development and facilities repair." The FY2011 Continuing Appropriations Act provided $1,655,682 for the revolving fund. The FY2010 Legislative Branch Appropriations Act provided $12,782,000 for the revolving fund for "information technology development and facilities repair." The act prohibited funds from the GPO revolving fund and "Office of Superintendent of Documents" and "Salaries and Expenses" headings from being "used for contracted security services at GPO's passport facility in the District of Columbia." The FY2009 Omnibus Appropriations Act provided $4,995,000 for "information technology development and facilities repair." As with the FY2010 act, the FY2009 act prohibited funds from the GPO revolving fund and "Office of Superintendent of Documents" and "Salaries and Expenses" headings from being "used for contracted security services at GPO's passport facility in the District of Columbia." The FY2007 Revised Continuing Appropriations Resolution provided $1 million for the fund. The FY2006 Legislative Branch Appropriations Act provided $1.98 million for workforce retraining. The FY2004 Legislative Branch Appropriations Act provided $9.94 million for working capital. The FY2002 supplemental appropriations act provided a $4.0 million transfer for emergency expenses to respond to the terrorist attacks. The FY2001 supplemental appropriations act provided $6.0 million for air conditioning and lighting systems. The FY1975 Legislative Branch Appropriations Act provided $12.0 million "to provide additional working capital necessary for the support of normal operation of the revolving fund." The FY1974 Legislative Branch Appropriations Act provided $7.4 million "for improving electrical and air-conditioning systems, and building structures." The FY1972 Legislative Branch Appropriations Act provided $3.5 million "for improving electrical and air-conditioning systems, and building structures." The FY1971 Legislative Branch Appropriations Act provided $22.0 million "for improving electrical and air-conditioning systems, and building structures, and additional capital as necessary for the operation and maintenance of the Government Printing Office." The FY1967 Legislative Branch Appropriations Act provided $15.0 million for the revolving fund. The FY1964 Legislative Branch Appropriations Act provided $3.55 million for the revolving fund, plus an additional $6.45 million "to be derived by transfer from the appropriation 'Acquisition of site and construction of annex.'" Both the inspector general of the Government Publishing Office and the Comptroller General of the United States can perform audits to ensure proper reporting of receipts and disbursements and the proper operations of the revolving fund. The inspector general, under the direction of the Joint Committee on Printing, "shall audit the financial and operational activities of the Government Publishing Office each year." In addition to the audit, the inspector general is required to prepare an "annual financial statement meeting the requirements of section 3515(b) of title 31, United States Code ." The Comptroller General has authority to "audit the financial statements prepared under subsection (e) at his or her discretion or at the request of the Joint Committee on Printing." If the Comptroller General chooses to audit the revolving funds financial statements, his or her report can be used by the Government Publishing Office in lieu of an audit by the inspector general. Some of the GPO reports and audits are available online, including the GPO Annual Report and the Inspector General's semiannual reports to Congress. The Inspector General also issued a revolving funds "white paper" on September 29, 2003. GPO, in its annual reports, also provides financial statements, including information on GPO's fund balance with Treasury. Four legislative branch revolving funds have been repealed. In each case, the repealed revolving funds were replaced with either another revolving fund or with an annual appropriation. Between August 7, 1953, and June 27, 1956, a joint Senate and House Recording Facility revolving fund existed to provide operating funds to the joint Senate and House Recording Facility. Pursuant to Section 105(m) of P.L. 624, the FY1957 Legislative Branch Appropriations Act (84 th Congress), the revolving fund was repealed and replaced with separate revolving funds for the House and the Senate. See the " Senate Recording Studio and Senate Photographic Studio " and the " House Recording Studio " sections for more information. Originally created in 1976, the Senate Barber Shop revolving fund was renamed the Senate Barber and Beauty Shops revolving fund in 1988. The revolving fund was repealed with the passage of P.L. 105-275 in October 1998. The Senate Barber and Beauty Shops revolving fund was replaced by the Senate Hair Care Services revolving fund in 1998. For more information see the " Senate Hair Care Services Revolving Fund " section. In 1995, Congress created the Office of the Chaplain expense revolving fund in the Senate to fund the Office of the Senate Chaplain. Initially provided with disbursements not to exceed $10,000 per fiscal year, the fund was available without fiscal year limitation for the payment of official expenses, including the purchase of food and food-related items. Additionally, the revolving fund served as a repository for moneys donated to the Office of the Chaplain. For FY1999, the revolving fund statute was amended to increase the maximum annual disbursement into the fund to $35,000. The FY2004 Consolidated Appropriations Act repealed the Office of the Chaplain revolving fund and replaced it with an authorization for an appropriation not to exceed $50,000 per fiscal year. Statutory use of funds by the chaplain remained unchanged except for the approval of vouchers by the Senate Committee on Rules and Administration. Any funds remaining in the revolving fund following its repeal were returned to the general fund of the United States Treasury. The Office of the Attending Physician revolving fund was established in 1976 and abolished in 1989. The fund formerly contained funds from the sale of prescription drugs. Amounts remaining in the fund upon its abolishment were to be deposited in the Treasury as miscellaneous receipts. | Legislative branch revolving funds support the "business-type activities" of the House, Senate, and legislative branch agencies. The revolving funds are generally established as a means of accounting either for services provided by one agency to other governmental entities or for services provided to the general public. They comprise a small portion of the total legislative branch operating budget. Revolving funds must be established statutorily. Authority for some legislative branch revolving funds dates back many decades, while others have been established more recently. The legislative branch currently has statutory authority for 27 revolving funds, including eight funds for the House of Representatives, nine for the Senate, five for the Architect of the Capitol, four for the Library of Congress, and one for the Government Publishing Office. Over time, Congress has revisited the use, structure, and solvency of these revolving funds; conducted oversight through hearings and the review of audits; and considered legislation amending the revolving funds, either through proposals offered by Members or at the request of legislative branch agencies. This report traces the establishment, use, and recent developments related to these funds. Where applicable, the report refers to publications that provide further details on individual revolving funds. This report will be updated as events warrant. |
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